Answer: See explanation
Explanation:
Here are the questions:
a. Calculate the basic EPS amount for 2018.
b. Explain what is diluted EPS. Give one example of a security that can dilute the basic EPS.
First, we need to calculate the weighted average number of equity shares. This will be:
= (900,000 × 12/12) + (300,000 × 12/12) + (240,000 × 10/12)
= 900,000 + 300,000 + 200,000
= 1,400,000
We then calculate the earnings for equity shares. This will be:
Net income = 2,000,000
Less: Dividend on preference shares
= 500,000 × 5% = 25,000
Earnings for equity share = 1,975,000
EPS = 1,975,000/1,400,000
= 1.41
b. Diluted earnings per share (diluted EPS) is used to calculate the earning per share for a company's in a situation whereby there's a conversion of all the convertible securities.
An example of a security that can dilute the basic earnings per share is the preference shares which have been converted.
