Question 3

(a)The following figureshave been calculated from the financial statements (including comparatives) of Socks for the year ended 30 September 2021.

Increase in profit after taxation	80%
Increase in (basic) earnings per share	5%
Increase in diluted earnings per share Required	2%

Explain why the three measuresof earnings (profit)growth for the same companyover the same period can give apparently differing impressions. (8 marks)

(b) The profit aftertax for Socksfor the year ended 30 September 2021 was $15 million. At 1 October2020 the company had in issue 36 millionequity shares and a $10 million 8% convertible loan note. The loan note willmature in 2022 and will be redeemedat par or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan-note holders' option. On 1 January 2021 Socks made a fully subscribed rights issue of one new share for every four shares held at a price of $2.80 each. The market price of the equityshares of Socksimmediately before the issue was $3.80. The earnings per share (EPS) reported for the year ended 30 September 2020 was 35 cents.

Socks's incometax rate is 25%.

Required

Calculate the (basic) EPS figure for Socks (including comparatives) and the diluted EPS (comparatives not required) that would be disclosed for the year ended 30 September 2021.(10 marks)

(c)The issued sharecapital of Matinelli, a publicly listedcompany, at 31 March 2015 was $10 million. Its shares are denominated at 25 cents each.

On 1 April 2015 Matinelli issued $20 million8% convertible loan stock at par. The terms of conversion (on 1 April 2018)are that for every $100 of loan stock, 50 ordinary shareswill be issuedat the option of loan stockholders. Alternatively the loan stock will be redeemed at par for cash. Also on 1 April 2015 the directors of Matinelli were awarded share options on 12 millionordinary shares exercisable from 1 April 2018 at $1.50 per share. The average marketvalue of Matinelli's ordinary shares for the year ended 31 March 2016 was$2.50 each. The income tax rate is 25%. Earningsattributable to ordinaryshareholders for the year ended 31 March 2016 were $25,200,000. The share options have been correctly recorded in the financial statements.

Required

Calculate Matinelli's basic and dilutedearnings per sharefor the year ended 31 March 2016 (comparative figures are not required).

You may assume that both the convertible loan stock and the directors' options are dilutive. (7marks)

[Total = 25 marks]

Question 3

(a)The following figureshave been calculated from the financial statements (including comparatives) of Socks for the year ended 30 September 2021.

Increase in profit after taxation	80%
Increase in (basic) earnings per share	5%
Increase in diluted earnings per share Required	2%

Explain why the three measuresof earnings (profit)growth for the same companyover the same period can give apparently differing impressions. (8 marks)

(b) The profit aftertax for Socksfor the year ended 30 September 2021 was $15 million. At 1 October2020 the company had in issue 36 millionequity shares and a $10 million 8% convertible loan note. The loan note willmature in 2022 and will be redeemedat par or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan-note holders' option. On 1 January 2021 Socks made a fully subscribed rights issue of one new share for every four shares held at a price of $2.80 each. The market price of the equityshares of Socksimmediately before the issue was $3.80. The earnings per share (EPS) reported for the year ended 30 September 2020 was 35 cents.

Socks's incometax rate is 25%.

Required

Calculate the (basic) EPS figure for Socks (including comparatives) and the diluted EPS (comparatives not required) that would be disclosed for the year ended 30 September 2021.(10 marks)

(c)The issued sharecapital of Matinelli, a publicly listedcompany, at 31 March 2015 was $10 million. Its shares are denominated at 25 cents each.

On 1 April 2015 Matinelli issued $20 million8% convertible loan stock at par. The terms of conversion (on 1 April 2018)are that for every $100 of loan stock, 50 ordinary shareswill be issuedat the option of loan stockholders. Alternatively the loan stock will be redeemed at par for cash. Also on 1 April 2015 the directors of Matinelli were awarded share options on 12 millionordinary shares exercisable from 1 April 2018 at $1.50 per share. The average marketvalue of Matinelli's ordinary shares for the year ended 31 March 2016 was$2.50 each. The income tax rate is 25%. Earningsattributable to ordinaryshareholders for the year ended 31 March 2016 were $25,200,000. The share options have been correctly recorded in the financial statements.

Required

Calculate Matinelli's basic and dilutedearnings per sharefor the year ended 31 March 2016 (comparative figures are not required).

You may assume that both the convertible loan stock and the directors' options are dilutive. (7marks)

[Total = 25 marks]