Exam 26: Earnings Per Share

Nogales Ltd is planning to raise $100 million to finance its research and development program in the lucrative biotechnology division of the company.The company's internal forecasts for the year ended 30 June 2014 for selected accounts follow: Total liabilities \ 250 million Total shareholders' equity \ 150 million Net income after tax \ 10 million There are 10 000 000 ordinary shares on issue.The entity has a debt covenant that debt-to-equity ratio be kept at less than two. Three alternatives for funding the projects were considered by the board of directors: Issue of ordinary shares equivalent to $100 million (equivalent to 5 million ordinary shares) Issue of 10%,10-year non-convertible notes Issue of 6%,preference shares (redeemable on 30 June 2024) Which of the following statements made by a director is correct with respect to the three funding alternatives?

Richmond Ltd has the following potential ordinary shares on issue as at 30 June 2009: Executive options issued 1 July 2006 Employees options issued 1 July 2007 Employees options issued 1 July 2008 No. of options 100000 200000 150000 Exercise price \ 2.80 \ 3.10 \ 3.30 Expiry date 30 June 2010 30 June 2012 30 June 2013 The closing price for Richmond Ltd shares on 30 June 2009 was $3.35 and the average share price for the period was $3.20. What is the total number of shares deemed issued for no consideration for all of above potential ordinary shares that is in accordance with AASB 133 Earnings per Share?

The earnings per share figure is likely to be of interest to shareholders and potential investors because:

AASB 133 requires a bonus issue made during a period to be treated by:

For the purpose of calculating diluted EPS,AASB 133 requires an entity to assume the exercise of all outstanding options.

In calculating earnings per share,as per AASB 133 Earnings per Share options issued by the entity are assumed exercised at the beginning of the period or,if later,the date of issue of the option.

The calculation of the theoretical ex-rights price of a share may be expressed as:

In ranking dilutive potential ordinary shares,options and warrants are generally included first because they do not affect the numerator of the calculation.

Jackie Ltd has a profit after tax of $6 590 000 for the period ended 30 June 2013.In addition it has $1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. Jackie Ltd has 3 000 000 ordinary shares on issue at the beginning of the year 1 July 2012.On 1 November 2012,there was a 1for 6 rights issue with a subscription price of $4.00 each.The current market value of these shares is $4.50. On 1 March 2013,200 000 partly paid-up ordinary shares were issued at an issue price of $4.50.These shares were partly paid to $2.25.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price. What is the basic EPS for Jackie Ltd for the year ending 30 June 2013 that is in accordance with AASB 133 Earnings per Share?

The effect of a bonus issue on the market value of an entity's equity is:

According to AASB 133,the number of shares included in the weighted-average number of shares is determined by:

Daisy Ltd has a net income after tax of $2 000 000 for the year ended 30 June 2013.At the beginning of the period Daisy Ltd has 900 000 fully paid-up ordinary shares on issue.On 1 December 2012 Daisy Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00.On 1 March 2013 Daisy Ltd made a one-for-six bonus issue of ordinary shares out of retained earnings.The last sale price of an ordinary share before the bonus issue was $2.50.At the beginning of the current period Daisy Ltd also had 500 000,$1.00,5% cumulative preference shares on issue.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. The basic earnings per share for the period ended 30 June 2012 was $1.50 per share.What are the earnings per share figure for the period ended 30 June 2013 and what are the comparative earnings per share for the previous year to be reported in the 2013 financial reports according to AASB 133?

According to AASB 133 for shares to be considered as being issued for no consideration,the price paid for the shares would need to be:

Bates Ltd has 6 000 000 ordinary shares on issue at the beginning of the year,1 July 2013.These shares were issued at $4.00 each and have a current market value of $6.25.On 1 February 2014,Bates Ltd bought back 300 000 ordinary shares originally issued at $4.50 for $5.60 each.On 1 May 2014,1 000 000 fully paid-up shares were issued at the current market value.What is the weighted-average number of shares calculated in accordance with AASB 133?

Basic EPS is determined by dividing the earnings of the entity for the reporting period by the average number of shares.

Navajo Ltd have the following options on issue as at 30 June 2009: I: Option issued 1 July 2006 II: Option issued 1 July 2007 III: Option issued 1 July 2008 Number of options 100000 200000 300000 Exercise price \ 2.60 \ 3.30 \ 4.50 Expiry date 30 June 2010 30 June 2012 30 June 2013 The close price for Navajo Ltd shares was $3.35 and the average market price for the period was $3.20. In relation to Option 1 issued on 1 July 2006,how many shares are deemed to be issued for no consideration?