Eps

The question you explained I understood but why do I have to recognise it as finance cost?In Bpp trial balance preparation, it has to be recognised inside of Finance cost.It seemed to be tricky for me.Could you explain it a bit more?
Thank you in advance.

The question I wrote here has been taken from Bpp

Hi Tutor, Could you please explain it to me?
Thanks in advance

Trial balance at 31 March 20X4
Equity shares of 25 cents each-56000

1)On 1 August 20X3, Xtol made a fully subscribed right issue of equity share capital based on two new shares at 60 cents each for every five shares held.The issue has been fully recorded in the trial balance figures.

2)An equity dividend of 4 cents per share was paid on 30 May 20X3 and, after the rights issue, a further dividend of 2 cents per share was paid on 30 November 20X3

Answer:

Dividend pay
Before rights issue (56000*1$/25c*5/7=160m*4c)—————————6400
After Rights issue (56000*$1/25c*2c)——————————————-4480
10880
Dr Retained earnings-10880
Cr Loan note interest and dividends pay-10880

Two tricky bits to watch out for are included in this question

1) the equity shares are 25 cents each and the trial balance figure is in dollars. So that $56,000 equity shares represents 224,000 equity shares of 25 cents each

2) the figure for equity shares is the figure at THE END of the accounting period

We know that there was a rights issue part way through the year on the basis of 2 for 5

So you started the year with 500 shares and you finished the year with 700 shares (500 x 7/5)

OK so far?

Right, you started with 500 shares and finished with 700 whereas I started the year with 50,000 shares and finished with 70,000 (50,000 x 7/5)

John Moffat started the year with 109,500 shares and finished with 153,300 (109,500 x 7/5)

So collectively we started with 160,000 shares and collectively we finished with 224,000 (160,000 x 7/5)

A dividend of 4 cents per share was paid before the rights issue on the 160,000 shares ($6,400) and a further dividend of 2 cents per share was paid after the rights issue on the 224,000 shares ($4,480) giving a total of $10,880 dividends paid

Is that better?