Phlox Ltd has a profit after tax of $6 590,000 for the period ended 30 June 2005.Phlox Ltd also has $1,000,000 of 6 per cent cumulative preference shares.The dividends on the preference shares are not treated as expenses in the income statement. As at 1 July 2004 there were 3,000,000 fully paid ordinary shares issued.Phlox Ltd also has $1,500,000 in convertible debentures issued for the full year.It pays interest of 5 per cent 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 per cent.What are the diluted earnings per share for Phlox Ltd in accordance with AASB 133?

Question

Quizplus · Accepted Answer

To calculate diluted EPS, adjust the profit for interest on convertible debentures (net of tax) and add potential shares from debentures and options. The adjusted profit is $6,640,250, and the adjusted shares are 3,400,000. Diluted EPS = $6,640,250 / 3,400,000 = $1.97.

Phlox Ltd Has a Profit After Tax of $6 590,000