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

Home, - Determine the interest rate implicit in the lease

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.

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.

 Date Particulars No. of shares Adjustment Weighted average 1/7/2022 Opening balance 9,750,000.00 *12/12 9,750,000 11/5/2023 Issue of new shares 3,250,000.00 *(51/365)*(2.00/2.30) 394,878 Weighted average number of shares 10,144,878

 Particulars \$ Profit before tax 5,597,000.00 less: income tax 1,847,000.00 Profit after tax 3,750,000.00 Weighted average number of shares 10,144,878.00 EPS 0.37 (3750000/10144878)