Diluted EPS - EARNINGS PER SHARE PDF

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Diluted earnings per share2 scenarios:1. Dilutive – Basic EPS > Dilutive EPS- blpS < DLPS2. Antidilutive – Basic EPS ≤ DilutiveEPS- BLPS ≥DLPSTest for dilution:Preference share or bonds payable –convertible If silent: not convertibleTest :If: BEPS > test  dilutive Beps ≤ test  antidilutiv...

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Diluted earnings per share 2 scenarios: 1. Dilutive – Basic EPS > Dilutive EPS - blpS < DLPS

2. Antidilutive – Basic EPS ≤ Dilutive EPS - BLPS ≥DLPS Test for dilution: Preference share or bonds payable– convertible Illustrative 2: Kai Company provides the following data for If silent: not convertible

the entire year:

Test : If: BEPS > test  dilutive Beps ≤ test  antidilutive share option/ warrants

Proft

P 10,000,0 00 40,000,0 Ordinary share capital, P100 00 par, 400,000 shares Options and warrants outstanding during the entire year:

 Market value vs option price If MV > OP  dilutive Mv ≤ op  antidilutive 2 or more potential ordinary share

Option shares Exercise price

Steps: 1. Test for dilution (beps) 2. Ranks the POS  highest rank w/ lowest effect

Illustrative 1: At December 31, 2029, Pepper Corp. had 4,000,000 ordinary shares outstanding. On January 1, 2030, Pepper issued 1,000,000 preference shares, which were convertible into 2,000,000 ordinary shares. During 2030, Morgan declared and paid P2,500,000 cash dividends on the ordinary shares and P1,000,000 cash dividends on the preference shares. Net income for the year ended December 31, 2020 was P10,000,000. Income tax rate is 30%.

40,0 00 200

Illustrative 3: Gracie Inc. has 220,000 ordinary shares outstanding, 20,000, 6% cumulative, P100 par convertible preference share that are convertible into 40,000 ordinary shares and an 8%, 4year convertible bonds with a face value of P2,000,000, convertible into 60,000 ordinary shares. The bonds were issued on January 1 when the prevailing interest rate was 10%. Net income for the year is P850,000. Income tax rate is 32./0. Determine Gracie's basic and diluted earnings per share.

Illustrative 4: Ket Company’s capital structure was as follows: Outstanding shares: Ordinary Convertible preference 10 % convertible bonds payable

2029

2030

1,000,000 100,000

1,000,000 100,000

P 30,000,000

P 30,000,000

During 2030, Ket paid dividends of P 15 per share on its preference shares. The preference shares are convertible into P 150,000 ordinary shares and the 10% bonds are convertible into 300,000 ordinary shares. Profit for 2030 was P 10,000,000. The income tax rate is 35%. The diluted earnings per share for 2030 should be:

Illustrative 5: The income statement of Pastel Company shows a net loss of P10,000 for the year ended December 31, 2030. The company had shares outstanding as follows: Ordinary share capital, P100 par, 400,000 shares Preference share capital, P100 par, 10% cumulative, 100,000 shares convertible into 100,000 ordinary shares

The basic loss per share should be:

P 40,000,000 10,000,000...