wat is the treatment of convertible debentures while calculating future maintainable profits
say, if 40% deb are converible
interest for 60%will be considered or no
also while valuing shares as per EPS method what wll be the treatment
wat is the treatment of convertible debentures while calculating future maintainable profits
say, if 40% deb are converible
interest for 60%will be considered or no
also while valuing shares as per EPS method what wll be the treatment
| Example - Convertible Debentures | |
| Net profit for the current year | Rs. 1,00,00,000 |
| No. of equity shares outstanding | 50,00,000 |
| Basic earnings per share | Rs. 2.00 |
| No. of 12% convertible debentures of | 1,00,000 |
| Rs. 100 each | |
| Each debenture is convertible into | |
| 10 equity shares | |
| Interest expense for the current year | Rs. 12,00,000 |
| Tax relating to interest expense (30%) | Rs. 3,60,000 |
| Adjusted net profit for the current year | Rs. (1,00,00,000 + 12,00,000 - |
| 3,60,000) = Rs. 1,08,40,000 | |
| No. of equity shares resulting from | 10,00,000 |
| conversion of debentures | |
| No. of equity shares used to compute | 50,00,000 + 10,00,000 = |
| diluted earnings per share | 60,00,000 |
| Diluted earnings per share | 1,08,40,000/60,00,000 = |
| Re. 1.81 |
for FMP calculation only non convertible debentures interst will be deductible...than accordingly share value can be calculated.
what is your 2nd question???eloborated it??
EPS= Earnings available to Equity sharesholder's/ Total no. of equity shares
Therefore for while calculating the Earnings available to equity shares, from PBIT you need to deduct the interest only for non-convertible debentures. The net earnings can be used for calculating the value of Shares.
for the purpose of valuating fmp,only interset part for 100%debwill bededucted and then after avg
interst for convertible deb will be added back(since the same will discontinue in future)
my 2 q was dat wile valuing shares as per eps method
100%interest will be considered or not
eg 2 of module covers the same aspect
usme interst has been ignred.i failed 2 understand why??
CAclubindia
