- 10 Marks
CR – Nov 2016 – L3 – Q2b – Earnings Per Share (IAS 33)
Calculation of Soar Plc’s basic and fully diluted earnings per share considering new shares, convertible loans, and associated financing costs.
Question
The directors of Soar Plc have decided to replace most of the existing plant and machinery, which are now obsolete, during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.
To improve liquidity, the directors issued 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and N600,000 4% convertible loan notes on June 1, 2015. The conversion terms are as follows:
| Date | Number of shares per N100 of loan stock |
|---|---|
| 2015 | 120 |
| 2016 | 125 |
| 2017 | 118 |
| 2018 | 122 |
The new ordinary shares rank for dividends in the current year. Relevant data for the year ended September 30, 2015:
- Profit before interest and tax: N850,000
- Effective company tax rate: 30%
- Basic EPS for 2014: 48 kobo
- Issued shares as of September 30, 2014:
- 2,000,000 ordinary shares of 50 kobo each
- 400,000 12% irredeemable preference shares of N1 each
- 300,000 10% redeemable preference shares of N1 each
- N700,000 8% redeemable debenture (non-convertible)
Required: Calculate for Soar Plc for the year ended September 30, 2015: i. Basic earnings per share (5 marks)
ii. Fully diluted earnings per share (5 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Basic EPS, Convertible Loan, EPS Calculation, Fully Diluted EPS, IAS 33, Share Issuance
- Level: Level 3
- Topic: Earnings Per Share (IAS 33)