Daisy Ltd has a net income after tax of $2,000,000 for the year ended 30 June 2003.At the beginning of the period Daisy Ltd has 900,000 fully paid-up ordinary shares on issue.On 1 December 2002 Daisy Ltd had issued a further 300,000 fully paid-up ordinary shares at an issue price of $2.00.On 1 March 2003 Daisy Ltd made a 1 for 6 bonus issue of ordinary shares out of retained earnings.The last sale price of an ordinary share before the bonus issue was $2.50.At the beginning of the current period Daisy Ltd also had 500,000,$1.00,5 per cent cumulative preference shares on issue.The dividends on the preference shares are not treated as expenses in the income statement. The basic earnings per share for the period ended 30 June 2002 was $1.50 per share.What are the earnings per share figure for the period ended 30 June 2003 and what are the comparative earnings per share for the previous year to be reported in the 2003 financial reports according to AASB 133?

Question

Quizplus · Accepted Answer

First, we need to calculate the weighted average number of shares for the current period. At the beginning of the period, there were 900,000 shares. On 1 December 2002, an additional 300,000 shares were issued, so for the first 2 months of the period, the weighted average number of shares was 900,000. For the remaining 10 months of the period, there were 1,200,000 shares (900,000 + 300,000), so the weighted average number of shares for the current period is:
(900,000 x 2/12) + (1,200,000 x 10/12) = 1,200,000 shares
Next, we need to adjust for the bonus issue. For every 6 shares held, shareholders received an additional 1 share, so the number of shares increased by 1/6. The adjusted weighted average number of shares for the current period is:
1,200,000 x 7/6 = 1,400,000 shares
Now we can calculate the earnings per share for the current period:
Earnings per share = Net income after tax / Weighted average number of shares
Earnings per share = $2,000,000 / 1,400,000 shares = $1.43
Finally, we need to adjust the previous year's earnings per share for the bonus issue. We can do this by assuming the bonus issue occurred at the beginning of the previous period and adjusting the number of shares accordingly. The adjusted weighted average number of shares for the previous period is:
900,000 x 7/6 = 1,050,000 shares
Comparative earnings per share for previous year = Basic earnings per share for previous year x (Adjusted weighted average number of shares for previous year / Weighted average number of shares for previous year)
Comparative earnings per share for previous year = $1.50 x (1,050,000 / 900,000) = $1.75
Therefore, the answer is A, with current period earnings per share of $1.43 and comparative earnings per share for the previous year of $1.75.

Daisy Ltd Has a Net Income After Tax of $2,000,000