Dividends for redeemable preference shares

Hello Sir ,

What is the bases for calculating the dividends for redeemable preference shares ,should it be paid by the declared dividends or their percentage they hold like in the following qusetion.Instead of calculating the dividencds based on declared 50cents per share it was calculated as 100,000shares x 20%

Can you clarify please Sir,

Thanks,

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Q
The following scenario relates to question 26 – 30
Data Co has completed its IPO in the current year. The business is process of
preparing its consolidated financial statements for the year ended 31 December
2017. The following information is relevant for the purpose of calculating EPS:

Logs Co
Logs Co is a wholly owned subsidiary of Data Co. The business was acquired five
years ago. During the year ended 31 December 2017, Logs Co earned a net profit of
$200,000. It paid dividends of $8,000 on redeemable preference shares and
dividends of $10,000 on irredeemable preference shares. The business issued 5,000
ordinary shares five years ago and no shares have been issued since then.

Precise Co
Precise Co is another wholly owned subsidiary of Data Co. Precise Co has issued
share capital of 200,000 ordinary shares of $1 each and 100,000 20% redeemable
preference shares of $1 each. During the year ended 31 December 2017, Precise Co
earned a gross profit of $1 million. And the operating expenses were $200,000.
Precise Co declared the required dividend on preference shares and ordinary
dividends of 50c per share. The taxation rate is 30%.

Byron Co
Byron Co is an associate of Data Co. The net profit of Byron Co for the year ended 31
December
2016 and 31 December 2017 was $500,000 and $400,000 respectively. At the
beginning of 2016, Byron Co had 100,000 shares in issue. The business made a 1 for
5 rights issue on 1 April 2017 at a price of $2. The market value of each share before
issuance, with the knowledge of the rights, was $3.20.

28. Calculate the earnings per share (EPS) of Precise Co for the year ended 31
December 2017.
A) $2.73
B) $2.86
C) $2.92
D) $2.23
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Answer

28. A
Gross profit $ 1,000,000
Operating expenses ($200,000)
Preference dividends ($20,000)
Profit before tax $780,000
Tax at 30% (234,000)
Net profit $546,000
EPS = $546,000 / 200,000
EPS = $2.73