On 1 January 20X4, Sam Co had 3 million ordinary shares in issue. On 1 June 20X4, SamCo made a 1 for 3 bonus issue. On 30 September 20X4, Sam Co issued a further 1 millionshares at full market price. Sam Co had profits attributable to ordinary equity holders of $2million for the year ended 31 December 20X4.What is the basic earnings per share figure for the year ended 31 December 20X4, accordingto IAS 33 Earnings Per Share?A 47.1¢B 52.2¢C 56.8¢D 50.0¢
Question
On 1 January 20X4, Sam Co had 3 million ordinary shares in issue. On 1 June 20X4, SamCo made a 1 for 3 bonus issue. On 30 September 20X4, Sam Co issued a further 1 millionshares at full market price. Sam Co had profits attributable to ordinary equity holders of $2million for the year ended 31 December 20X4.What is the basic earnings per share figure for the year ended 31 December 20X4, accordingto IAS 33 Earnings Per Share?A 47.1¢B 52.2¢C 56.8¢D 50.0¢
Solution
To calculate the basic earnings per share (EPS) according to IAS 33, we need to follow these steps:
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Calculate the weighted average number of shares:
- From 1 January to 31 May (5 months), there were 3 million shares.
- From 1 June to 30 September (4 months), after the 1 for 3 bonus issue, there were 4 million shares (3 million original shares + 1 million bonus shares).
- From 1 October to 31 December (3 months), after the additional 1 million shares were issued, there were 5 million shares.
The weighted average is calculated as follows:
- (3 million shares x 5/12) + (4 million shares x 4/12) + (5 million shares x 3/12) = 1.25 million + 1.33 million + 1.25 million = 3.83 million shares.
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Divide the profits attributable to ordinary equity holders by the weighted average number of shares:
- $2 million / 3.83 million shares = 52.2 cents per share.
So, the basic earnings per share figure for the year ended 31 December 20X4, according to IAS 33 Earnings Per Share, is 52.2 cents (Option B).
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