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The current accounting year of Entity A is 1 April 2018 to 31 March 2019.
On 1 April 2018, Entity F has 9,000,000 ordinary shares. All the share related transactions for this year are listed as below:
• On 1 May 2018, Entity F issues a 1 for 3 rights issue of $2.00 each. Actual cum rights is $10.00.
• On 31 July 2018, Entity F repurchases 50,000 of its own shares at current market price.
• On 1 October 2018, Entity F issues 600,000, 10% irredeemable convertible preference share of $6,000,000 at one ordinary share for every three irredeemable convertible preference share.
• On 31 October 2018, Entity F makes a 1 for 10 bonus issue.
• On 1 January 2019, Entity F issues 200,000 additional shares at full market price.
• On 1 March 2019, Entity F makes a 3 for 1 share split.
Super has issued employee share options to several key senior staff which are 2,000,000 share options to be convertible to 2,000,000 ordinary shares at an exercise price of $2.50 and the market average for the current year is $8.00.
The profits after tax before any dividend for the period of 1 April 2018 to 31 March 2019 is $68,200,800 and the previous EPS for the year ended 31 March 2018 is $4.8314 per share. The tax rate is 16.50%.Find the Basic earnings per share for the year ended 31 March 2019.
I computed the Weighted average number of ordinary share is 39,433,750, which is the correct figure. So, the Basic EPS should be $68,200,800/39433750=1.7295. However, the answer is 1.4365. But, the convertible preference share or bonds should not affect the Basic earnings per share. I don’t know any factor could affect the profits after tax before any dividend. Could you give me some advice?
Hi,
The earnings figure is the profit attributable to the ordinary equity shareholders, so you will need to adjust the earnings figure to remove the dividends that are paid to the irredeemable convertible preference share holders. This amount will not have been deducted from profit for the year as it is accounted for in the SOCE, so to get the profit for the year attributable to the ordinary share holders we need to remove the dividend paid.
I’ve looked at the question very briefly, and I’d not concern yourself too much with it as it is ridiculously hard and not something that you will be examined upon in the exam.
Thanks
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