Question 1

Section A

PixelPlay E-Sports had 2,000,000 ordinary shares in issue on 1 January 20X9. On 1 April 20X9, the company made a 1-for-4 rights issue at $1.50 per share. The market value of the shares immediately before the rights issue was $2.50. Profit after tax for the year ended 31 December 20X9 was $850,000.

Calculate the basic Earnings Per Share (EPS) for the year ended 31 December 20X9. (State your answer in dollars to two decimal places, e.g., 0.35)

Accepted Answer

1. Calculate the Theoretical Ex-Rights Price (TERP). 2. Calculate the bonus fraction (Market Price / TERP). 3. Calculate the weighted average number of shares, applying the bonus fraction to the shares before the rights issue. 4. Divide profit by the weighted average shares.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Forgetting to apply the bonus fraction to the period before the rights issue.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 6

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