CHAPTER 19: BASIC EARNING PER SHARE

Problem 19—1
Required: Present the basic earnings per share on the face of the income statement under each of
the following assumptions:
1. The entity has only one class of share capital, 50,000ordiinary shares with par value of P100

Income before tax P 5,000,000

Income tax (1,600,000)
Loss from discontinued operations (600,000)
Net Income 2,800,000
Divide by outstanding ordinary shares 50,000
Basic earnings per share P 56

2. The entity has two classes of share capital:

Preference share, 10% cumulative, P100 par 2,000,000
Ordinary share, P100 par, 50,000 shares 5,000,000

Net Income P 2,800,000

Preference dividend for the current year (10% x 2,000,000) 200,000
Income to ordinary share 2,600,000
Divide by outstanding ordinary shares 50,000
Basic earnings per share P 52

Problem 19-2
Required:
1. Compute the average shares outstanding

Date Shares Fraction Average

January 1 120,000 12/12 120,000
June 1 12,000 7/12 7,000
September 30 (24,000) 3/12 (6,000)
Average shares 121,000
outstanding

2. Compute the basic earnings per share

Net Income 3,630,000

Divide by average shares outstanding 121,000
Basic earnings per share P 30

Problem 19-3
Required:
1. Compute the average ordinary shares outstanding

Date Shares Fraction Average

January 1 150,000 12/12 150,000
May 1 30,000 8/12 20,000
July 1 (12,000) 6/12 (6,000)
December 1 6,000 1/12 500
Average Ordinary 164,500
Shares Outstanding

2. Compute the basic loss per share

 Net loss (P 2,690,000)
Preference dividend for the current year (12% x 5,000,000) (600,000)
Total loss to ordinary share (3,290,000)
Divide by average ordinary shares outstanding 164,500
Basic loss per share (P 20)

Problem 19-4
Required:
1. Determine the average ordinary shares outstanding

Date Shares Fraction Average

January 1 1,000,000 12/12 1,000,000
March 1 120,000 10/12 100,000
November 1 (48,000) 2/12 (8,000)
Average Ordinary 1,092,000
Shares Outstanding

Shares
January 1 (500,000 x2) 1,000,000
March 1 (60,000 x 2) 120,000
2. Determine the basic earnings per share

Net Income P 5,860,000

Preference dividend for the current year (10% x 4,000,000) 400,000
Income to ordinary share 5,460,000
Divide by outstanding ordinary shares 1,092,000
Basic earnings per share P5

Problem 19-5
Required:
1. Compute the average ordinary shares outstanding

Date Shares Fraction Average

January 1 3,000,000 12/12 3,000,000
January 1 50,000 12/12 50,000
April 1 600,000 9/12 450,000
July 1 (400,000) 6/12 (200,000)
Average Ordinary 3,300,000
Shares Outstanding

2. Compute the basic earnings per share

Net Income P 15,000,000

Preference dividend for the current year (4,000,000/2) (2,000,000)
Payable on redemption (1,000,000)
Exceptional profit 4,000,000
Net Income 16,000,000
Divide by outstanding ordinary shares 3,300,000
Basic earnings per share P 4.85
Problem 19-6
Required: Compute the basic earnings per ordinary share and per preference share

Preference Ordinary
Basic Dividend
Preference (8% x 3,000,000) 240,000
Ordinary (100,000 x 10) 1,000,000
Balance for participation (1,360,000)
Preference (3/8 x 1,360,000) 510,000
Ordinary (5/8 x 1,360,000) _________ 850,000
Total dividends 750,000 1,850,000

Basic earnings per share

Preference share (750,000/30,000) P 25
Ordinary share (1,850,000/100,000) P 18.50

Problem 19-7
Required:
1. Compute the theoretical value of share ex-right
11-5 = 1
5+1
2. Compute the adjustment factor

Market value of share right on 11

Theoretical value of right (1)
Market value of share ex-right 10

Adjustment factor (11/10) 1.1

3. Compute the basic earnings per share for 2021, 2022, and 2023

2021
Net income P 11,000,000
Ordinary shares outstanding 600,000
Multiply by adjustment factor 1.1
Adjusted ordinary share 660,000
Basic earnings per share
(11,000,000/660,000) P 16.67

2022
Net income P 15,000,000
January 1(600,000 x 1.1 x 2/12) 110,000
March 1 (720,000 x 10/12) 600,000
Total average ordinary shares 710,000
Basic earnings per share P 21.13
(15,000,000/710,000)

2023
Net income P 18,000,000
Divide by Outstanding shares 720,000
Basic earnings per share P 25

Problem 19-8
1. Compute the theoretical value of share ex-right
12-6 = 1
5+1
2. Compute the adjustment factor

Market value of share right on 12

Theoretical value of right (1)
Market value of share ex-right 11

Adjustment factor (12/11) 1.09

3. Compute the basic earnings per share for 2021, and 2022

2021
Net income P 2,250,000
Ordinary shares outstanding 810,000
Multiply by adjustment factor 1.09
Adjusted ordinary share 882,900
Basic earnings per share
(2,250,000/882,900) P 2.55

2022
Net income P 3,500,000
January 1 (810,000 x 1.09 x 3/12) 220,725
March 1 (972,000 x 9/12) 729,000
Total average ordinary shares 949,725
Basic earnings per share P 3.69
(3,500,000/949,725)