Topic 12 - IAS 33 EPS

Question 1

Describe the EPS Ratio;

Answer 1

Question 2

Describe the difference between “irredeemable” preference shares and preference shares, in terms of arriving at the PAT figure for calculating EPS;

Answer 2

Where preference shares are simply “6% preference shares”, for example, the 6% dividend has already been included in the PAT calculation as it is a finance cost. If however the shares are “irredeemable” and classed as equity, the preference dividend needs to be deducted from the profit after tax.

Question 3

How do you deal with a bonus issue, in calculating EPS?

Answer 3

Question 4

How do you deal with a Rights Issue, in terms of calculating EPS?

Answer 4

Question 5

How do you calculate the Rights Issue Bonus Fraction (RIBF)?

Answer 5

MV of shares before rights issue (Cum rights issue)

Theoretical Ex Rights Price (TERP) (Price of share after issue)

Question 6

What is another way of thinking about the Cum rights price?

Answer 6

This is the share price immediately before a rights issue, usually given in question

Question 7

Describe how the Theoretical Ex Rights Price is calculated;

Answer 7

If there was a rights issue of 1 for every 5 shares held at a price of 1.20 and the Cum rights price was 1.80 then the TERP would be calculated as follows;

5 x 1.80 = 9

1 x 1.2 = 1.2

= 10.2 / 6 = TERP is 1.7

The RIBF therefore would be 1.8/1.7