Question

On 30 June 2019, Harris Ltd had the following balances in its equity accounts:

Ordinary shares (issued at $2 each)	12,000,000 credit
Preference shares (issued at $1 each)	6,000,000 credit
Retained earnings	9,000,000 credit

Additional information is as follows:

• On 31 December 2016, the company issued 200,000 options to purchase ordinary shares. Each option entitles the holder to purchase 5 ordinary shares at $2.60 each. No options have been exercised by 30 June 2019.
• On 1 September 2017, the company had issued $1,600,000 of 4% convertible notes. Each $100 note was convertible into 70 ordinary shares at the holder’s option. No conversions have occurred by 30 June 2019.
• During the year ended 30 June 2019, Harris Ltd declared and paid a dividend to preference shareholders of $160,000.
• The preference shares are convertible into 120,000 ordinary shares at the discretion of the preference shareholders.
• During the year ended 30 June 2019, Harris Ltd had a net profit after tax of $4,000,000.
• On 30 June 2019, the ordinary shares were trading at $3.20 per share.
• Harris Ltd’s income tax rate is 30%.

Required:

(a) Following the requirements of AASB 133 Earnings Per Share, calculate Harris Ltd’s basic earnings per share for the year ended 30 June 2019.

(b) Following the requirements of AASB 133 Earnings Per Share, calculate Harris Ltd’s diluted earnings per share for the year ended 30 June 2019.

Answer 1

Basic EPS	in $
Net Income-Preferred dividend/weighted avg no. of common stock
(4000000-160000)/6000000	$0.64
Diluted EPS	$0.54
Net Income+After tax interest/weighted avg no. of common stock+potential stock
(4000000+(1600000*4%*.7))/(6000000+1427500)
No. of potential stock
Convertible cumulative preference shares	120000
Convertible notes (1600000/100*70)	1120000
Dilutive portion of options	187500
Total potention stock	1427500
If exercised the value is 200000*5*2.6	2600000
At market price no. of stock that can be purchased	812500
2600000/3.2
Dilutive portion of options (200000*5)-812500	187500
If any doubt please comment