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AM has a profit for the year ended 31 March 2015 of $500,000 and there were $100,000 10% irredeemable preference shares in issue during the year. AM had 400,000 equity shares in issue at 1 April 2014 and made a 1-for-2 bonus issue on 1 May 2014. Calculate the basic EPS figure for the year ended 31 March 2015.
A. 83.3 cents per share
B. 62.5 cents per share
C. 81.7 cents per share
D. 61.3 cents per shareHave you attempted the question yourself? Calculate both the profit for the year attributable to the ordinary share holders and the weighted average number of shares in issue.
Thanks
How should we treat irredeemable preference shares in this question??
Can you please show the calculations.Hi,
Irredeemable preference shares are treated as equity in the accounts, therefore any dividend will be deducted within the SOCIE. When calculating the EPS we usually use the PBT figure from the SPL as this is the earnings that belong to the ordinary equity shareholders. However, the irredeemable preference dividend has not been removed from this figure as it will be deducted in the SOCIE. To get the right figure to use in the EPS calculation then we will need to deduct the irredeemable preference dividend from the PBT figure.
Give it a go and see how you get on.
Thanks
adjusted profit = 500000- 10000(10% of 100000) = 490000
fpr weighted average share
no.0f shares month bonus fraction weighted average share
at 1 april 400000 1/12 3/2 50000
at 1 may 600000 11/12 550000eps= 490000/ (50000 +550000 ) = 0.81667 = 81.7 cent per share
Sorry, I don’t get it, in your video, the basic EPS example, for bonus issue, there is no time fraction as it is free so we don’t need to care when it is issued.. so why you multiple with fraction 11/12 here?
Thank you very much
You do not need to do the pro-rating for the bonus issue, you can just assume that the shares have always been in issue for the full year, so the full 600,000. Although what has been written above is technically correct, it is one step too far with regards doing the pro-rating.
Thanks
“adjusted profit = 500000- 10000(10% of 100000) = 490000
fpr weighted average share
no.0f shares month bonus fraction weighted average share
at 1 april 400000 1/12 3/2 50000
at 1 may 600000 11/12 550000eps= 490000/ (50000 +550000 ) = 0.81667 = 81.7 cent per share ”
1. If irredeemable preference share is treated as equity so why does not my equity share would be at 500,000 *1/12
Irredeemable preference shares are treated as equity in the accounts, therefore any dividend will be deducted within the SOCIE. When calculating the EPS we usually use the PBT figure from the SPL as this is the earnings that belong to the ordinary equity shareholders. However, the irredeemable preference dividend has not been removed from this figure as it will be deducted in the SOCIE. To get the right figure to use in the EPS calculation then we will need to deduct the irredeemable preference dividend from the PBT figure.
2. Why it is it reducing my PBT as it is Type of Equity dividend ?
If we are treating as equity it should not have right on preference dividend Paying.1) We are calculating the EPS based on what is owned by the ordinary shareholders, so we do not need to look at the number of irredeemable preference shares in issue even if they are treated based upon their substance.
2) Because the dividend payment is deducted in the SOCI so will not have adjusted the profit figure from the SPL, hence we do the adjustment to get a profit figure that belongs entirely to the ordinary share holders.
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