BAQ is a listed entity with a ﬁnancial year end of 31 March. At 31 March 2018, it had 8,000,000 ordinary shares in issue. The directors of BAQ wish to expand the business’s operations by acquiring competitor entities. They intend to make no more than one acquisition in any ﬁnancial year. The directors are about to meet to discuss two possible acquisitions. Their principal criterion for the decision is the likely effect of the acquisition on group earnings per share. Details of the possible acquisitions are as follows: Acquisition of CBR 100% of the share capital of CBR could be acquired on 1 October 2018 for a new issue of shares in BAQ; CBR has 4 00,000 ordinary shares in issue; Four CBR shares would be exchanged for three new shares in BAQ; CBR’s proﬁt after tax for the year ended 31 March 2018 was N$625,000 and the entity’s directors are projecting a 10% increase in this ﬁgure for the year ending 31 March 2019. Acquisition of DCS 80% of the share capital of DCS could be acquired on 1 October 2018 for a cash payment of N$10.00 per share; DCS has 100,000 ordinary shares in issue; The cash would be raised by a rights issue to BAQ’s existing shareholders. For the purposes of evaluation it can be assumed that the rights issue would take place on 1 October 2018, that it would be fully taken up, that the market value of one share in BAQ on that date would be $5.36, and that the terms of the rights issue would be one new share for every ﬁve BAQ shares held at a rights price of N$5.00; DCS’s projected proﬁt after tax for the year ending 31 March 2019 is N$860,000. BAQ’s proﬁt after tax for the year ended 31 March 2019 is projected to be N$4.2 million. No changes in BAQ’s share capital are likely to take place, except in respect of the possible acquisitions d escribed above. Requirements Calculate the group earnings per share that could be expected for the year ending 31 March 2019 in respect of each of the acquisition scenarios outlined above.

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Answered: Calculate the group earnings per share…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

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BAQ is a listed entity with a ﬁnancial year end of 31 March. At 31 March 2018, it had 8,000,000 ordinary shares in issue. The directors of BAQ wish to expand the business’s operations by acquiring competitor entities. They intend to make no more than one acquisition in any ﬁnancial year. The directors are about to meet to discuss two possible acquisitions. Their principal criterion for the decision is the likely effect of the acquisition on group earnings per share. Details of the possible acquisitions are as follows:

Acquisition of CBR

100% of the share capital of CBR could be acquired on 1 October 2018 for a new issue of shares in BAQ;
CBR has 4 00,000 ordinary shares in issue;
Four CBR shares would be exchanged for three new shares in BAQ;
CBR’s proﬁt after tax for the year ended 31 March 2018 was N$625,000 and the entity’s directors are projecting a 10% increase in this ﬁgure for the year ending 31 March 2019.

Acquisition of DCS

80% of the share capital of DCS could be acquired on 1 October 2018 for a cash payment of N$10.00 per share;
DCS has 100,000 ordinary shares in issue;
The cash would be raised by a rights issue to BAQ’s existing shareholders. For the purposes of evaluation it can be assumed that the rights issue would take place on 1 October 2018, that it would be fully taken up, that the market value of one share in BAQ on that date would be $5.36, and that the terms of the rights issue would be one new share for every ﬁve BAQ shares held at a rights price of N$5.00;
DCS’s projected proﬁt after tax for the year ending 31 March 2019 is N$860,000. BAQ’s proﬁt after tax for the year ended 31 March 2019 is projected to be N$4.2 million. No changes in BAQ’s share capital are likely to take place, except in respect of the possible acquisitions d escribed above.

Requirements

Calculate the group earnings per share that could be expected for the year ending 31 March 2019 in respect of each of the acquisition scenarios outlined above.

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