- 20 Marks
FR – May 2015 – L2 – SB – Q4 – Earnings Per Share
Calculate Basic and Diluted Earnings Per Share for Kubua Plc, factoring in share options.
Question
(a) The following information is extracted from the financial statements of Kubua Plc for the year ended 30 September 2014:
| Item | Amount (N’000) |
|---|---|
| Ordinary Share Capital (fully paid at 1.25 kobo each) | 20,000 |
| Operating Profit before Tax | 4,000 |
Other relevant information:
- The company’s income tax rate is 30%.
- The average fair value of one ordinary share during the year was N5.00.
- During the year, the company issued share options for 2.5 million ordinary shares to existing shareholders at an exercise price of N4.00.
Required:
Calculate the basic and diluted Earnings Per Share for the year ended 30 September 2014. Show all workings. (5 Marks)
(b) Extract from the Statements of Profit or Loss and Other Comprehensive Income of Bajulaye Plc. for the years ended:
| Date | 30/09/2014 (N’000) | 30/09/2013 (N’000) |
|---|---|---|
| Revenue | 5,000 | 2,800 |
| Profit Before Interest and Taxes (PBIT) | 2,500 | 1,200 |
Extract from the Statements of Financial Position as at:
| Date | 30/9/2014 (N’000) | 30/9/2013 (N’000) |
|---|---|---|
| Issued Share Capital (Ordinary Shares at 50k each) | 3,000 | 3,000 |
| 12% Redeemable Preference Shares | 1,500 | 1,500 |
| Total Equity | 4,500 | 4,500 |
Other relevant information:
- On 1 January 2013, the entity issued convertible loan notes of N2,000,000 with an effective interest rate of 10% per annum.
- The loan notes are convertible at nominal values of N100 each into the following number of ordinary shares:
- 30 September 2018: 130 shares
- 30 September 2019: 125 shares
- 30 September 2020: 114 shares
- 30 September 2021: 105 shares
- Company income tax rate is 30%.
Required:
- Calculate the basic and diluted Earnings Per Share for the year ended 30 September 2014. (8 Marks)
- Write a short memo to the Board of Directors of Bajulaye Plc explaining FOUR advantages and THREE limitations of Earnings Per Share as a performance indicator to users of financial statements. (7 Marks)
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