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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