question archive Nelson plc prepares its financial statements to 31 December each year and the company's average share price for the year ended 31 December 2014 was 250 pence
Nelson plc prepares its financial statements to 31 December each year and the company's average share price for the year ended 31 December 2014 was 250 pence
Subject:AccountingPrice:3.86 Bought12
Nelson plc prepares its financial statements to 31 December each year and the company's average share price for the year ended 31 December 2014 was 250 pence.
The company's issued ordinary share capital on 1 January 2014, which comprised 50 pence ordinary shares, was £15,000,000. On 30 June 2014, the company capitalised reserves by issuing three bonus 50 pence ordinary shares for each 50 pence ordinary share held.
Nelson plc's profit before tax for the year ended 31 December 2014 was £12,500,000, and the income tax liability for 2014 was assessed at £3,000,000 before adjusting for an under-provision of £1,000,000 in respect of 2013. Nelson plc has an effective rate of income tax of 25%.
Additional Information
1. During the year ended 31 December 2014, Nelson plc had 2,500,000 £1 10% convertible preference shares in issue. Each preference share may be converted into three 50 pence ordinary shares during the year ended 31 December 2015.
2. In 2012, Nelson plc issued options that give the company's directors the right to subscribe for 50 pence ordinary shares between 2013 and 2017 at 125 pence per ordinary share. At 31 December 2014, there were 3,500,000 options still outstanding.
3. On 1 January 2014, Nelson plc had £20,000,000 10% convertible loan stock in issue. On 1 October 2014, the loan stock was converted into 50 pence ordinary shares on the basis of 25 ordinary shares for each £50 of loan stock.
Requirement
(a) Please calculate Nelson plc's basic and diluted earnings per share for the year ended 31 December 2014 in accordance with IAS 33 Earnings Per Share.
(b) Describe the potential problems of placing undue emphasis on the earnings per share figure.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
2.) The potential problems of placing undue emphasis on the earnings per share figure.
- Administration knows speculators depend on utilizing EPS as a direction for company execution so they'll actually need the EPS figure to seem as high as conceivable within the brief term. They may make choices to boost the EPS figure within the brief term, which may harm the entity's prospects within the long term.
- Moreover, each company has diverse bookkeeping approaches; this makes it harder to compare person companies on a like for like premise.
- EPS overlooks swelling, the cost of products and administrations for the most part may be expanding, so this may well be contributing to the great EPS figure, but this development could be deceiving in the event that the company can't purchase as numerous merchandise this year because it might final year.
- EPS doesn't consider cash stream. Administration may focus much on expanding the profit figure, they begin offering to awful clients who don't pay or offer at lower edges. On the off chance that the company can't win cash to pay its bills, no matter how huge the profit are, it may be wiped out.
- Please see the attached file for the complete solution
