QUESTION 1 18 MARKS Big Issue was incorporated on 1 January 2009 with an authorised share capital of 20 000 ordinary shares and 20 000 10% cumulative non-redeemable preference shares. The preference shares had a nominal value of R1,00 each and all of these preference shares were issued on the date of incorporation. The issued ordinary share capital was as follows: Ordinary shares Issued on incorporation 6 000 at N$2.50 each, which represents the fair value of the shares 30 June 2011 2 000 at N$3.50 each, which represents the fair value of the shares 31 December 2011 2 000 at N$4.00 each, which represents the fair value of the shares 29 February 2012 Rights issue of 1 share for every 5 shares held at N$4 each (fair value immediately before rights issue was N$5 each). All the shares offered were taken up 31 October 2012 2 000 at N$6.00 each, which represents the fair value of the shares The profits after taxation for the 2012 and 2011 financial years were as follows: 2012 2011 Profit after taxation 2 000 000 1 500 000 Additional information None of the following has been accounted for as yet: 1. During the finalisation of the year-end stock, it was noted by the quality controller that some of the inventory on hand needed to be repaired as it was of a substandard quality. The estimated cost to repair the inventory amounted to N$20 000. The quality controller did note that there should not be any write down of the current stock as he still believes it could be sold at a profit. 2. Big Issue uses a dump site that was approved by government to dispose of their waste. New legislation was issued during the current year (2012) that requires all dump sites to be rehabilitated. The estimated rehabilitation cost for the dump site as it currently is, is estimated at N$25 000 and management is of the opinion that it will cost another N$50 000 over the next five years as dumping increases. 3. The company has paid all preference dividends as and when they were due, except for 2012, due to some cashflow difficulties that were experienced in 2012. 4. Big Issue is currently being sued (2012) by one of their customers for N$30 000 losses suffered due to a faulty product. Big Issue's attorney is of the opinion that there is an 80% chance that they will have to pay N$20 000 and a 20% chance that they will have to pay the full amount. 5. Revenue for the 2012 and 2011 years of assessment was N$10 000 000 and N$8 000 000, respectively. Big Issue offers their clients a 5% early settlement discount. Based on Page 12 of 14 past experience, Big Issue knows that 50% of their clients make use of this early settlement opportunity. All sales were on credit. 6. The statutory tax rate for 2012 and 2011 is 28%. 7. There were no permanent differences for 2012 or 2011. 8. Big Issue has a 31 December yearend. REQUIRED: 1. Calculate the profit after taxation for 2012 and 2011. (8) 2. Calculate the average number of shares for the purposes of calculating earnings per ordinary share for 2012 and 2011. (8) 3. Calculate the earnings per share for 2012 and 2011 (Disclosure is not required). (2)