Phlox Plc has a profit after tax of £6 590 000 for the period ended 30 June 2015.Phlox Plc also has £1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. As at 1 July 2014 there were 3 000 000 fully paid ordinary shares issued.Phlox Plc also has £1 500 000 in convertible debentures issued for the full year.It pays interest of 5% per annum and could be converted to 300 000 ordinary shares at the option of the debenture-holders.There are also 100 000 share options currently on issue with an exercise price of £1.30.The average market price for ordinary shares during the year was £2.70.The tax rate is 33%.What are the diluted earnings per share for Phlox Plc in accordance with IAS 33?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the basic earnings per share
Basic Earnings Per Share (EPS) = (Profit after tax - preference dividends) ÷ Number of ordinary shares
= (6,590,000 - (1,000,000 × 6%)) ÷ 3,000,000
= £1.53

Step 2 - Calculate the diluted earnings per share
Diluted EPS = (Profit after tax - preference dividends + (interest on convertible debentures × (1 - tax rate)) ÷ (Number of ordinary shares + Potential ordinary shares from convertible debentures + Potential ordinary shares from share options))
= (6,590,000 - (1,000,000 × 6%) + (1,500,000 × 5% × (1 - 33%))) ÷ (3,000,000 + 300,000 + 100,000)
= £1.97

Therefore, the answer is C) £1.97.

Phlox Plc Has a Profit After Tax of £6 590