- 20 Marks
FR – May 2017 – L2 – SB – Q4 – Earnings Per Share (IAS 33)
Explain EPS and PE ratio, and calculate EPS and DPS for Almond Nigeria Limited, also discussing EPS limitations.
Question
a. Explain the following, stating their importance to investors in evaluating financial performance:
i. Earnings per share (EPS)
ii. Price earnings ratio (PE ratio)
(6 Marks)
b. The issued and fully paid share capital of Almond Nigeria Limited, which has remained unchanged since the date of incorporation until the financial year ended March 31, 2015, includes the following:
- 2,400,000,000 ordinary shares
- 600,000,000 6% participating preference shares of N1 each
The company has been operating at a profit for a number of years. As a result of a very conservative dividend policy in previous years, there is a large accumulated profit balance on the statement of financial position.
On July 1, 2015, the directors decided to issue two bonus shares to all ordinary shareholders for every one previously held.
The following is an extract of the group statement of profit or loss and other comprehensive income for the year ended March 31, 2016:
Almond Nigeria Limited
Extract of Group Statement of Profit or Loss and Other Comprehensive Income for the Year Ended March 31, 2016
| 2016 | 2015 | |
|---|---|---|
| Profit for the year | N740,000 | N540,000 |
| Other comprehensive income | – | (20,000) |
| Total comprehensive income | N740,000 | N520,000 |
| Total comprehensive income attributable to: | ||
| Owners of parent | N680,000 | N480,000 |
| Non-controlling interest | N60,000 | N40,000 |
| Total comprehensive income | N740,000 | N520,000 |
The following dividends have been paid or declared at the end of the period:
| Dividend Type | 2016 | 2015 |
|---|---|---|
| Ordinary | N330,000 | N240,000 |
| Preference | N69,000 | N60,000 |
Note: The participating preference shareholders are entitled to share profits in the same ratio in which they share dividends after payment of fixed preference dividends. They will also share the same benefit as ordinary shareholders if the company is liquidated.
Required:
- Calculate the earnings per share (EPS) in accordance with IAS 33 and the dividend per share (DPS) for the years ended March 31, 2015, and 2016. (10 Marks)
- Discuss the limitations of earnings per share (EPS) as a measure of a company’s performance. (4 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Dividend per share, EPS, Financial Performance, IAS 33, PE Ratio
- Level: Level 2
- Topic: Earnings Per Share (IAS 33)
- Series: MAY 2017