Tucson Ltd reported a net income after tax of $2 850 000 for the year ended 30 June 2012.The capital structure of Tucson Ltd follows: $$\begin{array} { | l | r | r | }
\hline & \text { 30 June 2011 } & 30 \text { June 2012 } \
\hline \text { Ordinary shares } & 500000 & 500000 \
\hline \begin{array} { l }
\text { Convertible preferred shares (\$3 dividend per share; convertible } \
\text { to } 10000 \text { ordinary shares ) }
\end{array} & 10000 & 10000 \
\hline 8 \% \text { Convertible notes (convertible to } 30000 \text { ordinary shares) } & \$ 1000000 & \$ 1000000 \
\hline
\end{array}$$ Tucson Ltd paid its preference shareholders during the year and there are non-dividends in arrears.All potential ordinary shares were outstanding on 1 July 2011.
The company's tax rate is 30%.
In accordance with AASB 133,what should the basic earnings per share and diluted earnings per share for Tucson Ltd should be?

Question

Tucson Ltd reported a net income after tax of $2 850 000 for the year ended 30 June 2012.The capital structure of Tucson Ltd follows: $$\begin{array} { | l | r | r | } 
\hline & \text { 30 June 2011 } & 30 \text { June 2012 } \
\hline \text { Ordinary shares } & 500000 & 500000 \
\hline \begin{array} { l } 
\text { Convertible preferred shares (\$3 dividend per share; convertible } \
\text { to } 10000 \text { ordinary shares ) }
\end{array} & 10000 & 10000 \
\hline 8 \% \text { Convertible notes (convertible to } 30000 \text { ordinary shares) } & \$ 1000000 & \$ 1000000 \
\hline
\end{array}$$ Tucson Ltd paid its preference shareholders during the year and there are non-dividends in arrears.All potential ordinary shares were outstanding on 1 July 2011.
The company's tax rate is 30%.
In accordance with AASB 133,what should the basic earnings per share and diluted earnings per share for Tucson Ltd should be?

Quizplus · Accepted Answer

The basic EPS is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares. The diluted EPS considers the conversion of convertible securities. The correct calculations lead to $5.70 for basic EPS and $5.44 for diluted EPS.

Tucson Ltd Reported a Net Income After Tax of $2