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Dividends for redeemable preference shares

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Dividends for redeemable preference shares

  • This topic has 2 replies, 2 voices, and was last updated 8 months ago by alawi sayed.
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  • Author
    Posts
  • May 19, 2022 at 12:39 pm #656027
    alawi sayed
    Participant
    • Topics: 152
    • Replies: 166
    • ☆☆☆

    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,

    ———————————–
    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
    —————————————————–
    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

    May 20, 2022 at 11:25 am #656075
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6443
    • ☆☆☆☆☆

    Hi,

    Dividends on preference shares on an accruals basis. So here there are 100,000 in issue at a par value of $1 and they pay 20% back each year, hence the calculation used.

    Thanks

    May 21, 2022 at 11:48 am #656127
    alawi sayed
    Participant
    • Topics: 152
    • Replies: 166
    • ☆☆☆

    Thanks Sir.

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    Posts
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