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The following information relates to Spanish Rock PLC for the year ended 31 December 2010: $ Turnover 700,000 Operating Costs 476,000 Trading Profit 224,000 Net

The following information relates to Spanish Rock PLC for the year ended 31 December 2010:

$

Turnover

700,000

Operating Costs

476,000

Trading Profit

224,000

Net Interest payable

(2,000)

Profit before Taxation

222,000

Exceptional Charges

77,000

145,000

Tax on Ordinary Activities

66,000

Profit after Taxation

79,000

Spanish Rock PLC had 100,000 ordinary shares of $1 each in issue throughout the year. The average fair value of the shares was $1.28. The company had paid an ordinary dividend of $15,000 and a preference dividend of $9,000. . It also issued 5,000 10% bond with a face value of $500,000 and each is convertible at 20 ordinary shares.

Required:

Explain the following:

Basic earnings per share (Basic EPS)

Diluted earnings per share

Potential ordinary share

Limitations of EPS as a performance measure (10 marks)

Calculate the basic earnings per share for Spanish Rock PLC for the year ended 31 December 2010 in accordance with best accounting practice. (3 marks)

Calculate the diluted EPS to be disclosed in the statutory accounts of the company for the year ended 31 December 2010. (8 marks)

Briefly comment on the need to disclose a diluted EPS figure and on the relevance of this figure to the shareholders. (4 marks)

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