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Diluted EPS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Diluted EPS

  • This topic has 5 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • March 30, 2015 at 12:54 pm #239530
    Aloyce
    Member
    • Topics: 10
    • Replies: 30
    • ☆

    Hi Mike !
    Sir, Could you give me a little help over here ! I’m missing the logic why they exclude 12% convertible bonds in the Diluted EPS calculations !

    Mike Co issued $ 1500 M of 7% convertible debentures, which can be convertible in 2 Yrs into 1 share of $ 5000 of the debenture amount.

    Its also issued $ 4000 Million, 12% Convertibel bonds which are converted in 12months for 1 Share per $5000 Of debenture amount.

    Mike Co has issued capital of 2,500,000 Shares of $ 5000 Each

    Earning per period is $ 1,225 M after tax. Tax charges are at 42%.

    calculate diluted EPS ?

    they take $ 1225 M + (.58*$ 105M)=$ 1,285.9 M as Adjusted earnings

    no of shares =2.5 M + 0.3 M=2.8 M

    D Eps=$ 1285.9/2.8M= $ 460 Per share

    Thanks in advance Sir

    March 30, 2015 at 2:19 pm #239539
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23312
    • ☆☆☆☆☆

    Check my calculations please!

    4,000,000 / 5,000 = 800 potential extra shares

    4,000,000 x 12% = 480,000

    480,000 x .58 = 278,400 potential extra earnings

    Marginal eps for the first debenture is 60,900 / 300 = 203

    Marginal eps for the second debenture is 278,400 / 800 = 348

    Adjusted for first conversion is as you have posted:

    1,285,900 / 2,800 = 459.25

    Adjusted for second conversion is:

    1,564,300 / 3,600 = 434.53

    In summary …… I don’t know why the second one has been ignored!

    Check that you have written the question correctly in your post?

    March 30, 2015 at 2:51 pm #239545
    Aloyce
    Member
    • Topics: 10
    • Replies: 30
    • ☆

    I’m sorry, i copied it wrong !
    The second one, its converted into 1 Share for each $ 10,000 of the debenture amount. Instead of $ 5,000

    Sir, what is logic behind of not including anti dilutive potential ordinary shares ?

    What i have understood on diluted EPS is, we calculate it so that to inform the users what will be the effect on Earning per share, IF the existing bonds/warrants will be converted to ordinary shares. Why now they ignore some and take others.

    March 30, 2015 at 3:37 pm #239552
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23312
    • ☆☆☆☆☆

    I’m not happy! :-((((((

    The reasoning behind the non-inclusion of anti-dilutive conversions is because our global investor wants to know the WORST position (this is all explained in the lectures and course notes, I believe)

    March 30, 2015 at 3:49 pm #239553
    Aloyce
    Member
    • Topics: 10
    • Replies: 30
    • ☆

    I got you !
    Thanks very much. God bless you

    March 30, 2015 at 4:10 pm #239554
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23312
    • ☆☆☆☆☆

    You’re welcome (I’ve got over my unhappiness!)

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