Use the following information to answer questions
Harry Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as €960 000. The average market price of the entity's shares during the period is €4.00 per share. The weighted average number of ordinary shares on issue during the period is 1 000 000. The weighted average number of shares under share options arrangements during the year is 200 000 and the exercise price of shares under option is €3.50.
-The diluted earnings per share at 30 June 2016 is:
A) €0.80
B) €0.94
C) €1.24
D) €4.00

Question

Use the following information to answer questions 
Harry Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as €960 000. The average market price of the entity's shares during the period is €4.00 per share. The weighted average number of ordinary shares on issue during the period is 1 000 000. The weighted average number of shares under share options arrangements during the year is 200 000 and the exercise price of shares under option is €3.50.
-The diluted earnings per share at 30 June 2016 is:
A) €0.80
B) €0.94
C) €1.24
D) €4.00

Quizplus · Accepted Answer

To calculate diluted earnings per share, we need to adjust the weighted average number of ordinary shares on issue to include the additional shares that would arise from the conversion of share options.

Step 1: Calculate the number of additional shares that would arise from the conversion of share options:
200,000 share options x (€4.00 - €3.50) = 10,000
(The difference between the market price and the exercise price is €0.50)

Step 2: Adjust the weighted average number of ordinary shares on issue:
1,000,000 + 10,000 = 1,010,000

Step 3: Calculate diluted earnings per share:
€960,000 / 1,010,000 = €0.94 per share

Therefore, the best choice is B.

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