QUESTION 1 a Answer the following two questions that relate

QUESTION 1 a) Answer the following two questions that relate to Earnings per Share i. Sinbad plc had the same 10 million ordinary shares in issue on both 1 January 20X1 and 31 December 20X1. On 1 January 20X1 the company issued 1,200,000 $1 units of 5% convertible loan stock. Each unit of stock is convertible into 4 ordinary shares on 1 January 20X9 at the option of the holder. The following is an extract from Sinbad plc\'s income statement for the year ended 31 December 20X1 Profit before interest and tax Interest payable on 5% convertible loan stock Profit before tax Income tax expense (at 30%) Profit for the year $000 980 60 920 (276 644 Required Calculate the basic and diluted earnings per share for the year ended 31 Decembers 20X1 ii. Talbot plc has in issue 5,000,000 $0.50 ordinary shares throughout 20X3. During 20X1 the company had given certain senior executives options over 400,000 shares exercisable at $1.10 at any time after 31 May 20X4. The average market value of one ordinary share during the period was $1.60. Talbot plc had made a profit after tax of $540,000 in 20X3. Required Calculate the basic and diluted earnings per share for the year ended 31 December 20X3

Solution

As per policy, only one question is allowed to answer, so answering a (i) :

a i)

Basic EPS = Net Income / number of ordinary shares = $644000 / 10,000,000 shares = $0.06 per share

Diluted EPS = Earning before interest / (ordinary shares quantity + expected converted shares) = $980000 / 14,800,000 = $0.07 per share