In: Accounting
Earnings per share
Bass Ltd, a leading producer of construction, mining and electrical equipment, suffered a significant drop in the demand of the company’s products due to COVID-19 in 2020 that significantly threatens the financial stability of the company. Bass in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Changes in company strategies and accounting policies have a significant impact on reported profit. The basic earnings per share and diluted earnings per share presented in the company’s current year financial statements in accordance with “AASB 133 Earnings per Share” were comparatively higher than that of the last year. In contrast, company share prices have dropped by 20% at the reporting date, according to Yahoo finance.
While most shareholders seem unhappy to own company shares for the meagre dividend attached to them the question of whether Bass Ltd are fully valued at their current share prices continues to linger.
The directors of Bass Ltd are not sure how to calculate and include basic and diluted earnings per share in the company’s financial statements in accordance with AASB 133, and called for a report from the Finance Manager of the company.
On 30 June 2020, Bass Ltd had the following equity:
Preference shares (issued at $ 2 each) |
500 000 shares |
Ordinary shares (issued at $ 3 each) |
$ 3 000 000 |
Retained earnings |
$1 250 000 |
Reserves |
$ 520 000 |
Total equity |
$ 5 770 000 |
During the year ended 30 June 2020, the company earned after tax profit of $1 240 000 from ordinary activities.
The additional information is available.
Required
Following the requirements of AASB 133: