ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - IAS 33 EPS - Number of shares - Notes ^{7 / 12}

The number of shares given in the SFP at the year-end - may not be the number of shares in issue ALL year.

So we need to know how many we had in issue on AVERAGE instead of at the end.

Well if there were no additional shares in the year then obviously the weighted average is the same as the year end - so no problem!

However, if additional shares have been issued we’ve got some work to do as follows (depending on how those shares were issued):

Full Market Price issue of shares

No problem here as the new shares came with the right amount of new resources so the company should be able to use those new resources to maintain the EPS

• No adjustment needed (apart from time)

Bonus & Rights Issue of shares

More problematic, as the share were issued for cheaper (rights) than usual or for free (bonus).

In both cases the company has not been given enough new resource to expect the EPS to be maintained.

This causes comparison to last year problems.

• Adjust for these (Bonus fraction)

• Pretend they were in issue ALL year

• Change comparative (Pretend they were in last year too)

So, how to calculate it is best explained by example:

1st January 100 shares in issue
1st May Full market price issue of 400 shares
1st July 1 for 5 bonus issue

Solution

Draw up a table like this:

Now fill in the first 2 columns:

Notice how this shows the TOTAL shares. Now fill in the timing of how long these TOTALS lasted for in the year.

Finally look for any bonus issues and pretend that they happened at the start of the year. We do this by applying the bonus fraction to all entries BEFORE the actual bonus or rights issue.

In this case the bonus fraction would be 6/5 - so apply this to everything before the actual bonus issue:

Finally, multiply through and calculate the weighted average: