QUESTION 9 ABC Company issues 12% preference shares of FV of $ 10 each on 01.04.2017. Total value of the issue is $ 20,00,000. The shares are issued at a discount of $ 0.60 each, for a period of 6 years and would be redeemed at the end of 6th years. If the discount is adjusted against the preference dividend calculate how much amount will be deducted from profit after tax or the calculation Earnings for EPS.

SOLUTION

Dividend per year 12% of 20,00,000 = $ 2,40,000

(The discount of $ 1,20,000 will be adjusted equally for 6 years, i.e. $ 20,000 per year against the dividend. However, it will be ignored for calculation of earnings for calculation of EPS)

In this case, since the discount is being amortized over the period of 6 years, the amount to be deducted from profit after tax for the adjustment of the discount against the preference dividend for each year is $20,000. This amount would be deducted from the net income to calculate the earnings available for the calculation of earnings per share (EPS). The discount amount would not be considered for the calculation of EPS.


Complete and Continue