(HAPTER 3 1 IC EARNI problems NGs PER SHARE problem 31-1 (AICPA Adapted) ue Company had the following capita stuctare on December3 1.2003 preference share capital, P199 ss ar, 4% i 25,000 shares issued and o i e STG, S utstandin 2,500,000 ordinary share capital, P50 par, 200,000 shares 10,000,000 The entity reported net income of PS,000,000 for th ded December 31, 2023. in The entity paid no preference dividends during 2022 and paid P160,000 in preference dividends during 2023. What amount should he reported as basic earnin gs per share for 20239 a 24.20 b, 24.50 . 24.80 a. 25.00 Solution 31-1 Answer b Net cone 5,000,000 Preference dividend for one year (2,500,000 x 4%) SED Net income to ordinary shares ean Basic earnings per share (4,900,000 / 200,000) = tether cumulative or noncumulative, only one year preference idend is deducted from net income. ; Ao te d regardless of qtmulative, the preference dividend is deducted reg: “laration, i hen ividend is deducted only w! deg umulative, the preference dividen lated, 415Problem 31-2 (AICPA Adapted) Royal Company reported the following capital structure on Jamey, 2023: ’ Shares issued and OUtstang; i 2 Ordinary share capital SOUR Preference share capital ity i % share divid On October 1, 2023, the entity issued a 10% sl Vidend , ordinary shares and declared the annual cash dividend of P200,00 on preference shares. The preference shares are noncumulative, nonparticipating ang nonconvertible: Net income for the year ended December 31, 2033 was P] +920,000. What amount should be reported as basic earnings per share fo, 2023? a. 8.20 b or CuO G anes, Solution 31-2 Answer d Ordinary shares — January 1, 2023 200,000 Share dividend on October 1, 2023 (10% x 200,000) 20.000 Total ordinary shares outstanding 220,000 Net income 1,920,000 Preference dividend (200,000) Net income to ordinary shares 1,720,000 eed Basic EPS (1,720,000 /220,000) 12 Note that the preference shares are noncumulative but the anpual preference dividend is deducted from net income because it 5 declared during the year. Otherwise. the annual preference dividend is ignored in the abse™ of declaration. 416problem 31-3 (IAA) " january 1.2023, Pink c. 190,000 4% P100 par value Mpany had 200,000 ordinary shares and desde ‘Umulative preference shares outstanding. ne 01 20? ere declared on either the preference or ordinary sh: 92022 0F 93. or ordinary shares on March 1. 2024, prior to the issuance of i ; " the financial statements for sneyear ended December 31,2023. the entity declared a 100% share dividend on ordinary shares. Net income for 2023 was P7,500,000. What amount should be reported as basic earnings per share for 2023? , 35.50 a b. 37.50 c, 17.75 d. 18.75 Solution 31-3 Answerc _ Net income 7,500,000 Preference dividend (4% x 10,000,000) ( 400,000) Net income to ordinary shares 7,100,000 Divide by ordinary shares 400,000 Basic EPS 17.75 Original ordinary shares ae Share dividend — 100% Coens Total ordinary shares 490,000 The share dividend should be retroactively applied to the earliest period Presented. Note also that the share dividend occurred prior to the issuance of the financial statements. dend occurred afer the issuance of the Otherwise, if dividend , if the share GI ae inancial statements, the share split is ignored. 417Problem 31-4 (IAA) reported net income of P15,000,000 fo, , ected an income tax rate of 7, suf is Laguna Company £1 Brel year, The net ineome refl +P5.000.0 The net income included a casualty loss OTF >» 000 before | income tax. | The entity showed the following shareholders’ equity at year-en¢, re capital 10% cumulative, p50 Preference sha 500 par value, 100,000 shares 3 009 Ordinary share capital, P100 par value 3,00 Share premium tae Retained earnings 000,009 Treasury ordinary shares, 50,000, at cost 4,000,00, What amount should be reported as basic earnings per share? a. 58.00 b. 60.00 c. 73.60 d. 48.33 Solution 31-4 Answer a Ordinary shares issued (30,000,000 / 100 par value) 300,000 Treasury shares ( _ 50,000) Ordinary shares outstanding 250,000 = Net income 15,000,000 Preference dividend (10% x 5,000,000) (500,000) Net income to ordinary shares 14,500 Basic earnings per share (14,500,000 /250,000) E Note that the numerator is - i , items included in profit or lose net income reflecting all such as casualty loss. onlnay shareeor arenes Pet share shouldbe based on a7 landing ordinary shares. 