COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

QUESTIONS 1
(Issue of shares at full market price during the period)
Kiagi Ltd issued 200,000 shares at full market price (Tshs 1,500)
on 01.09.2016, other relevant information included the
following.

2016 2015
Ordinary profit attributable to
Ordinary share holders Tshs 10,000,000 8,000,000

Number of ordinary shares in issue at

31 December 1,000,000 800,000
Required:
1. Calculate the Basic Earnings per share as they would appear in the 2015 financial
statement.

2. Calculate the Basic Earnings per share as they would appear in the 2016 Financial
Statement.

QUESTIONS 2
Bonus issue of shares
Wazima Ltd makes a bonus issue of one new share for every five
existing shares held on 01.05.2016
other relevant information
2016 2015
Ordinary profit attributable to the ordinary
Share holders for the year ending 31 Dec. 10,000,000 8,000,000
Number of ordinary shares in issue at
31 December 1,200,000 1,000,000

1. Calculate the Basic Earnings per share as they would appear in the 2015 financial
statement.
2. Calculate the Basic Earnings per share as they would appear in the 2016 Financial
Statement.

QUESTIONS 3
Right Issues
An entity issued one new share for every two existing shares held by way of rights at Shs. 150
per share on 31st March 2016. The pre-issue market price was shs. 300 per share.
Other relevant information.
Ordinary Profit attributable to ordinary shareholders for the year ending 31st December: -

2015 2016
Profit shs. 5,500,000 shs.4, 600,000
Number of Ordinary Shares 1,200,000 800,000

Required: Calculate basic EPS as they would appear in 2015 and 2016 Financial Statements
COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

Part II: Computation of Diluted Earnings per share

The following steps are involved
i) Compute the “control number”
ii) Identify the potential ordinary shares
iii) Determine the dilutive potential ordinary shares
iv) Rank the dilutive potential ordinary shares starting with the must dilutive to the
least dilutive
v) Adjust the basis earnings per share for the effects of the dilutive potential
ordinary shares as per the ranking in (iv) above

Q4. Convertible bonds and convertible preference shares

On April 20X1, an entity issued Shs. 1,250,000 8% convertible unsecured bonds for cash at
par. Each Shs.100, 000 nominal bonds will be convertible in 20X6 to 20X9 into the number of
ordinary shares set out below:
On 31 December 20X6 124shares
On 31December 20X7 120 shares
On 31 December 20X8 115 shares
On 31 December 20X9 110
shares Relevant information
The company has in issue 4,000 Shs.250 ordinary
shares The income Tax rate is 30%
Trading results for the year ended 31 December
20X2Shs 20X1Shs
Profit before Interest and tax 1,050,000 900,000
Finance Costs (100,000) (75000)*
Profit before Tax 950,000 825,000
Corporate Tax (285,000) (247,500)
Profit for the period 665,000 577,500

Required: Compute for the year ending 20x2

a. Basic EPS
b. Diluted EPS

Q5 Option and warrants to subscribe for shares

During 20X3 a company had 200,000 shares under option. The options can be exercised for
Shs. 180 per share, compared with an average fair value during 20X3 of Shs. 250.
The company had 700,000 shares already in issue, and had made a net profit of Shs. 1,900,000.
Required: Compute for the year ending 20x3
a. Basic EPS
b. Diluted EPS

Q6. Partially paid shares

A company has share capital of 2 million ordinary shares of shs 10 each fully paid up. On 1st
January 2007 the company issued a further 1 million shs 10 ordinary shares. The full price of
the new share was shs15 and they were 50% paid on issue. The dividend participation will be
50% until the shares are fully paid. The shares remained 50% paid at 31 st December 2007.
During the year to 31st December 2007 the average fair value of one ordinary share was shs 20
The net profit was shs 8,000,000
Required: Compute for the year ending 31st December 2007
COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

a. Basic EPS
b. Diluted EPS
Q7 Contingently issuable shares
A private accountancy training college has contracted to issue one million shares to its staff if
the number of papers sat and passed at college averages 3,000 per annum over the period from
January 2003 to December 2005. The shares will be issued on 1st January 2006. There were
2,000,000 shares in issue in 2003.
The results for the three periods are as follows:
2003 2004 2005
Exams sat and passed 4,500 3,800 4,900
Profits shs 760,000 shs 600,000 shs 840,000

Required to
a. Compute the basic EPS
b. Compute the diluted EPS

REVIEW QUESTIONS ON EARNING PER SHARE (NBAA & ACCA

Adapted)
QN.1. ACCA Adapted
The following is a summarized Income Statement of Covenant Financial Consultants for the
year ended 30 June 2002
Shs
Profit before interest and tax 11,250,000
Less: Debenture interest (15% Shs 8,000,000) (1,200,000)
Profit before tax 10,050,000
Less: Tax (18% Shs 10,050,000) (1,809,000)
Profit for the period (8,241,00)

Movement in Retained Earnings

Profit for the period 8,241,000
Dividends:
Preferences (1,549,800)
Ordinary (5,000,000)
Retained profit for the year 1,691,200

The company‟s net assets are financed by:

- Ordinary share capital
- Cumulative preference shares, issued 8 years ago, convertible into 4,000 ordinary shares
- Debentures issued 5 years ago, convertible into 2,000 ordinary shares in the last
Quarter of 2003 or into 3,000 ordinary shares in the last Quarter of 2004
In addition debenture holders have an option to purchase 4,800 ordinary shares in two years
time at a price of Shs 77.25 per share.

