Cases
Practical case
Hallorin SA (fictitious entity), a listed company, closes its books on 31 December 20X6. On 1 April 20X6 it made a rights issue at a price below the market price; in preparing the financial statements it also discovered an error in the 20X5 profit, corrected retrospectively. Management prepares basic earnings per share for 20X6 and the 20X5 comparative.
Your assignment
Analyse the effect of the rights issue and of the error; compute the theoretical ex-rights value, the adjustment factor and the restated number of shares; weight 20X6 and compute the weighted average number; compute the corrected 20X5 profit and then basic earnings per share for 20X6, for 20X5 as published and for 20X5 restated; assess the price retained; record the issue; present the effect on the financial statements; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
Document 1
Document 2
Document 1
5 documents: open each one to read it.
Document 1Memo
Hallorin SA (fictitious entity) is listed and closes its books on 31 December 20X6; it has no preference shares and no other potentially dilutive instruments. Case conventions: movements dated on the first day of the month, weighting in whole months out of 12, earnings per share rounded to two decimals (half up).
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Start of the year | January 1 20X6 | |
| End of the year | December 31 20X6 | |
| Per-share basis (one share) | 1 unit | |
| Ordinary shares before the exercise of the rights | 5,000,000 units | |
| Subscription price of the new shares | €7.50 | |
| Date the rights are exercised and the consideration received | April 1 20X6 | |
| New shares issued | 1,000,000 units | |
| Shares outstanding after the exercise | 6,000,000 units | |
| Proceeds of the issue received in cash | €7,500,000.00 | |
| Amount credited to share capital | €1,000,000.00 | |
| Amount credited to share premium | €6,500,000.00 | |
| Last price before the rights are detached | €10.50 | |
| Value of all the shares before the exercise | €52,500,000.00 | |
| Profit for 20X6 attributable to the ordinary shares | €5,862,500.00 | |
| Attributable profit for 20X5 as published | €5,250,000.00 | |
| Weighted average number published for 20X5 | 5,000,000 units | |
| Correction of the 20X5 profit (after tax) | €262,500.00 | |
| Annual head office rent for 20X7 | €480,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Entity profile and case conventions
Rights issue
Published earnings and numbers
Correction of a 20X5 error
Head office lease
13 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
How do the bonus element of the rights issue and the corrected error affect the number of shares and earnings per share of the two years?
Task 2Calculation
Compute the value of all the shares after the issue (value before the exercise plus the proceeds).
Part 1 · Calculation
Compute the value of all the shares after the issue (value before the exercise plus the proceeds).
Task 3Calculation
Compute the theoretical ex-rights value per share.
Part 1 · Calculation
Compute the theoretical ex-rights value per share.
Task 4Calculation
Compute the adjustment factor.
Part 1 · Calculation
Compute the adjustment factor.
Task 5Calculation
Restate the number of shares before the exercise of the rights.
Part 1 · Calculation
Restate the number of shares before the exercise of the rights.
Task 6Calculation
Weight the two periods of 20X6 (before and after the exercise of the rights).
Part 1 · Calculation
Weight the two periods of 20X6 (before and after the exercise of the rights).
Result: Shares after the exercise weighted (9 months)
Task 7Calculation
Compute the weighted average number for 20X6.
Part 1 · Calculation
Compute the weighted average number for 20X6.
Task 8Analysis
Compute the 20X5 profit attributable to the ordinary shares after the correction of the error.
Part 1 · Calculation
Compute the 20X5 profit attributable to the ordinary shares after the correction of the error.
Task 9Calculation
Compute basic earnings per share for 20X6, as published for 20X5 and restated for 20X5.
Part 1 · Calculation
Compute basic earnings per share for 20X6, as published for 20X5 and restated for 20X5.
Result: Restated basic earnings per share for 20X5
Task 10Journal entries
Record the issue of shares of 1 April 20X6.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 11Professional judgement
Is the observed price before detachment an appropriate basis for the adjustment factor?
Task 12Effects on the financial statements
What is the effect of the entry on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 13Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 16).
Document this file
These working papers use the data and results of this case.
Normative references