Disclosure standards - part 3

In this lesson

1. 0:00 Introduction to earnings per share calculations
2. 0:13 Scenario A: No change to share capital
3. 1:52 Scenario B: Market price share issue
4. 3:43 Scenario C: Bonus issue accounting
5. 5:54 Scenario D: Rights issue and theoretical ex-rights price
6. 9:02 Rights issue weighted average and grossing up
7. 11:24 Summary of three share capital changes

About this lesson

This video walks through four practical scenarios: no change to shares, share issues at market price, bonus issues, and rights issues, showing you when to use weighted average calculations, when to gross up share numbers, and how to estimate the theoretical ex-rights price. By the end, you'll understand the rationale behind each adjustment method and be confident tackling EPS questions in your exam. The video uses Tim's company as a worked example to demonstrate each scenario step by step. When shares are issued for cash, you'll weight the average number of shares by the proportion of the year they were in issue, because the cash generates additional earnings. With bonus issues, there's no cash involved, so instead you gross up the share count for the full year. Rights issues are the most complex—they involve both a weighted average calculation for the cash received and a grossing-up adjustment using the theoretical ex-rights price, which you calculate by comparing the share price before and after the issue. Each scenario produces a different EPS figure, all disclosed at the bottom of your statement of profit or loss and other comprehensive income. Understanding these distinctions matters because examiners test whether you can apply the right method to each situation. The logic is consistent: cash in means weighted average; no cash means gross up; rights issues need both. Working through these examples will help you handle multi-part EPS questions with confidence and accuracy.

Duration: 12m