Diluted EPS

Hello Sir,

Why in the calculation of diluted EPS they ignored the rights issue of shares of 1 to 5 ,that also will add to the no of shares and consequently dilute the EPS? and what they mean by
the granting during the year of directors’ share options exercisable in three years’ time, do they mean that these options applicable to directors only.

Thanks,

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Aqua Co has correctly calculated its basic earnings per share (EPS) for the current year.
Which of the following items need to be additionally considered when calculating the diluted EPS of Aqua Co
for the year?
(i) A 1 for 5 rights issue of equity shares during the year at $1.20 when the market price of the equity
shares was $2.00
(ii) The issue during the year of a convertible (to equity shares) loan note
(iii) The granting during the year of directors’ share options exercisable in three years’ time
(iv) Equity shares issued during the year as the purchase consideration for the acquisition of a new
subsidiary company
A All four
B (i) and (ii) only
C (ii) and (iii) only
D (iii) and (iv) only

The answer

C The issue during the year of a convertible (to equity shares) loan note
The granting during the year of directors’ share options exercisable in three years’ time

The convertible loan note and the share options should be taken into account when
calculating diluted EPS.