What will H report as basic EPS for the year ended 12-31-14? ROUND TO NEAREST PENNY.
What will H report as diluted EPS for the year ended 12-31-14? ROUND TO NEAREST PENNY.
Basic EPS | ||
= Net income attributable to equity shareholders/Avg. no. of outstanding equity shares | ||
Computation of net income attributable to equity shareholders | ||
Net Income | $9,420,000 | |
Less: Tax @ 20% | ($1,884,000) | |
Income after tax | $7,536,000 | |
Less: | ||
Preference share dividend | ($300,000) | |
Net income attributable to equity shareholders | $7,236,000 | |
Computation of Basic EPS | ||
Net income attributable to equity shareholders | $7,236,000 | |
Number of equity share outstanding as on 12-31-14 | 3,770,000 | |
Basic EPS | $1.92 | |
Diluted EPS | ||
The formula for computing the diluted EPS remains the same as used for Basic EPS with the | ||
following adjustments. | ||
(i) The net income should be adjusted for the effects of all dilutive potential equity shares | ||
(ii) The number of equity shares should include the equity shares which would be issued on | ||
conversion of all dilutive potential equity shares. | ||
Adjutments to net income | ||
Interest on 5% 15-year converible bonds | $250,000 | |
Interest on 10% 40-year converible bonds | $1,000,000 | |
Total interest expense | $1,250,000 | |
Computation of Adjusted Net Income | ||
Net Income | $9,420,000 | |
Add: Interest expense against convertible bonds | $1,250,000 | |
Adjusted Net Income | $10,670,000 | |
Less: Tax @ 20% | ($2,134,000) | |
Income after tax | $8,536,000 | |
Net income attributable to equity shareholders | $8,536,000 | |
Computation of adjusted number of equity shares outstanding | ||
Common stock issued and outstanding | 3,770,000 | |
Equity shares from conversion of convertiblep reference shares | 400,000 | |
Equity share from exercise of employee stock options | 400,000 | |
Equity shares from conversion of 5% convertible bonds | 10,000 | |
Equity shares from conversion of 10% convertible bonds | 400,000 | |
Number equity shares for diluted earnings calculation | 4,980,000 | |
Computation of Diluted EPS | ||
Adjusted net income attributable to equity shareholders | $8,536,000 | |
Number equity shares for diluted earnings calculation | 4,980,000 | |
Diluted EPS | $1.71 | |
Answer | ||
Basic EPS reported in financial statements on 12/31/14 | $1.92 | |
Diluted EPS reported in financial statements on 12/31/14 | $1.71 | |
Note : | ||
Since employee stock options have not been excercised during the year 2014, the employee | ||
compensation expense related to stock options ( excess of market value of equity over the price at | ||
which the exercise option is granted) is not an expense for the year and hence, not considered in | ||
computing the adjusted net income |
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