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Marks 5

Hiotech Company reported net income of $2.3 million for the year with 800,000 common shares outstanding. It had stock options for 30,000 shares at an average price of $35. Basic EPS was $2.857 under IFRS and $2.875 under US GAAP. Diluted EPS was $2.836 under both IFRS and US GAAP after accounting for the additional 10,909 potential shares from stock options.

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136 views4 pages

Marks 5

Hiotech Company reported net income of $2.3 million for the year with 800,000 common shares outstanding. It had stock options for 30,000 shares at an average price of $35. Basic EPS was $2.857 under IFRS and $2.875 under US GAAP. Diluted EPS was $2.836 under both IFRS and US GAAP after accounting for the additional 10,909 potential shares from stock options.

Uploaded by

Aimen Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Hihotech Company reported net income of 2.

3 million for the year ended 20XX and had a


weighted average of 800,000 common shares outstanding. At the beginning of the fiscal year,
the company has option of 30,000 with an average exercise price 35. No potentially dilutive
securities are outstanding. Over the fiscal year, the company’s market price averaged 55 per
share.

(Marks 5)

Required:

a) Calculate company’s basic and diluted EPS under IFRS and US GAAP

Solution:

Under IRFS:

Components Basic EPS Diluted EPS Under Treasury


Stock Method

Net Income Rs.2,300,000 Rs.2,300,000


Weighted average number of Rs.800,000 Rs.800,000
shares outstanding

Potential/additional shares to be issued

Under IFRS:

If option exercises, the co. - (30,000 x 35)=


would have received cash
Rs.1,050,000
If the above amount - 1,050,000/55 = 19,091 shares
(Rs.1,050,000) had been
received

from issuance of new shares at


market price (Rs.55 per share)

then, co would have issued


shares

By exercising option, where - 30,000 shares – 19,091shares


30,000 shares to be issued
= 10,909
minus number of shares
inferred(i.e.19,091 shares), the
additional

shares to be issued to outsiders


Weighted average shares 800,000 810,909
outstanding

Net Income available to Rs.2,300,000 Rs.2,300,000


ordinary share holders

Weighted Average no. of shares 800,000 810,909


outstanding

EPS Rs.2,300,000/800,000= Rs.2,300,000/810,909=


Rs.2.857
Rs.2.836

Under GAAP

Components Basic EPS Diluted EPS Under Treasury


Stock Method

Net Income Rs.2,300,000 Rs.2,300,000


Weighted average number of Rs.800,000 Rs.800,000
shares outstanding

Potential/additional shares to be issued

Cash received after exercising - (30,000 x 35)=


sale of all option
Rs.1,050,000
(now 30,000 shares will be
outstanding instead of option)
Number of Treasury stock which - 1,050,000/55 =19,090.9 =
could be purchased
19,091 shares (treasury)
from sale proceed Of all
options

So additional/potential shares - 30,000 shares – 19,091shares


which could be issued
= 10,909

Weighted average shares 800,000 810,909


outstanding

Net Income available to Rs.2,300,000 Rs.2,300,000


ordinary share holders

Weighted Average no. of shares 800,000 810,909


outstanding
EPS Rs.2,300,000/800,000= Rs.2,300,000/810,909=
Rs.2.857
Rs.2.836

Basic EPS= Net Income – Preferred dividend

Weighted average outstanding shares

=2,300, 000

800,000

= Rs. 2.875 per share.

Diluted EPS = Net Income

Weighted average outstanding shares + new shares if converted

NI= 23, 00,000

W Ag SHARE= 8, 00,000

Calculation for converted shares:

=35*3000=10, 50,000

55

= 19, 9090.91

Excess share = 30,000- 19, 9090.91

Total shares now: 800,000+10909.09= Rs. 810,9 09.09

DEPS= 23, 00, 000

810, 9 09.09

= Rs. 2.836 per share.

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