Question

For the year ending 30 June 2019, Sandon Ltd reports net profit after tax of $2000 000. At the beginning of the year, Sandon Ltd had 1600 000 fully paid ordinary shares. It also had 200 000 $1.00, 20 per cent, cumulative preference shares outstanding. The preference shares were classified as equity.

On 1 September 2018 the company issued another 400 000 fully paid ordinary shares by way of a rights issue. The right provided an additional share for each four held, and required the payment of $3.00. The last rights share price was $4.

Required

Compute the basic EPS amount for 2019.

Answer 1

1. Ex-right Value = (Market Price *Number of shares) + (Exercise Price*Number of rights exercised) / Number of Shares after right issue

= (4*1,600,000) + (3*400,000) / 2,000,000 = 3.8

2. Bonus Factor = Fair Value per share immediately before right issue / Ex-right value per share = 4/3.8 = 1.05

3.

Date	Time proportion (A)	Number of share (B)	Bonus Factor (C)	Adjusted number of shares (D=B*C)	Weight average number of shares (E=A*D)
1/07/2018 - 31/08/2018	2/12	1,600,000	1.05	1,680,000	280,000
1/09/2018 - 30/06/2019	10/12	2,000,000	1.00	2,000,000	1,666,667

4. Earnings available to equity shareholders = 2,000,000 - (200,000*20%) = 1,960,000

5. EPS = Earnings available to euity shareholders / Weighted average number of shares = 1,960,000/1,946,667

= $1 per share