PRACTICE TOPIC
Dilution
Practice Dilution with 3 accounting challenges on Accountely — instant IAS/IFRS-compliant scored feedback on every submission.
What dilution covers
Dilution is the reduction in earnings attributable to each share once potentially issuable shares — convertible instruments, options and warrants — are taken into account. Diluted earnings per share shows the worst realistic case for an existing shareholder. Only instruments that reduce earnings per share are dilutive; those that would increase it are anti-dilutive and excluded.
Challenges here ask you to identify which instruments are dilutive and to compute basic and diluted figures side by side.
Where marks are usually lost
- Including anti-dilutive instruments in the diluted calculation.
- Forgetting to add back the after-tax interest saved on convertible debt to the numerator.
- Using the year-end share count instead of the weighted average.
3 Dilution practice challenges
TitleTypeDifficulty
Calloway Group - Diluted EPS with Share Options (Treasury Stock Method) Income StmthardSilverpine Group - Income Statement with Basic and Diluted Earnings per Share Income StmthardHalcyon Digital - Diluted Earnings per Share with Convertible Bonds Income Stmthard