Mary Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as £720 000. The number of ordinary shares on issue up to 31 October 2015 was 50 000. Mary Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2015. Basic earnings per share at 30 June 2016 is:
A) £4.80
B) £6.17
C) £7.20
D) £9.60

Question

Quizplus · Accepted Answer

The basic earnings per share (EPS) is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares during the period. Before the bonus issue, there were 50,000 shares. After the two-for-one bonus issue, for every share, two more were issued, effectively tripling the share count to 150,000 shares. Since the bonus issue was effective from 31 October 2015, and the reporting period ended on 30 June 2016, the weighted average number of shares would be considered as 150,000 for the entire period. Therefore, the basic EPS is £720,000 / 150,000 = £4.80.

Mary Ltd Determined Its Profit Attributable to Ordinary Shareholders for the Reporting