Monday, 5 January 2015

Example of EPS and Irredeemable Dividend

Example of EPS and Irredeemable Dividend

The irredeemable dividend is deducted from the ordinary profit while calculating the Earning per share .However there is no adjustment for redeemable shares dividend (because the profit is already adjusted fro the redeemed able preference shares as finance cost).

Irredeemable preference shares Dividend
Profit is Adjusted
Profit includes the cost.
Redeemable preference Share Dividend
Profit is not Adjusted
Profit has already adjusted

Example of Basic Earnings Per Share (Irredeemable preference Share)

Ordinary Profit
$ 500,000
Redeemable preference Share 5 %
100, 000 shares
Irredeemable preference Share  6 %
300,000 Shares
Ordinary Shares
500,000



Solution

1. Adjust the profit with dividend of irredeemable preference share

Ordinary Profit
$ 500,000
Irredeemable Preference Shares Divided (300,000 x .06)
($ 18,000)
Adjusted Profit
$ 482,000

2. Calculate the Earnings per Share

Adjusted Ordinary profit
$ 482,000
Ordinary Shares
500,0000
Earning Per Share
482,000/500,000 =$ .964

It is to be noted that only ordinary profit is to be divided by only ordinary shares and therefore redeemable and irredeemable (both) are ignored while dividing the ordinary profit with ordinary shares.




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