418problem 31-5 (FRS) onopoly Company had 19} ; 0,000 equity shares in issue on January 9023. On July 1, 2023, the entites a of a1 for 5 bonus. o; ne: issued 20,000 new shares by n October 1, 202 as 0,000 new shares for cash, , 2023, the entity issued he was P2,600,000. at full market price. Net income for the when amount should be reported as basic earnings per share? 21.67 . b. 16.25 = 1733 d, 20,00 solution 31-5 Answer d January | (100,000 + 20,000 ) 120,000 October 1 ( 40,000 x 3/12 ) 10,000 Average shares 130,000 Basic earnings per share (2,600,000 / 130,000) 20 The bonus issue on July 1, 2023 is actually a share dividend. Problem 31-6 (IAA) On December 31, 2023, Peacock Company, had 500,000 ordinary shares issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2023. Net income for the year was P5,1 00,000. What amount should be reported as basic earnings per share? a& 10.10 b. 12.75 © 12.00 @ 11.35 Solution 31-6 Answer € (5.100,000/ 425,000) 2 400,000 January | (400,000 x 12/12) 25,000 October 1 (100,000x 3/12) aren ia Average outstanding shares 419Problem 31-7 (IFRS) Pee Smart Company re} ted income before tax oF P6,000,000 andj tax aeeea el .500,000 for the current Be The entity paid he the year an ordinary dividend of P400,000 an a preference ditty of B500,000 on redeemable preferences snares. The enn | 200,000 ordinary shares in issue with P5 par value. hag What amount should be reported as basic earnings per share? a. 22.50 b. 20.50 c. 18.00 d. 28.00 Solution 31-7 Answer @ Basic earnings per share (4,500,000/200,000) 2259 —— The preference dividend is ignored because the preference shares are redeemable and considered as financial liability. The preference dividend of P500,000 is already deducted from the net income as a finance cost. ‘Needless to say, if the preference shares are nonredeemable, the preference dividend shall be deducted from net income. Problem 31-8 (IAA) During the current year, Innova Company had outstanding 200,000 ordinary shares and 20,000 cumulative preference shares with a P10 per share dividend. Each preference sharv is convertible into five ordinay shares. The entity had a P3,000,000 net loss for the year. No dividends were paid or declared. What amount should be reported as basic less per share? a 1300 b. 16.00 c. 10.00 d. 10.67 Solution 31-8 Answer b Net loss 3,000,000 Preference dividend (20,000 x 10) ~ 200,000 Total loss to ordinary shares 3,200.08 Basic loss per share (3,200,000 / 200,000) i Since the preference is cumulative, the annual preference dividends to the net loss to get the total loss attributable to the ordinary shares 420problem 31-9 (AICPA Adapted) 1, Company ha irae i inary share capital outstanding d one class of ordi o other securities that ste ei C are potential! iblei i ae Dunne 2025, 100000 kee 2024, two distributions of additional ordinary shares occurred: ri) 1- 20,000 treasury share a yin A2-for-1 share split was ieeaen he 2 0.000. was P4,485,000 and the net income for 1, What amount should be reported as basic earnings per share for 2023 in the comparative income statement Yor 2081 3, What amount should be reported as basic earnings per share for 2024 in the comparative income statement ‘for 2024? Solution 31-9 Question | Answer b 2023 basic EPS (3,500,000 / 260,000) 17.50 100,000 December 31,2023 balance : r July 1, 2024 2-for-1 share split 100,000 Total ordinary shares - December 31, 2023 200,000 The share split should be applied retrospectively t0 the earliest period presented. Question 2 Answer b et 2024 basic EPS (4,485,000 / 730,000) wo Januar 000 x 1212) 30,000 vary 1,2024 (200, 2 12) mil” 1'2024 (20,000 * ee 330,000 Average number of shares 421Problem 31-10 (IFRS) . On January 1, 2023, Braveheart Company provided the follow capital structure: 2 Ordinary share capital, 300,000 shares, P10 par $000 ium ~ ordinary 000, eee capital, 50,000 shares, P100 par, 009 8% cumulative 5,000, Share premium — preference 1,500,09) 1, 2023, the entity agreed with the prefere Sharenoldess to redeem the preference shares for P8,000,009.