CMA Study Group

Weighted Average of Common Shares Outstanding

  • 1.  Weighted Average of Common Shares Outstanding

    Posted 28 days ago
      |   view attached
    Hello everyone,

    Particularly for anyone who doesn't have the exam support package, I found this question very interesting in Part-2 section A. It is about the calculation of Weighted Average of Common Shares Outstanding. Unfortunately, this subject was not explained so well by Wiley review course, even the dilution topic, therefore I thought it would be very helpful to raise this point for discussion.

    (Same question was mentioned in this group during 2012, but the answers were not so clear)

    At the beginning of the year, Lewis Corporation had 100,000 shares of common stock outstanding. During the year, the following transactions occurred:
    April 1 Issued 10,000 shares in exchange for land
    July 1 Declared and distributed a 10% stock dividend
    October 1 Purchased 5,000 shares of treasury stock
    The number of shares that Lewis should use when computing earnings per share at the end of the year is:

    a. 117,000.
    b. 116,000.
    c. 111,750.
    d. 106,250.

    Notes:
    • The key interesting point is: How should we treat the impact of 10% stock dividend "Retrospectively"
    • To maximize the benefit of discussion, I didn't include the answer & calculation.
    • I'v attached a very useful handbook from KPMG related to Earnings Per Share topic (IAS 33).

    Wish you best of luck, success, safe & healthy condition

    Kind regards

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    Samer Ahmad, FMVA, SCA
    Kuwait
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    Attachment(s)



  • 2.  RE: Weighted Average of Common Shares Outstanding

    Posted 28 days ago
    <tr>
    <td>July 1st</td>
    <td>Stock Dividend</td>
    <td>--</td>
    <td>--</td>
    <td>--</td>
    <td>--</td>
    </tr>

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    Ashfak
    Saudi Arabia
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  • 3.  RE: Weighted Average of Common Shares Outstanding

    Posted 28 days ago
    HI Samer, thank you for sharing this question. And for sharing the handbook on EPS, it will be really helpful.
    i will try to attempt the answer here.

    Date            Particulars       No. of shares   Weighting      Rev. Weight.     Weigh. No. of shares
    Jan. 1          Opening           100,000           12/12             12/12 x 1.1        110,000
    Apr. 1           New Issue         10,000            8/12               8/12  x 1.1         7,333
    July 1           Stock Div                                  1 x 1.1
    Oct 1            Repurchase       5,000              3/12              3/12                   (1,250)

    Total Number of WANOS  = 116,083,,, Answer B' should be correct... Please correct me if i have missed something.



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    Ashfak
    Saudi Arabia
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  • 4.  RE: Weighted Average of Common Shares Outstanding

    Posted 27 days ago
    I got to the answer of 116,000 shares. However with you posting this topic, I tend to believe its not that simple.

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    Michael Miller
    Director/Manager
    Everett PA
    United States
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  • 5.  RE: Weighted Average of Common Shares Outstanding

    Posted 27 days ago
      |   view attached
    Hello Michael,

    It is not difficult rather than is "Tricky" or unfamiliar to any of us who is not working in investment / audit firm or dealing with stock equity issues.
    Anyhow, it is very interesting note to write down and apply on every related study case of common shares outstanding.

    Note: (As per ESP)

    When the common shares outstanding increase as the result of a stock dividend or a stock split, retroactive recognition must be given to these events for all comparative earnings per share presentations.

    Solution: (As per ESP) Correct answer is: a. 117,000

    Description Shares Period Multiplier WACSO
    1 - January 100,000 3 / 12 1.1 27,500
    1 - April 110,000 3 / 12 1.1 30,250
    1 - July 121,000 3 / 12 30,250
    1 - October 116,000 3 / 12 29,000
    Total number of shares outstanding 117,000

    Hope you all find it useful

    Kind regards

    ------------------------------
    Samer Ahmad, FMVA, SCA
    Kuwait
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  • 6.  RE: Weighted Average of Common Shares Outstanding

    Posted 27 days ago
    ​thank you for sharing handbook for EPS ;it would be very helpful

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    Hebah Masoud
    Supervisor
    Amman
    Jordan
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