Calculate the basic EPS for Pearson Ltd and Discuss how the lease liability would be measured

Question 1- Discuss how the lease liability would be measured at lease inception.

ANSWER:
Lease liability is basically a financial burden or obligation onto the lessee for payment of a certain sum of money called lease payments. The consideration of lease liability is important to be recorded during lease inception. During inception, the lease liability is required to be recorded at Fair Value which is the present value of all lease payments. A corresponding lease asset is recorded along with the liability.

The value of such right-of-use asset recorded in correspondence of the lease liability is computed by adding initial direct costs and prepayments and reducing lease incentives from the lease liability.

In order to record the fair value of lease liability, certain information needs to be gathered. This includes lease payment, discount rate and lease term. The lease payments are discounted using the discount rate over the lease term. The present value is the fair value of lease liability and is recorded in the balance sheet at lease inception.

Question 2: Pearson Ltd is an Australian listed company. Its results for the financial year ending 30 June 2023 have exceeded expectations-profit before tax is $14293618 million, and income tax expense is $2 829610 million. As of 30 June 2022, there were 14939730 million ordinary shares on issue. On 11 May 2023, 5394902 million further ordinary shares were issued at a price of $2.99-paid to $2.40. The partly paid shares carry rights to dividends in proportion to the amount paid relative to the total issue price.

Required:

Calculate the basic EPS for Pearson Ltd for the year ending 30 June 2023.

ANSWER:
Profit before Tax = $14,293,618 million
Less: Income Tax = $2,829,610 million
Profit after Tax = $11,464,008 million

Computation of weighted average number of equity shares:
= Shares at beginning of the year + Proportionate value of shares acquired during the year
= 14,939,730 million + (5,394,902 million * 2.40 / 2.99 * 51 / 365
= 14,939,730 million + 605,063 million (rounded off)
= 15,544,793 million

EPS = Profit after Tax / Number of Equity Shares outstanding
= $11,464,008 million / 15,544,793 million
= 0.74 cents

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How the lease liability would be measured at lease inception

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