Reference no: EM133062798

Question - On 31 December 2014, Wakame Bhd had 3 million ordinary shares of RM1 each outstanding. Of this amount, 500,000 shares were issued on 31 March 2014 and another 500,000 were issued on 1 October 2014. The shares were issued at par value and were fully paid upon issue. The company also had 1 million 8% cumulative preference shares of RM1 each and 10% convertible debentures of RM2 million outstanding as at 31 December 2014. The debentures may be converted into ordinary shares in the ratio of 200 ordinary shares for every RM100 debentures.

Additional information: Year ended 31 December 2014 - Profit after tax for the year ended 31 December 2014 was RM2,066,000 and Wakame Bhd paid preference dividend for half year only.

Year ended 31 December 2015 - On 1 January 2015, 50% of the 10% convertible debentures were converted into ordinary shares.

On 1 July 2015 the company made a rights issue of 2 new ordinary shares at a price of RM2 each for every 5 ordinary shares held. The offer was fully subscribed. The market price of Wakame Bhd's shares immediately prior to the offer was RM3 each.

Profit after tax for the year ended 31 December 2015 was RM2,500,000 and Wakame Bhd paid preference dividend for the current year and the arrears of the previous year.

Assume tax rate for both years is 25%.

Required -

a) Calculate the basic and diluted earnings per share for years 2014 and 2015 including comparative figures (where relevant).

b) Explain why it is useful to disclose diluted earnings per share in addition to the basic earnings per share.

c) Explain the disclosure requirements for earnings per share.