Compaq Ltd has a net income after tax of $2 000 000 for the year ended 30 June 2018. At the beginning of the period Compaq Ltd has 900 000 fully paid-up ordinary shares on issue. On 1 January 2018 Compaq Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00. On 1 March 2018 Compaq Ltd made a one-for-five bonus issue of ordinary shares out of retained earnings. The last sale price of an ordinary share before the bonus issue was $2.50. At the beginning of the current period Compaq Ltd also had 500 000, $1.00, 5% cumulative preference shares on issue. The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. The basic earnings per share for the period ended 30 June 2017 was $1.50 per share. Required: a) Calculate the basic EPS amount for 2018. b) Explain what is diluted EPS. Give one example of a security that can dilute the basic EPS.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Compaq Ltd has a net income after tax of $2 000 000 for the year ended 30 June 2018. At the beginning
of the period Compaq Ltd has 900 000 fully paid-up ordinary shares on issue. On 1 January 2018
Compaq Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00. On
1 March 2018 Compaq Ltd made a one-for-five bonus issue of ordinary shares out of
The last sale price of an ordinary share before the bonus issue was $2.50. At the beginning of the
current period Compaq Ltd also had 500 000, $1.00, 5% cumulative
dividends on the preference shares are not treated as expenses in the statement of comprehensive
income. The basic earnings per share for the period ended 30 June 2017 was $1.50 per share.
Required:
a) Calculate the basic EPS amount for 2018.
b) Explain what is diluted EPS. Give one example of a security that can dilute the basic EPS.
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