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EPS – diluted EPS Example – ACCA Financial Reporting (FR)

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    • according to the adjustment of the dilute instruments the extra earning effect the EPS and to calculate the EXTRA EARNING on the convertible loan by multiplying the interest rate (which is 5%) with the number of shares (10m) which would give (10m x 5% = 0.5m) the tax rate is 20% which means the amount of 0.5m is already taxed on 20% so the extra earning will be on the 80% so thats how we get 400k (0.5m x 80% = 0.4m)

  3. Good Morning Chris,

    Please in regards to the Diluted EPS, adjustment for convertible bonds, is an instrument dilutive when the EPS based on the convertible bond lower than the Basic EPS. what if it were to be more than the basic EPS?.

  4. Can you help me with this question please,
    Halium Company issued 400,000 $100 6% convertible loan notes on 1 April 2015. The
    company has in issue 50M $1 ordinary shares. Interest is payable annually in arrears on
    31 March each year. The loan notes can be converted to equity shares on the basis of 20
    shares for each $100 loan note on March 2018 or redeemed at par for cash on the same
    date. The debt component of the loan is $37,792M and a similar loan with no conversion
    right would be at 8% interest. The carrying amount for the loan as at 31 March 2016 is
    $38,415M with a finance cost of $3.023M. The company’s tax rate is 20% and the
    earnings for the period is $14.327M
    Calculate the diluted EPS for Halium Company for the year ended 31st March 2016

  5. Hi Chris, could you please explain why the 5% interest on convertible loan stock is considered as earnings? As in this example, Flanagan is the one who issues the convertible debentures. Hence I believe Flanagan have to pay the interest to investors. But why are we considering this interest to be paid as earnings?

    I’m sorry if I’m missing something from the previous chapters.

  6. For options when i calculated from the Kaplan text
    illustration 6 , the DEPS is earnings/ #shares at market value + ordinary shares. But in the lecture you suggest to take the the difference between the # shares under the option and #shares at market value. Why is that ? Please can you explain

  7. Kindly assist me with the following question i am able to obtain the rights fraction and all, my challenge is with getting the number of shares in the rights issue and bonus issue. Question from the bpp workbook.

    On 1 January 20X1, Saunders Co had 2,000,000 ordinary shares in issue.
    On 30 April 20X1, Sanders Co issued, at full market rice, 270,000 ordinary shares.
    On 31 July 20X1, a rights issue of 1 for 10 @$2.00 was made. The fair value of the shares on the last day before the issue of shares from the rights issue was $3.10.

    Q. What is the weighted average number of shares for 31 Dec 20X1?

    Thank you

  8. Hi Mark,

    Share option – why only free shares are considered and not 37.5 + 100 (which would mean that the buyer receives physically 100 shares, but in terms of market value, for the cash paid, it receives additional 37.5 free shares)?

    Appreciate your comment.

    • Because shares issued at full market price have no diluting effect … because theory suggests that the market price of a share is the present value of that share’s earnings discounted to today’s value so the market price is theoretically based on earnings

      Therefore shares issued at full market price have no affect on earnings per share of existing shares in issue

  10. Hi,

    Why do you only calculate the convertible debt for 31Dec X6 and not 31Dec X7?

    Also slightly confused as we are asked to calculate the diluted EPS for the YE 31 Dec X5 so how come we are using future figures?

    Thanks

  12. hi

    question has asked for 31 dec 20×5. but the convertible deb is is for 31 dec 20×6..
    and what do we do about the 31 dec 20×7 deb conversion?

    why do we have to account that if the question is only for 20×5?

    Thanks

    Manan.

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