Question

Zappa is a mining company listed in Australia with a number of subsidiaries. Extracts from the consolidated statement of profit or loss and other comprehensive income of Zappa for the year ended 30 June 2020 appear below:

	Attributable to Zappa	Non-controlling interest	Total
	$’000	$’000	$’000
Profit for the year	39,000	3,000	42,000
Other comprehensive income Total comprehensive income	5,000 ––––––– 44,000 –––––––	Nil –––––– 3,000 ––––––	5,000 ––––––– 47,000 –––––––

Additional information of Zappa comprises:

1. 200 000 000 ordinary shares in issue at the beginning of financial year - 1/7/2019. On 1 April 2020, Zappa issued further 50 000 000 new ordinary shares at full market value.
2. 80 000 000 preference shares. These shares were in issue for the whole of financial year ended 30 June 2020. The dividend on these preference shares is discretionary.
3. $180 000 000 in convertible debentures issued on 1 July 2018 and repayable on 30 June 2023. Interest is payable annually in arrears and the interest rate is 10%. These debentures could be converted to 100 000 000 ordinary shares at the option of the debenture holders.

In the year ended 30 June 2020, Zappa declared an ordinary share dividend of 10 cents per share and a dividend of 5 cents per share on the preference shares. The corporation tax for Zappa and its subsidiaries is 30%. All transactions have been correctly accounted for in the financial statements of Zappa for the year ended 30 June 2020.

Required:

Compute the basic and diluted earnings per share amounts for Zappa for the year ended 30 June 2020 which will be presented in its consolidated financial statements for that year.

Answer 1

firstly calculate profit after tax of zappa

comprehensive income =47000000

less:- intrest on debentures = (18000000)

(180000000*10%)

less:- tax payable @ 30% =(8700000)

(47-18)

pat = 20300000

less:- preference dividend = (4000000)

(80000000*5%)

earning =  16300000

basic earing per share = (earnings / outstanding shares + additional shares)

= 16300000 / 200000000 + (50000000 * 3/12)

= 0.0767

diluted earning per share =    (earnings / outstanding shares + additional shares + conversion if any )

= 16300000 / 200000000 + (50000000 * 3/12) + 100000000

= 0.0522