Question

QUESTION 4 (25 MARKS) Given below is the income summary for Travel Raya Bhd for the years ended 31 December 2016 and 2017: Profit before taxation 2017 | 2016 (RM) (RM) 500,000 450,000 (150,000) (140,000) (50,000) (50,000) Taxation Ordinary dividens Additional information: i. On 1 January 2016, the issued share capital consisted of 2 million ordinary shares ii. On 1 January 2016, options were granted to employees to subscribe for 500,000 ordinary shares in Travel Raya Bhd for RM400,000 iii. On 1 July 2016, 1 million ordinary shares were issued for a fair consideration of RM1.5 million. iv. The average market price of one ordinary share Travel Raya Bhd for the year ended 31 December 2016 and 2017 was RM 1 and RM 1.20 each, respectively. v. On 1 April 2017, the company bought back 500,000 ordinary shares. vi. The net loss from discontinued operations for year 2017 was RM100,000. Required: Calculate a) Basic earnings per share (EPS) for 2016 and 2017. (10 marks) b) Diluted earnings per share (DEPS) for 2016 and 2017. (15 marks)

Answer 1

Calculation of share capital

date	PArticulars	shares	amount(RM)	fair value
1st jan 2016	share capital issued	2000000	2000000
1st jan 2016	employee stock	500000	400000
1 st july 2016	share issued	1000000	1500000
31st dec 2016	total shares	3500000	3900000	3500000
1st april 2017	shares buy back	-500000	-500000
31st dec 2017	Total shares	3000000	3400000	3600000

calculation of net income for calculation of Eps and DEPS

		2016	2017
	Profit before taxation	450000	500000
Less	loss from discontinued operations		-100000
	Income before taxation	450000	400000
less	Taxation	-140000	-150000
	Net income	310000	250000

calculation of weighted average shares for year 2016

date	PArticulars	shares	Outstanding shares	No of month	Weighted Average shares as per DEPS	Weighted Average shares as per EPS
1st jan 2016	share capital issued	2000000	2000000	6	2000000*6/12=1000000	2000000*6/12=1000000
1st jan 2016	employee stock	500000	500000	6	500000*6/12=250000	0
1 st july 2016	share issued	1000000	3500000	6	3500000*6/12=1750000	3000000*6/12=1500000
31st dec 2016	total shares	3500000			3000000	2500000

calculation of weighted average shares for year 2017

date	PArticulars	shares	Outstanding shares	No of month	Weighted Average shares as per DEPS	Weighted Average shares as per EPS
1st jan 2017	share capital	3500000	3500000	3	3500000*3/12=875000	3000000*3/12=750000
1st april 2017	buy back	500000	3000000	9	3000000*9/12=2250000	2500000*9/12=1875000
	total shares	3000000			3125000	2625000

Eps = (Net Income - prefered dividend ) / (weighted average shares for year)

calculation of Eps

	2016	2017
net income	310000	250000
weighted average shares for year	2500000	2625000
Eps	0.124 RM	0.095RM

calculation of Deps

	2016	2017
net income	310000	250000
weighted average shares for year	3000000	3125000
DEps	0.1033 RM	0.08RM