Question
The following information relates to Calloway Group for the year ended December 31, 2025. The income tax rate is 25%.
| Item | Amount |
|---|
| Sales Revenue | $880,000 |
| Cost of Goods Sold | 528,000 |
| Selling Expenses | 115,000 |
| Administrative Expenses | 75,000 |
| Interest Expense | 13,200 |
Throughout the year Calloway had 60,000 ordinary shares outstanding. It also had 10,000 employee share options outstanding all year, each exercisable for one ordinary share at $24. The average market price of the shares during 2025 was $30. No options were exercised during the year.
Required: Prepare a multi-step income statement for 2025, ending with net income, basic earnings per share and diluted earnings per share (IAS 33). Apply the treasury stock method to the options: assume the proceeds from exercise are used to buy back shares at the average market price, so only the incremental shares dilute.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 33 — diluted earnings per share
Diluted EPS asks what basic EPS would have been had all dilutive potential ordinary shares converted. Adjust the numerator for anything that would no longer be charged after conversion, adjust the denominator for the extra shares, and include an instrument only if it actually reduces EPS.
Common mistakes
- Including an antidilutive instrument — one that would raise EPS must be excluded.
- Adding the shares from convertible debt without adding back the after-tax interest saved.
- Applying the full share count for instruments issued part-way through the period instead of time-weighting them.
Further readingIAS 33: basic and diluted EPS