1. The following are few transactions related to Lance Ltd:

(i) Lance Ltd drilled a new oil well, which started production on 1 January 2004. The license granting permission to drill the new oil well included a clause that requires Lance Ltd to "return the land to the state it was in before drilling commenced". Lance Ltd estimates that the oil well will have a 20-year production life. At the end of that time, the oil well will be decommissioned and work carried out to reinstate the land. The cost of this decommissioning work is estimated to be $12 million at the end of 20 years period.

Discounting factor @ 10% for a 20-year period for $1 is $0.1486

Required:

Explain how Lance Ltd should treat the decommissioning costs in its financial statements for the year ended 31 December 20X4.

2.On 1 January 20X4 Lance Ltd issued $40 million 9% convertible loan stock at par. The terms of conversion (on 31 December 20X6) are that for every $100 of loan stock, 50 ordinary shares will be issued at the option of loan stockholders. Alternatively, the loan stock will be redeemed at par for cash.

Also on 1 January 20X4 the directors of Lance were awarded share options on 24 million ordinary shares exercisable from 1 April 20X6 at $150 per share. The average market value of Lance's ordinary shares for the year ended 31 December 20X4 was $250 each.

The income tax rate is 30%.

Earnings attributable to ordinary shareholders for the year ended 31 December 20X4 were $50,400,000 and the company has 168 million shares outstanding at that date. The share options have been correctly recorded in the income statement.

Required:

Calculate Lance's basic and diluted earnings per share for the year ended 31 December 20X4 (comparative figures are not required).

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