Rights issue with a bonus element

Learning objectives

• Calculate the theoretical ex-rights value, the adjustment factor and the restated number of shares for prior periods.L3, L4
• Justify applying a retrospective factor to prior periods and the weighting in the year of the issue.L4

Normative references

• IAS 33 §27Events concerned: (a) a capitalisation or bonus issue (stock dividend); (b) a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders; (c) a share split; (d) a reverse share split (consolidation of shares).
• IAS 33 §A2Rights issue: the exercise of potential ordinary shares does not usually give rise to a bonus element, since the shares are issued at fair value; a rights issue whose exercise price is below fair value does include one (cross-reference to para. 27(b)). For a rights issue offered to all existing shareholders, the number of shares used for all periods before the issue, for basic and diluted earnings per share, is the number of shares outstanding before the issue multiplied by a factor: fair value per share immediately before the exercise of rights divided by the theoretical ex-rights fair value per share; the latter is the aggregate fair value of the shares immediately before the exercise of the rights plus the proceeds from the exercise, divided by the number of shares outstanding after the exercise; if the rights are traded separately, fair value is the closing price on the last day on which the shares are traded together with the rights. Illustration: 500 shares, one new share for every five at 5.00, fair value 11.00: theoretical value (5,500 + 500) / 600 = 10.00, factor 1.10; in the year of the issue, the portion before the exercise is multiplied by the factor and then weighted (500 x 1.10 x 2/12 + 600 x 10/12).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Sevran SA, which had 1,200,000 shares, makes a rights issue: one new share for two held, at 6.00. The fair value of all the shares before the exercise of the rights is {value_before} (in euros), that is a price of {price_before_rights} per share before the rights are detached; the proceeds of the issue are {proceeds} and there are {shares_after} shares after the issue. Calculate the theoretical ex-rights value of one share, then the retrospective adjustment factor.L3
• Gaillac SA has {shares_before} ordinary shares before a rights issue whose rights are exercised on 1 April: {new_shares} new shares are issued on that date. The adjustment factor for the bonus element, calculated as the price before the rights are detached divided by the theoretical ex-rights value, is {adjustment_factor}. The number of shares before the exercise is multiplied by this factor and counts {months_before_exercise} months; all the shares after the exercise count {months_after_exercise} months (weighting in months, case convention). The profit attributable to ordinary equity holders for the year is {earnings_ordinary} (in euros). Calculate the weighted average number of shares for the year and then basic earnings per share. Round earnings per share to two decimals (case convention).L4
• During year N, Aurillac SA carried out a rights issue with a bonus element. The price before the rights are detached is {price_before_rights} and the theoretical ex-rights value is {theoretical_price}. For year N-1, presented as a comparative, the entity had published basic earnings per share of 1.88, with a profit attributable to ordinary equity holders of {prior_earnings} (in euros) and {prior_shares} shares. Calculate the adjustment factor, the restated number of N-1 shares and the restated comparative basic earnings per share. Round earnings per share to two decimals (case convention).L4