Question

P Ltd is an Australian listed company. Its results for the financial year ended 30 June 2015 have exceed expectations: Profit before tax is $5,597,000 and income tax expenses is $1,847,000. As at 30 June 2014, there were 9,750,000 ordianry shares. on 1 May 2015, 3,250,000 futher ordianry shares were issued at a prices of $2.3 (Paid to $2). The partly paid shares carry rights to dividends in proportion to the amount paid relativd to the total issue price. In addition, P Ltd has 1 million convertible preference shares. The owners of the preference shares have the right to convert into oridanry shares at the rate of two preference shares for one ordianry shares at a future date.

Required: (a) Caluate the basic EPS and Diluted EPS for P Ltd for the year ending 30 June 2015;

(b) If there has been a bonus issue in a particluare year, do we need to make any adjustments to previously reported earings per share?

Answer 1

Solution:-

a) Calculation of Basic EPS:

	Profit Before Tax (PBT)		5597000
Less:	Tax Expense		1847000
	Profit After Tax (PAT)		3750000

Weighted Avg No. of Equity Shares = 9750000 + [(3250000*2)/2.3]*61/365 =10222305 shares

BEPS = Earnings available to Equity Shares / Weighted Avg No. of Equity Shares

= 3750000/10222305

= 0.3668 per share

Calculation of Dilutive EPS:-

Dilutive EPS = (3750000 + 0) / (10222305 + 1000000*1/2)

= 0.3497 per share

b) If there has been a bonus issue in a particluare year, do we need to make any adjustments to previously reported earings per share?

Ans:- Yes, if we have issued bonus shares in the current year or in any particular year, then we need to disclose Adjusted or Restated Basic EPS as well as Dilutive EPS.