Page 172 - Microsoft Word - 00 IWB ACCA F7.docx

Chapter 14

1.4 Calculation of rights issue bonus fraction

actual market price per share

Rights issue bonus fraction = –––––––––––––––––––––––––––
theoretical ex-rights price (TERP)

The actual market price will be given in the question, but the TERP will need to be
calculated, essentially as a weighted average value per share of the revised
shareholding.

Example 1

Full market value

Robert had 6,000 ordinary shares in issue on 1 January 20X3.

On 1 April 20X3 Robert issued 1,500 shares at full market value.

Robert’s earnings for the year to 31 December 20X3 were $1,200.

Required:

Calculate Robert’s earnings per share for the year to 31 December 20X3.

Solution

No of shares Fraction of Weighted
year held average

b/f 6,000 × 3 / 12 1,500
Issue 1,500

———–—
Total 7,500 × 9 / 12 5,625
———–— ———–—

7,125

———–—
Earnings per share = 1,200 ÷ 7,125 = 16.8¢

166