The computation and publication of earnings per share (EPS) figures by listed companies are governed by IAS 33 Earnings per Share.
1 Called-up share capital of Nottingham Industries plc:
2 In the draft accounts for the year ended 31 March 20X6, ‘profit on ordinary activities before taxation’ is arrived at after charging or crediting the following items:
(i) accelerated depreciation on fixed assets, £80,000;
(ii) book gain on disposal of a major operation, £120,000.
3 Profit after tax included a write-back of deferred taxation (accounted for by the liability method) in consequence of a reduction in the rate of corporation tax from 45% in the financial year 20X4 to 40% in the financial year 20X5.
4 The following were charged:
(i) Provision for bad debts arising on the failure of a major customer, £150,000. Other bad debts have been written off or provided for in the ordinary way.
(ii) Provision for loss through expropriation of the business of an overseas subsidiary by a foreign government, £400,000.
5 In the published accounts for the year ended 31 March 20X5, basic EPS was shown as 2.2p; fully diluted EPS was the same figure.
6 Dividends paid totalled £479,000.
(a) On the basis of the facts given, compute the basic EPS figures for 20X6 and restate the basic EPS figure for 20X5, stating your reasons for your treatment of items that may affect the amount of EPS in the current year.
(b) Compute the diluted earnings per share for 20X6 assuming that on 1 January 20X6 executives of Nottingham plc were granted options to take up a total of 200,000 unissued ordinary shares at a price of £1.00 per share: no options had been exercised at 31 March 20X6. The average fair value of the shares during the year was £1.10.
(c) Give your opinion as to the usefulness (to the user of financial statements) of the EPS figures that you have computed.