Question

Royal Company reported the following capital structure on January 1, 2021:

 

	Shares   issued and outstanding
Ordinary   share capital	200,000
Preference   share capital	50,000

    

On October 1, 2021, the entity issued a 10% share dividend on ordinary shares and paid the annual cash dividend of P200,000 on preference shares. The preference shares are noncumulative, nonparticipating and nonconvertible. Net income for the year ended December 31, 2021 was P1,920,000. What amount should be reported as basic earnings per share?

	a.	7.82
	b.	8.20
	c.	8.72
	d.	9.36

Answer 1

Weighted average no of shares outstanding=200,000(given)

Conversion of diluted securities=50,000 shares convertible into 2 ordinary shares=100,000 shares

For part b)

Preference divivdend is accounted only for half year ,since securities are issued on July 1

1/2 represents accounting for half year.

Coversion of diluted securities are also accounted for half year to calculate diluted EPS.

In case of doubts , comment below.