Question
A company holds convertible preferred shares that, if converted, would INCREASE earnings per share (diluted EPS would come out higher than basic EPS). These securities are:
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