Page 195 - FR Integrated Workbook 2018-19

Earnings per share

1.6 Adjustment of comparatives

Where there is a bonus element to shares issued during the year (i.e. bonus or rights
issue), this bonus element is deemed to have been issued at the same time as the
original shares. In order to make a meaningful comparison we need to adjust the
previous year’s EPS. We do this by multiplying the previous year’s EPS by the
inverse of the bonus fraction.

Note that the previous year’s restated EPS is always lower than the original.

Example 4

Bonus issue

Robert had 6,000 ordinary shares in issue on 1 January 20X3.
On 1 April 20X3 Robert issued 1,500 shares in a 1 for 4 bonus issue.
Robert’s earnings per share for the year ended 31 December 20X2, as
originally calculated, was 18¢.

Required:
Calculate Robert’s restated comparative earnings per share for the year
to 31 December 20X2.
Solution

Bonus fraction (1 for 4) = 5/4
Restated earnings per share = 18¢ × 4/5 = 14.4¢

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

On 1 April 20X3 Robert issued 1,500 shares in a 1 for 4 rights issue at a price
of $2.50 when the market price per share was $4.
Robert’s earnings per share for the year ended 31 December 20X2, as
originally calculated, was 18¢.
Required:

Calculate Robert’s restated comparative earnings per share for the year
to 31 December 20X2.

Solution
Rights issue bonus fraction (as calculated in Example 3 above) = 4/3.7

Restated earnings per share = 18¢ × 3.7/4 = 16.6¢

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