Illustrate With an example how to calculate EPS when there is bonus issue of shares and when a rights issue of shares occurs during the year

Ans:

Example 4: Net profit for the year 2010 is Rs. 18 lacs. Net profit for the year 2011 is Rs. 60 lacs. Number of equity shares outstanding till 30-09-2010 is 20 lacs. Bonus issue on 01-10-2011 = 2 (new): 1(old). Calculate EPS for the year 2011 and adjusted EPS for the year 2010.

Solution: As per IAS 33,when bonus shares are issued during the year, it should be calculated in the weighted average from the beginning of reporting period irrespective of issue date. Therefore, the bonus issue is treated as if it had occurred prior to the beginning of the year 2010, the earliest period reported.

Particulars Amount (in Rs.)

Net profit for the year 2010 18,00,000

Net profit for the year 2011 60,00,000

Number of equity shares outstanding till 30-09-2011 20,00,000

Bonus issue on 01-10-2011 20,00,000 x 2 = 40,00,000

Earnings per share for the year 2011 60,00,000 /(20,00,000 + 40,00,000) = Re. 1

Adjusted Earnings per share for the year 2010 18,00,000 / (20,00,000 + 40,00,000) = Re. 0.30

Example 5: Net profit for the year 2010 is Rs. 11,00,000 and for the year 2011 is Rs. 15,00,000. Number of shares outstanding prior to right are 5,00,000 shares. Right issue of one new share for each five outstanding at right issue price of Rs. 15. Last date to exercise rights is 01-03-2011. Fair value of one equity share immediately prior to exercise of rights on 01-03-2011 is Rs. 21. Compute basic EPS for the year 2011 and adjusted EPS for the year 2010.

Solution: As per Para 22, Theoretical ex-rights fair value per share

= (Fair value of all shares prior to rights + Right issue proceeds) / Number of shares outstanding post right issue

= {(Rs. 21 x 5,00,000 shares) + (Rs. 15 x 1,00,000 shares)} / 5,00,000 shares + 1,00,000 shares = Rs. 20

Bonus element = Fair value per share prior to exercise of rights / Theoretical ex-rights value per share = 20 / 21 = 1.05

Computation of Earnings Per Share

Particulars 2010 2011

EPS for the year 2010 as originally reported:

Rs. 11,00,000/5,00,000 shares

Rs. 2.20

EPS for the year 2010 as restated for rights issue:

Rs. 11,00,000/(5,00,000 shares x 1.05)

Rs. 2.10

EPS for the year 2011 including effects of right issue

Rs. 15,00,000 / {(5,00,000 x 1.05 x 2/12) + (6,00,000 x 10/12)