Question

TR20-9 Basic and Diluted EPS (LO 20-2, 20-3)

Farmhill Ltd. had 1,400,300 common shares outstanding on 1 January 20X6, the beginning of its 20X6 fiscal year. During the year, on 1 May, the company issued 520,000 preferred shares convertible into common shares on a 1-for-1 basis. These preferred shares have a $0.75 annual cumulative dividend. The investors must convert the shares to common shares by 30 April 20X9. During the year, there were no conversions and the dividends were declared and paid on 30 November. The company reported net profit of $2,900,800 and total comprehensive income of $2,250,600 for the year ended 31 December 20X6.

Required:
Calculate the company’s basic and diluted EPS for 20X6.

Answer 1

Farmhill Ltd.
Calculation of Basic EPS
Net profit	2,900,800.00	A
Common Shares	1,400,300.00	B
EPS	2.07	C=A/B
Calculation of Diluted EPS
Calculation of adjusted net profit
Net profit	2,900,800.00
Add: Dividend on Preference Shares	390,000.00
(520000*.75)
Adjusted net profit	3,290,800.00	D
Calculation of adjusted common shares
	E	F	G=E*F
Particulars	Units	Holding Period(months)
Common Shares	1,400,300.00	12.00	16,803,600.00
Preference Shares	520,000.00	8	4,160,000.00
Total	1,920,300.00		20,963,600.00	H
Adjusted number of shares as on 31.12.20X6			1,746,966.67	I=H/12
Diluted EPS
Adjusted net profit		3,290,800.00	See D
Adjusted number of shares as on 31.12.20X6		1,746,966.67	See I
Diluted EPS		1.88	D/I