Earnit ple is a listed company. The issued share capital of the company at 1 April...

  

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Earnit ple is a listed company. The issued share capital of the company at 1 April 1999 was as follows: ● 500 million equity shares of 50p each. 100 million £1 non-equity shares, redeemable at a premium on 31 March 2004. The effective finance cost of these shares for Earnit plc is 10% per annum. The carrying value of the non-equity shares in the financial statements at 31 March 1999 was £110 million. Extracts from the consolidated profit and loss account of Earnit ple for the year ended 31 March 2000 showed: Turnover Cost of sales Gross profit Other operating expenses Operating profit Exceptional gain Interest payable Profit before taxation Taxation Profit after taxation Appropriations of profit (see note) Retained profit Note-appropriations of profit: to non-equity shareholders to equity shareholders E million 250 (130) |88|0|38|48|²|| =*|| 120 (40) 10 (25) 65 (20) 45 (26) 19 11 15 26 The company has a share option scheme in operation. The terms of the option are that option holders are permitted to purchase 1 equity share for every option held at a price of £1.50 per share. At 1 April 1999, 100 million share options were in issue. On 1 October 1999, the holders of 50 million options exercised their option to purchase, and 70 million new options were issued on the same terms as the existing options. During the year ended 31 March 2000, the average market price of an equity share in Earnit plc was £2.00. There were no changes to the number of shares or share options outstanding during the year ended 31 March 2000 other than as noted in the previous paragraph. Requirements (a) Compute the basic and diluted camnings per share of Earnit ple for the year ended 31 March 2000. Comparative figures are NOT required. (10 marks) (b) Explain to a holder of equity shares in Earnit plc the usefulness of both of the fig- ures you have calculated in part (a). (10 marks) Earnit ple is a listed company. The issued share capital of the company at 1 April 1999 was as follows: ● 500 million equity shares of 50p each. 100 million £1 non-equity shares, redeemable at a premium on 31 March 2004. The effective finance cost of these shares for Earnit plc is 10% per annum. The carrying value of the non-equity shares in the financial statements at 31 March 1999 was £110 million. Extracts from the consolidated profit and loss account of Earnit ple for the year ended 31 March 2000 showed: Turnover Cost of sales Gross profit Other operating expenses Operating profit Exceptional gain Interest payable Profit before taxation Taxation Profit after taxation Appropriations of profit (see note) Retained profit Note-appropriations of profit: to non-equity shareholders to equity shareholders E million 250 (130) |88|0|38|48|²|| =*|| 120 (40) 10 (25) 65 (20) 45 (26) 19 11 15 26 The company has a share option scheme in operation. The terms of the option are that option holders are permitted to purchase 1 equity share for every option held at a price of £1.50 per share. At 1 April 1999, 100 million share options were in issue. On 1 October 1999, the holders of 50 million options exercised their option to purchase, and 70 million new options were issued on the same terms as the existing options. During the year ended 31 March 2000, the average market price of an equity share in Earnit plc was £2.00. There were no changes to the number of shares or share options outstanding during the year ended 31 March 2000 other than as noted in the previous paragraph. Requirements (a) Compute the basic and diluted camnings per share of Earnit ple for the year ended 31 March 2000. Comparative figures are NOT required. (10 marks) (b) Explain to a holder of equity shares in Earnit plc the usefulness of both of the fig- ures you have calculated in part (a). (10 marks)

Answer rating: 100% (QA)

ANSWER A Diluted EPS is a calculation used to gauge the quality of a companys earnings per share EPS if all convertible securities were exercised Conv... View the full answer