EPS - diluted EPS Example - ACCA Financial Reporting (FR)
23 Comments
S
sleepybird·
How did you get the 400k. ?
I’m confused
S
Sharjeel·
according to the adjustment of the dilute instruments the extra earning effect the EPS and to calculate the EXTRA EARNING on the convertible loan by multiplying the interest rate (which is 5%) with the number of shares (10m) which would give (10m x 5% = 0.5m) the tax rate is 20% which means the amount of 0.5m is already taxed on 20% so the extra earning will be on the 80% so thats how we get 400k (0.5m x 80% = 0.4m)
A
alawi sayed·
Hello Mr Chris,
Why we should take post -tax interest why not before tax ,since tax comes after the finance cost in P& L,
Thanks,
A
Augusta·
Good Morning Chris,
Please in regards to the Diluted EPS, adjustment for convertible bonds, is an instrument dilutive when the EPS based on the convertible bond lower than the Basic EPS. what if it were to be more than the basic EPS?.
S
Shantell·
Can you help me with this question please,
Halium Company issued 400,000 $100 6% convertible loan notes on 1 April 2015. The
company has in issue 50M $1 ordinary shares. Interest is payable annually in arrears on
31 March each year. The loan notes can be converted to equity shares on the basis of 20
shares for each $100 loan note on March 2018 or redeemed at par for cash on the same
date. The debt component of the loan is $37,792M and a similar loan with no conversion
right would be at 8% interest. The carrying amount for the loan as at 31 March 2016 is
$38,415M with a finance cost of $3.023M. The company’s tax rate is 20% and the
earnings for the period is $14.327M
Calculate the diluted EPS for Halium Company for the year ended 31st March 2016
V
Vignesh·
Hi Chris, could you please explain why the 5% interest on convertible loan stock is considered as earnings? As in this example, Flanagan is the one who issues the convertible debentures. Hence I believe Flanagan have to pay the interest to investors. But why are we considering this interest to be paid as earnings?
I'm sorry if I'm missing something from the previous chapters.
V
Vignesh·
Got it. It's the earnings to the investors we are calculating using EPS. Thanks
D
darshan·
there's no more interest and tax paying as debentures are converted and hence
A
Aleena·
For options when i calculated from the Kaplan text
illustration 6 , the DEPS is earnings/ #shares at market value + ordinary shares. But in the lecture you suggest to take the the difference between the # shares under the option and #shares at market value. Why is that ? Please can you explain
M
Mathokoza Zwane·
Kindly assist me with the following question i am able to obtain the rights fraction and all, my challenge is with getting the number of shares in the rights issue and bonus issue. Question from the bpp workbook.
On 1 January 20X1, Saunders Co had 2,000,000 ordinary shares in issue.
On 30 April 20X1, Sanders Co issued, at full market rice, 270,000 ordinary shares.
On 31 July 20X1, a rights issue of 1 for 10 @$2.00 was made. The fair value of the shares on the last day before the issue of shares from the rights issue was $3.10.
Q. What is the weighted average number of shares for 31 Dec 20X1?
Thank you
L
Lenhard·
Hi Mark,
Share option - why only free shares are considered and not 37.5 + 100 (which would mean that the buyer receives physically 100 shares, but in terms of market value, for the cash paid, it receives additional 37.5 free shares)?
Appreciate your comment.
M
MikeLittleTutor·
Because shares issued at full market price have no diluting effect ... because theory suggests that the market price of a share is the present value of that share's earnings discounted to today's value so the market price is theoretically based on earnings
Therefore shares issued at full market price have no affect on earnings per share of existing shares in issue
M
Mahim·
Sir Chris, why did you only select 125shares for convertible shares but not the other 120shares, please explain....
P
PartyKat·
Because you should take the Maximum possible amount of shares to be issued. Between 125 and 120 shares per $100 loan - 125 is max
E
Efficiency·
According to IAS 33 (Earnings per Share), when calculating diluted EPS, we assume that potential ordinary shares are converted using the terms that would result in the most dilution for existing shareholders.
C
Callum·
Hi,
Why do you only calculate the convertible debt for 31Dec X6 and not 31Dec X7?
Also slightly confused as we are asked to calculate the diluted EPS for the YE 31 Dec X5 so how come we are using future figures?
Thanks
M
MikeLittleTutor·
See earlier posts on this thread!
D
Daniel ChisomSupporter·
I am asking same question how 37.5m was calculated?
M
MikeLittleTutor·
ok i think i got it notes say adjustment for convertible instruments, is made by adding the maximum number of shares to be issued in the future.
(From November 22 last year)
M
manan·
hi
question has asked for 31 dec 20x5. but the convertible deb is is for 31 dec 20x6..
and what do we do about the 31 dec 20x7 deb conversion?
why do we have to account that if the question is only for 20x5?
Thanks
Manan.
B
beautyashma·
did you find the answer?
B
beautyashma·
ok i think i got it notes say adjustment for convertible instruments, is made by adding the maximum number of shares to be issued in the future.
I’m confused
Why we should take post -tax interest why not before tax ,since tax comes after the finance cost in P& L,
Thanks,
Please in regards to the Diluted EPS, adjustment for convertible bonds, is an instrument dilutive when the EPS based on the convertible bond lower than the Basic EPS. what if it were to be more than the basic EPS?.
Halium Company issued 400,000 $100 6% convertible loan notes on 1 April 2015. The
company has in issue 50M $1 ordinary shares. Interest is payable annually in arrears on
31 March each year. The loan notes can be converted to equity shares on the basis of 20
shares for each $100 loan note on March 2018 or redeemed at par for cash on the same
date. The debt component of the loan is $37,792M and a similar loan with no conversion
right would be at 8% interest. The carrying amount for the loan as at 31 March 2016 is
$38,415M with a finance cost of $3.023M. The company’s tax rate is 20% and the
earnings for the period is $14.327M
Calculate the diluted EPS for Halium Company for the year ended 31st March 2016
I'm sorry if I'm missing something from the previous chapters.
illustration 6 , the DEPS is earnings/ #shares at market value + ordinary shares. But in the lecture you suggest to take the the difference between the # shares under the option and #shares at market value. Why is that ? Please can you explain
On 1 January 20X1, Saunders Co had 2,000,000 ordinary shares in issue.
On 30 April 20X1, Sanders Co issued, at full market rice, 270,000 ordinary shares.
On 31 July 20X1, a rights issue of 1 for 10 @$2.00 was made. The fair value of the shares on the last day before the issue of shares from the rights issue was $3.10.
Q. What is the weighted average number of shares for 31 Dec 20X1?
Thank you
Share option - why only free shares are considered and not 37.5 + 100 (which would mean that the buyer receives physically 100 shares, but in terms of market value, for the cash paid, it receives additional 37.5 free shares)?
Appreciate your comment.
Therefore shares issued at full market price have no affect on earnings per share of existing shares in issue
Why do you only calculate the convertible debt for 31Dec X6 and not 31Dec X7?
Also slightly confused as we are asked to calculate the diluted EPS for the YE 31 Dec X5 so how come we are using future figures?
Thanks
(From November 22 last year)
question has asked for 31 dec 20x5. but the convertible deb is is for 31 dec 20x6..
and what do we do about the 31 dec 20x7 deb conversion?
why do we have to account that if the question is only for 20x5?
Thanks
Manan.