Westvane pty reported profits of N$460,000 for year ended 31 March 2020.On 1 April 2019, its capital structure consisted of 5.0 million equity shares of N$0.5 each, and 300,000 16% preference shares of N$2 each. The preference dividend was paid during the year. An ordinary dividend of N$60,000 was also paid during the year. Neither dividend has been taken account of in the above profit figure. The reported basic earnings per share for year ended 31 March 2019 was 4c and diluted EPS was 3.6c per share. During the year ended 31 March 2020, the following changes took place to the issued share capital of Westvane pty:
- _ 1,000,000 equity shares were issued in conjunction with the acquisition of another business. These were issued at full market price at the date of issue, 1 July 2019.
- _ To help fund expansion of the business, 3.6 million ordinary shares were issued for cash to existing shareholders on 1 September 2019. The issue price was N$0.70 per share, which represented a discount of 32c on the traded price immediately before the issue, which was N$1.02.
- _ On 31 March 2020, a bonus issue was completed of one share for every two held at that date.
In addition, the following information is relevant in regard to share options held by management
- 500,000 share options were held by as of 01 April 2019 and of which 60% are convertible to equivalent number of ordinary shares as at 30th March 2021 while the remaining 40% are convertible on 31st March 2022.
- An additional 500,000 shares were awarded during the year ended 31st March 2020 and are convertible to ordinary shares (1 for 1) on 31st March 2023.
- In another entity’s recent financial report, you noticed that profit for the year increased from N$300,000 to N$500,000, yet the basic EPS increased from 30c to just 36c. Identify and explain potential reasons for this. (4 marks)
- Briefly explain why EPS is considered an important measure of a company’s financial performance and briefly explain some of the limitations of EPS. (6 marks)
- From the information above, calculate the basic Earnings Per Share (EPS) and Diluted Earnings per share of Westvane pty to be reported in the financial statements for year ended 31 March 2020. Show also the recalculated comparative figure for the preceding year 2019. (12 marks)
- Show how the earnings per share information will be disclosed in Westvane pty financial statement for the year ended 31 March 2020 in accordance with International Financial Reporting Standards. (8 marks)
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