Facts
An entity issues 4 million convertible bonds at January 1, 20X1. The bonds mature in three years and are issued at their face value of $10. The bonds attract interest arrears. Each bond can be converted into two ordinary shares. The company can settle the principal amount of the bonds in ordinary shares or in cash. When the bonds are issued, the interest rate for a similar debt without the conversion rights is 10%. At the issue date the market price of an ordinary share is $4. Ignore taxation. The company is likely to settle the contract by issuing shares.
|
Profit attributable to ordinary shareholders to December 31, 20X1 |
$33 million |
|
Ordinary shares outstanding |
10 million |
|
Allocation of proceeds of bond |
|
|
Liability |
$30 million |
|
Equity |
$10 million |
|
Total |
$40 million |
Required
Calculate basic and diluted earnings per share for the year to December 31, 20X1.