GRANT plc prepares its financial statements to 31 December each year and the com
ID: 2560314 • Letter: G
Question
GRANT plc prepares its financial statements to 31 December each year and the company’s average share price for the year ended 31 December 2016 was 250 pence.
The company’s issued ordinary share capital on 1 January 2016, which comprised 50 pence ordinary shares, was £15,000,000. On 30 June 2016, the company capitalised reserves by issuing three bonus 50 pence ordinary shares for each 50 pence ordinary share held.
GRANT plc’s profit before tax for the year ended 31 December 2016 was £12,500,000, and the income tax liability for 2016 was assessed at £3,000,000 before adjusting for an under-provision of £1,000,000 in respect of 2015. GRANT plc has an effective rate of income tax of 25%.
Additional Information
1.During the year ended 31 December 2016, GRANT plc had 2,500,000 £1 10% convertible preference shares in issue. Each preference share may be converted into three 50 pence ordinary shares during the year ended 31 December 2017.
2.In 2012, GRANT plc issued options that give the company’s directors the right to subscribe for 50 pence ordinary shares between 2015 and 2019 at 125 pence per ordinary share. At 31 December 2016, there were 3,500,000 options still outstanding.
3.On 1 January 2016, GRANT plc had £20,000,000 10% convertible loan stock in issue. On 1 October 2016, the loan stock was converted into 50 pence ordinary shares on the basis of 25 ordinary shares for each £50 of loan stock.
Requirement
Calculate GRANT plc’s basic and diluted earnings per share for the year ended 31 December 2016 in accordance with IAS 33 Earnings Per Share.
Explanation / Answer
Shares Outstanding on 1 January 2016 (15000000/0.50) 30000000 Shares Issued on 30th June 2016 (30000000*3 bonus shares) 90000000 Loan Stock converted nito common stock (20,000,000/50*25) 10000000 Calculating Weighted average shares outstanding 30000000* (6/12) (30000000 outstanding for half year) 15000000 120000000 (3/12) (120000000 outstading 1 Quarter) 30000000 130000000 (3/12) (130000000 outstanding for 1 Quarter) 32500000 Weighted Average Shares Outstanding 77500000 Basic EPS Diluted EPS Profit Before tax 12500000 12500000 Income tax (at 25%) 3125000 3125000 Net Income 9375000 9375000 Minus: Preferred dividend 250000 - Numerator Net income attributable to common shareholders 9125000 9375000 Basic Weighted Average Shares Outstanding 77500000 77500000 Additional Shares if preferred converted - 7500000 Additional Shares if options converted - 3500000 Denominator Basic/Diluted Shares Outstanding 77500000 88500000 EPS 0.12 0.11
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