Calculate the basic EPS for ABC Ltd for the year ending 30 June 2023

Question 1: ABC Ltd has entered into an agreement to lease an item of equipment that produces teddy bears. The terms of the lease are as follows:

Date of entering lease: 1 July 2023.
Duration of lease: 10 years.
Life of leased asset: 10 years.
There is no residual value.
Lease payments: $5000 at lease inception, $5500 on 30 June each year (that is, 10 payments).
Included within the lease payments are executory costs of $500.
Fair value of the machine at lease inception: $27 470.

Required:
Determine the interest rate implicit in the lease.

ANSWER:

The present value of the up-front payment of $5000 is not discounted. Lease payments at the end of each year is $5,500 but is also includes executory cost of $500 which should be excluded and thus effective lease payments is $(5,500 - 500) i.e., $5,000.
At interest rate implicit @ 18%, the present value of lease payments and the unguaranteed residual is:
Value of the payment as per July 1 of 2023 for present consideration is $5000
10 yearly payments and their present value will be $22,470
Unguaranteed residual present value is $0
Present value of unguaranteed residual $27,470

The value of the discounted that is $27,470 is just the fair value of the asset at lease inception so it is all about the 18% in the question implicit.

Question 2: ABC Ltd is an Australian listed company. Its results for the financial year ending 30 June 2023 have exceeded expectations-profit before tax is $5.597 million and income tax expense is $1.847 million. As at 30 June 2022, there were 9.75 million ordinary shares on issue. On 11 May 2023, 3.25 million further ordinary shares were issued at a price of $2.30-paid to $2.00. 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 ABC Ltd for the year ending 30 June 2023.

ANSWER:

Related:

Has any goodwill been acquired

Determine the interest rate implicit in the lease

Provide explanation for capitalising the expenses

How does hedging arrangement reduce foreign currency risk exposure

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