Page 5 - 34.2 FR MARCH 22 MTP ANSWER

10% Convertible debentures 75,000 40,000
1,65,000 56,150 2.939 Dilutive
Convertible Preference Shares 67,500 15,000
2,32,500 71,150 3.268 Anti-Dilutive

Since diluted earnings per share is increased when taking the convertible preference shares into account (Rs.
2.939 to Rs. 3.268), the convertible preference shares are anti-dilutive and are ignored in the calculation of
diluted earnings per share for the year ended 31st March, 20X2. Therefore, diluted earnings per share for the
year ended 31st March, 20X2 is Rs. 2.939.

Working Note:

Calculation of incremental earnings per share and allocation of rank
Increase in Increase in Earnings per Rank
earnings number of incremental
equity shares share (3) = (1)
(1) (2) ÷ (2)

Rs. Rs.
Options
Increase in earnings Nil
No. of incremental shares issued for no
consideration 150 Nil 1
[900 x (90-75)/90]
Convertible Preference Shares
Increase in net profit attributable to equity 67,500
shareholders as adjusted by attributable dividend tax
[(Rs. 9 x 7,500) + 8% (Rs. 9 x 7,500)]
No. of incremental shares (2 x 7,500) 15,000 4.50 3
10% Convertible Debentures
Increase in net profit 75,000
[(Rs. 10,00,000 x 10% x (1 – 0.25)]
No. of incremental shares (10,000 x 4) 40,000 1.875 2

Solution 2

(a) (i) (a) Calculation of operating cycle
Month
Period of manufacturing the aircraft 9
Credit period for settlement of delivery amount 7
16
Hence, the length of the operating cycle will be 16 month.

(b) Since the inventory and debtors will be realised within normal operating cycle, i.e., 16 months, both
the inventory as well as debtors should be classified as current.
(ii) Charming Ltd must present Rs. 80,000 accrued interest and Rs. 1,00,000 current portion of the non-
current bond (i.e. the portion repayable on 1st April, 20X4) as current liabilities. The Rs. 9,00,000 due
later than 12 months after the end of the reporting period shall be presented as a non-current liability.

34.11