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AC312 Workshop 4

EPS

Question1

Laser plc had an issued share capital at 1 January 20x6 of £200,000 consisting of 20 pence ordinary shares.

There was also loan capital of £250,000 10% convertible loan stock.  The loan was convertible in 20x5 on the basis of 500 shares for each £1,000 loan.

The tax rate is 30%.

Profit after tax for the year ended 31 December 20x6 was £5,000,000

Required:

Calculate the basic and diluted earnings per share for the year ended 31 December 20x6.

Question 2

The income statement of Barrier plc for the year ended 31 December 20x7 is as follows:

Further information:

i) Barrier plc has 20,000,000 ordinary shares of 10 pence each.

ii) Barrier plc has also issued £2,000,000 6% convertible loan stock. This is convertible in 20x8 on the basis of 2,000 shares for each £1,000 loan.

iii) The rate of corporation tax is 30%.

iv) A dividend of £3,000,000 was paid during 20x7.

Required:

a) Calculate: 

i) Basic earnings per share for the year ended 31 December 20x7. 

ii) Diluted earnings per share for the year ended 31 December 20x7

b) Earnings for the year ended 31 December 20x8 are forecast to be £6,000,000.  Calculate the basic earnings per share and the comparative for the year ended 31 December 20x8 on each of the following separate assumptions:

i) Barrier plc makes a 1 for 10 bonus issue on 1 July 20x8.                                             

ii) Barrier plc makes a 1 for 4 rights issue on 1 April 20x8 at a price of 60 pence. Assume that the market value of the shares immediately prior to the rights issue is 90 pence.

Question 3

Briefly discuss why an accounting standard, IAS 33, is considered necessary for earnings per share. 

Discuss.

Points can be made in relation to the importance of the ratio itself, the need for comparison, PE ratio etc.