° The net income for 2023 was P7,500,000. There was no nee dt eealeh the preference dividends for 2023 because of the redemption of the preference shares. ; What amount should be reported as basic earnings per share? a 25.00 b. 20.00 Comets 00) d. 26.67 Solution 31-10 Answer b Preference share capital 5,000,000 Share premium ~ preference 1,500,000 Carrying amount of preference shares 6,500,000 Redemption price 8,000,000 Loss on redemption : 1,500,000) ee Net income 000 Loss on redemption Pt Net income to ordinary 6,000,000 Le Basic EP’ asic EPS (6,000,000/300,000 shares) 20.0 PAS 33, paragraph 16. provi , , Provides that prefe s may Pte eee an entity's tender offer to the holders 1 The exces eg yPaid over the carrying amount of the prefere%s shares represen charge to retained man he preference shareholders 2 Under IFRS, the excess i S s amount is actual] dent that should be deducted from net income ico outa basic EFS 422problem 31-11 (IFRS) “se Company had i re the following appro ~ va me of P15,000,000 for the current year. of cumulative pref ions have not been considered in this amount: adinaty dividends rence dividend for2 years 4,000,000 ane os Premium payable on redempti aoa exceptional gain, net of tax pon Et Mteging oe year Tele ug sanding as eave - The following share transactions occurred jon I Issued at PS per share, P] paid entitled to Participate in Tividend te whe extent paid up F : 250,000 April 1 Full market price at P3 per share i , july 1 Purchase of treasury ordinary shares . toe What amount should be reported as basic earnings per share? a. 4.85 b. 4.57 c. 3.64 d. 3.94 Solution 31-11 Answer a Net income 15,000,000 Exceptional gain 4,000,000 Adjusted net income 19,000,000 Preference dividend for current year (4,000,000/2) _ ( 2,000,000) Preference share premium payable upon redemption (1,000,000) « Net income to ordinary shares 16,000,000 The preference share premium payable on redemption is actually aloss on redemption directly debited to retained earnings. Under IFRS, the oss on redemption should be deducted from net income in computing basic EPS. january 1 (3,000,000x 12/12) 3,000,000 huary | (250,000 x 1/5x 12/12) 59.000 My | (600,000 x 9112 (_ 200,000) A om 3,300,000 Verage shares ( 16,000;000/3,3 00,000) 4.85 Basic earnings per share 423Problem 31-12 (Application Guidance PAS 33) On January 1, 2023, Gina Company had 300,000 ordina, outstanding, P100 par or a total par value of P30,000,009°, Shar, 2023, the entity issued rights to acquire one ordinary share 7 me in the ratio of one share for every 5 shares held. 0 The rights are exercised on March 31, 2023. The market Value each ordinary share immediately prior to March 31, 2023 was PI - The net income for 2023 was P6,000.000. | What amount should be reported as basic earnings per share? a. 17.14 b. 16.67 ec. 18.75 d. 17.39 Solution 3]-12 Answer a Theoretical value of right 160-100 60 = --—— = P10 per right piece 6 Market value of share right-on 160 Theoretical value of right _l0 Market value of share ex-right 150 Adjustment factor 160/150 ——— The number of ordinary shares outstanding prior to the exercise of the rights is multiplied by an adjustment factor whose numerator is the market value of the share right-on and whose denominator is (he market value of the share ex-right. Ordinary shares on January | 30,000 Ordinary shares issued through exercise of rights on March 31 (300,000/5) 60,000 rotal ordi 60,000 Total ordinary shares on March 31 30 January 1 300,000 x 160/150 x 3/12 80) March 31 360,000 x 9/12 ZS Average number of shares 3500 : 714 Basic earnings per share (6,000,000/350,000) we 424problem 31-13 (Application Guidance PAs 33) nuary 1, 2023 f ‘s outstanding Duin! Company had 600,000 ordinary ae yrdinary share at Peo 3, the entity issued rights to acquire avery 4 erence outstanding, 1 the ratio of one new share for t the net income for the year js P8,550,000 What amount should be reported as basic earnings per share? 4, 11.40 ordi : ights issue i . The ihe share immediately prior to the p, 12.00 c, 14.25 d 13.41 Solution 31-13 Answer b 35- Theoretical value of right = a 4+1 S 5 Market value of share right-on ' 35 Theoretical value of right 3} Market value of share ex-right 30 Adjustment factor eb Ordinary shares on January | | 600,000 Ordinary shares issued through exercise of 150.000 rights on October | (600,000/4) 750,000 Total ordinary shares — October | . 525,000 January 1 600,000 x 35/30 x 9/12 187,500 tober 1 750,000 x 3/12 ana Average number of ordinary shares 2.00 12. . 000/712,500) = Basie earnings per share (8,550, 425