27/02/2020
BBA-AC312- Announcement # 1
Issues relating to solution of exercises for EPS are following.
1) Question 5
When calculating net income available to common shareholders for 25x1 and 25x2, we need to deduct preferred dividends (30,000 x 30 x 6%) from net income for the year. Use 6% even though, declared dividends for year 25x1 and 25x2 are 4% and 6%, respectively. This is because PS shareholders (cumulative type) have right to share net income by the rate of 6%. Read page 390 of textbook (table 8-1) for this issue.
2) Question 6
Net income available to common shareholders for 25x6 (or 25x7) is equal to net income for 25x6 (or 25x7). This is because no preferred shares.
3) Question 7 (part c)
I would like to explain how to calculate weighted average number of common share outstanding (for diluted EPS).
For 25x1,
Common shares = 200,000 (from part (b))
Plus additional common shares (assuming if bonds are converted) = (12,000 x 2) x 1/12 = 2,000
Then the total of 202,000 shares
For 25x2,
Common shares = 206,000 (from part (B))
Plus additional common shares (assuming if bonds are converted)
Part 1: 3,000 bonds (if converted during Jan till Jun 25x2) = (3,000 x 2) x 6/12 = 3,000
Part 2: 9,000 bonds (if converted during Jan till Dec 25x2) = (9,000 x 2) x 12/12 = 18,000
Then the total of 227,000 shares
4) Question 7 (part d)
Made changes for Basic EPS and Diluted EPS for 25x1 as followed.
Basic EPS
= (553,600 - (30,000 x 30 x 6%)) /200,000
= (553,600-54,000) /200,000
= 499,600 /200,000
= 2.498 Baht (around 2.50 Baht)
Diluted EPS
= (499,600 + (8,000 x 0.80)) / 202,000
= (499,600 + 6,400)/ 202,000
= 506,000 /202,000
= 2.504 บาท (around 2.50 Baht)
Then, we should conclude that convertible bonds are anti-dilutive securities. So no report for diluted EPS.
For 25x2,
Basic EPS
= (556,800 - (30,000 x 30 x 4%))/206,000
= 2.53
Diluted EPS
= (520,800 + (84,000x0.80))/ (206,000 + 6,000 x6/12 + 18,000 x12/12)
= 2.59
So, no report for diluted EPS
