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Hi, can you help me solve tis question?
Acorn Co had the same 10 milion ordinary shares in issue on both 1April 20X1 and 31March 20X2.On 1April 20X1 the company issued 1,200,000 $1 units of 5% convertible loan stock.Each unit of stock is convertible into 4 ordinary shares on1April 20X9 at the option of the holder.The following is an extract from Acorn Co’s income statement for the year ended 31 March 20X2?
Profit before interest and tax $980000
Interest payable on
5% convertible loan stock ($60000)
Profit before tax. =$920000
Income tax at 30% ($276000)
Profit for the period. =$644000Calculate the diluted earnings per share for the year ended 31March 20×2.
Calculate the potential number of equity shares that would be issued if the option to convert we’re taken up
Calculate the value by which pre-tax profits would increase as a result of no longer having to pay the loan interest.
Deduct from that value taxation at the rate of 30% and that will give the figure for potential extra earnings
Add these net potential earnings to the profit available $644,000
Add the potential extra shares to the weighted average number of equity shares in issue for the year (10 million)
Divide adjusted shares into adjusted earnings and there’s your answer
Ok?
I’ve just dictated the way to do the answer! It’s written out in full!
1,200,000 / 4 = 300,000 potential extra shares
1,200,000 x 5% = 60,000 potential extra earnings
But these are taxed at 30% so extra earnings after tax is 70% x 60,000 = 42,000
Adjusted earnings are $644,000 + $42,000 = $686,000
Adjusted shares are 10,000,000 + 300,000 = 10,300,000
Diluted eps is $686,000 / 10,300,000
Are you able to do that calculation on your own?
but my answer is 4.64 cents
686/14800 shares
the share i calculate like tis,1200×4/$1=4800
10000+4800=14800
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