International Financial Reporting Standards_guide.pdf

Chapter 32 Earnings per Share (IAS 33) 359
Therefore, the participating preference shareholders share profits in the ratio 1:10 with the
ordinary shareholders after payment of the fixed preference dividend out of profits.
b. Earnings per class of share
205 $ 204 $
Net profi t for the period 370,000 260,000
Fixed preference dividend (18,000) (18,000)
352,000 242,000
Attributable to ordinary shareholders: 10/11 320,000 220,000
Attributable to participating preference shareholders: 1/11 2,000 22,000
Fixed dividend 18,000 18,000
50,000 40,000
c. Weighted number of ordinary shares in issue
205
Shares
204
Shares
Balance, April 1, 20X3 1,200,000 1,200,000
Capitalization issue 2,400,000 2,400,000
3,600,000 3,600,000
EXAMPLE 32.2
L. J. Pathmark reported net earnings of $250,000 for the year ending 20X1. The company had
125,000 shares of $1 par value common stock and 30,000 shares of $40 par value convertible
preference shares outstanding during the year. The dividend rate on the preference shares
was $2 per share. Each share of the convertible preference shares can be converted into two
shares of L. J. Pathmark Class A common shares. During the year no convertible preference
shares were converted.
What were L. J. Pathmark’s basic earnings per share?
a. $0.89 per share
b. $1.52 per share
c. $1.76 per share
d. $2.00 per share
EXPLANATION
Choice b. is correct. The answer was derived from the following calculation:
Basic earnings per share =
=
(Net income – preference dividends)
(Weighted average common shares)
$250,000 – ($2 30,000 shares)
125,000 shares
= $190,000
125,000
= $1.52 per share