Question

Riverbed Corporation had 2020 net income of $777,000. During 2020, Riverbed paid a dividend of $2 per share on 45,500 shares of preferred stock. During 2020, Riverbed had outstanding 245,000 shares of common stock. Compute Riverbed’s 2020 earnings per share. (Round answer to 2 decimal places, e.g. 3.56.) Earnings per share $enter earnings per share in dollars rounded to 2 decimal places per share

Answer 1

What is Earnings per share (EPS) ?

IAS 33 applies to companies whose ordinary shares or potential ordinary shares are publicly traded or companies in the process of issuing such shares in public markets.

It requires the calculation of basic and diluted earnings per share (EPS) which must be presented on the face of the statement of profit or loss and other comprehensive income.

Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding. The standard provides guidance on the calculation of these amounts.

Diluted EPS is calculated in the same way as basic EPS, however the profit or loss attributable to ordinary equity holders and the weighted average number of shares are adjusted for the effects of all dilutive potential ordinary shares.

Computation of EPS (Earnings per share) for the year 2020 :-

Basic EPS = Profit and loss attributable to ordinary shareholders

--‐---‐--‐---------‐----‐---‐--------‐---‐----------------------------

Weighted average number of outstanding ordinary

shares during the reporting period

(a) Computation of profit and loss attributable to ordinary shareholders

Net income for the year 2020 = $ 777000

Less: preference divided paid = $ 90000

($2 per share x 49000 shares) -------------

Net profit and loss attributable $ 687000

to ordinary shareholders

(b) weighted Weighted average number of outstanding ordinary shares during the reporting period = 245000 shares (given)

Therefore, Basic EPS = Profit and loss attributable to ordinary shareholders

--‐---‐--‐---------‐----‐---‐--------‐---‐----------------------------

Weighted average number of outstanding ordinary

shares during the reporting period

= $ 687000 ÷ 245000 shares

= $ 2.80 per share

Please note that in the above question no diluted EPS is computed, as there wasn't any potential ordinary shares during the year 2020.