Craven Plc has 10 000 000 ordinary shares on issue at the beginning of the year,1 July 2013.These shares were issued at $0.50 each and have a current market value of €3.00.On 1 November 2013,Craven Plc bought back 1 000 000 ordinary shares originally issued at €0.50 for €1.90 each.On 1 February 2014,1 500 000 shares were issued fully paid up at the current market value of these shares.Also during the period,500 000 partly paid-up ordinary shares were issued.They were issued on 1 April 2014 at an issue price of €2.90.These shares were partly paid to €1.80.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price. Craven Plc has 3 000 000,€1.00 preference shares that provide cumulative dividends at a rate of 8%.
For the year ended 30 June 2014,the net income after tax was €20 000 000.
What are the basic earnings per share for Craven Ltd for the year ended 30 June 2014?

Question

Quizplus · Accepted Answer

The weighted average number of ordinary shares for the year ended 30 June 2014 is calculated as follows:

Ordinary shares issued at the beginning of the year = 10,000,000
Shares bought back on 1 November 2013 = (1,000,000)
Shares issued on 1 February 2014 = 1,500,000
Weighted average number of ordinary shares = 10,000,000 - 1,000,000 + 1,500,000 = 10,500,000

The earnings per share is calculated as net income after tax divided by the weighted average number of ordinary shares:

Earnings per share = €20,000,000/10,500,000 = €1.90

Therefore, the basic earnings per share for Craven Ltd for the year ended 30 June 2014 is €1.96 (rounded to two decimal places).

The correct option is C.

Craven Plc Has 10 000 000 Ordinary Shares on Issue