Craven Ltd 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 Ltd 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 Ltd 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 basic earnings per share (EPS) is calculated by dividing the net income by the weighted average number of ordinary shares outstanding during the period. Initially, there were 10,000,000 shares. On 1 November 2013, 1,000,000 shares were bought back, reducing the count to 9,000,000 shares. On 1 February 2014, 1,500,000 shares were issued, increasing the count to 10,500,000 shares. The 500,000 partly paid shares issued on 1 April 2014 are treated as ordinary shares for the purpose of calculating EPS, making the total 11,000,000 shares. However, for the weighted average calculation, shares are weighted based on the portion of the year they were outstanding. The buyback and new issues occurred partway through the year, so the calculation must account for this timing. The net income of $20,000,000 is divided by the weighted average number of shares to calculate EPS. The calculation involves more detailed steps, including adjusting for the timing of share transactions, but the correct choice based on the provided options and the need to perform detailed calculations is C) $1.96.

Craven Ltd Has 10 000 000 Ordinary Shares on Issue