There were 18,000 ordinary shares in issue as at 30 June 2002. on 1 November 2001 the
company made a rights issue of one ordinary share for every two ordinary shares held as at 1
July 2001. the issue prince was Shs 84 per share. All rights were exercised. The last cum
rights price quoted was Shs. 108 per share. The average price per ordinary share during the
COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

year was Shs 90

Required
Calculate, for the year ended 30 June 2002
i) The company‟s basic earnings per share
ii) The company‟s diluted earnings per share

QUESTION 2 (NBAA Adapted November 2007)

a) Earnings per share is one of the most quote statistics in financial analysis, coming into
prominence because of the widespread use of the price earnings ration as an
investment decision making yardstick.
REQUIRED
A part from other disclosures, explain why there is a need to disclose dilute earnings
per share in financial statement.

b) Wazalengo Ltd is a listen company. On 1st November 2003 its issued share capital was
10,000,000 ordinary shares of Tshs 600 each and 4,000,000 4% preference shares of
Tshs 1,000 each. During the year ended 31 October 2004, the company made a rights
offer to its shareholders of three new ordinary shares of Tshs 600 each for every 10
existing ordinary shares held. The offer was fully taken up by shareholders who
purchased the new shares for Tshs 3,000 each on 1st May 2004. The fair value of each
ordinary share on 30th April 2004 was Tshs 4,150.

At 31 October 2004, the ordinary shareholders of Wazalendo also held options,

exercisable between 1 November 2007 and 1st May 2008 to purchase 1,200,00 ordinary
shares at Tshs 2,800 per share. No options were issued during the year ended 31 st
October 2004. The average fair value of the ordinary shares during the year was Tshs
4,200 each.

The company paid an ordinary divided of Tshs 1,040,000,000 and a preference divided
of Tshs 160,000,000 during the year to 31st October 2004
Wazalendo‟s draft profit and loss account for the year ended 31st October 2004 shows
the following

Shs (000,000)
Operating profit 4,525
Interest payable (329)
Profit on ordinary activities before taxation 4,196
Taxation (1,279)
Profit on ordinary activities after taxation 2,917
Minority interests (132)
Profit for the financial year 2,785
REQUIRED:
i) Calculate the basic earnings per share for Wazalendo for the year ended 31st
October 2004
ii) Calculate the diluted earnings per share for the year ended 31st October 2004
iii) Prepare the earnings per share disclosure note for the year ended 31st October 2004
COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

SUGGESTED SOLUTION ON QN. 1

i) BEPS = Earnings attributable to Ordinary shareholders
Weighted average number of ordinary
shares Earnings attributable to Ordinary Shareholders
= 8,241,000 – 1,549,800 = Ths 6,691,200

BEPS = 6,691,200 = Tshs 410

16,320
ii) Diluted EPS (DEPS)
a) Control factor = BEPS = Tshs 410 per share
b) Potential ordinary shares are
✓ Cumulative preference share convertibles instruments
✓ Debentures
✓ Option
c) Identification of dilutive elements arising from potential Ordinary Shares
Additional Additional no. of Increase/decrease Banking
earning /loss Ordinary shares in addition EPS

Preference 1,549,800 4000 387.45 3

dividends saved

Debenture 1,2000,000(1-0.18)
interest save 984,000 3000 328 2

Options 0 680 0 1

DILUTED EARNINGS PER SHARE

Earnings No of shares DEPS
BEPS 6,691,200 16,320 410
Options 0 680
6,691,200 17,000 393.6
Debentures 984,000 3,000
7,675,200 20,000 383.76
Preference share 1,549,800 4000
9,225,000 24,000 384.375

Therefore the diluted EPS will be Tshs 383.76 per share

QUESTION 4 (NBAA Adapted May 2012)

A statement showing the retained profit of Pyuza Ltd for the year ended 31st December
2004 is set out below:

Tshs
Tshs
Profit before tax 2,530,000,000
COVENANT FINANCIAL CONSULTANTS IAS 33 EARNINGS PER SHARE

Less: income tax expenses (1,127,000,000)

1,403,000,000
(230,000,000)
Transfer to reserve 1,173,000,000
Dividends:
Paid preference interim dividend 138,000,000
Paid ordinary interim dividend 184,000,000
Declare preference final dividend 138,000,000
Declare ordinary final dividend 230,000,000
690,000,000
Retained profit 483,000,000
On 1st January, 2004 the issued share capital of Pyuza Ltd was 4,600,000;6% preference shares
of Tshs 1,000 each and 4,120,000 ordinary shares of Tshs 1,000 each.

REQUIRED:
Compute the Earning Per Share (on basic and dilute basis) in respect of the year ended 31st
December, 2004 for each of the following situation. Each of the three situations in
(a) – (c) below is to be dealt with separately: assume where appropriate that the income tax
rate is 30% .

(a) During the basis that there was no change in issued share capital of the company during
the year ended 31st December, 2004
(4.5marks)

(b) On the basis that the company made a rights issue of Tshs 1,000 ordinary shares on 1st
October, 2004 in the proportion of 1 for every 5 shares held, at a price of Tshs 1,200.
The market price for the share at close of trade on the last of quotation cum rights was
Tshs 1,780 per share. (10marks)

(c) On the basis that the company made no new issue of shares during the year ended 31st
December, 2004 but on that date it had in issue Tshs 1,500,000; 10% convertible loan
stock 2008 – 2011. This loan stock will be convertible into ordinary Tshs 1,000 shares
as follows:

2008:90 Tshs 1,000 shares for Tshs 100,000 nominal value loan
stock 2009:85 Tshs 1,000 shares for Tshs 100,000 nominal value
loan stock. 2010:80 Tshs 1,000 shares for Tshs 100,000 nominal
value loan stock. 2011:75 Tshs 1,000 shares for Tshs 100,000
nominal value loan stock.