ExpertHard2 marksMultiple Choice
ACCA · Question 13 · IAS 33 Earnings Per Share
Section A
TechGrowth had 2 million ordinary shares in issue throughout the year ended 31 December 20X5. Profit after tax for the year was $800,000. During the year, the company had 500,000 share options outstanding, exercisable at $2.00 per share. The average market price of TechGrowth's shares during the year was $5.00.
What is the Diluted Earnings Per Share (DEPS) for the year ended 31 December 20X5?
Section A
TechGrowth had 2 million ordinary shares in issue throughout the year ended 31 December 20X5. Profit after tax for the year was $800,000. During the year, the company had 500,000 share options outstanding, exercisable at $2.00 per share. The average market price of TechGrowth's shares during the year was $5.00.
What is the Diluted Earnings Per Share (DEPS) for the year ended 31 December 20X5?
Answer options:
A.
$0.400
B.
$0.320
C.
$0.348
D.
$0.364
How to approach this question
For share options, calculate the number of 'free' shares. Formula: Number of options x ((Fair Value - Exercise Price) / Fair Value). Add these free shares to the basic weighted average number of shares to get the denominator for DEPS.
Full Answer
C.$0.348✓ Correct
1. Basic EPS denominator = 2,000,000 shares.
2. Proceeds if options exercised = 500,000 x $2.00 = $1,000,000.
3. Shares that could be bought at market price with proceeds = $1,000,000 / $5.00 = 200,000 shares.
4. 'Free' shares issued = 500,000 - 200,000 = 300,000 shares.
5. Diluted denominator = 2,000,000 + 300,000 = 2,300,000 shares.
6. DEPS = $800,000 / 2,300,000 = $0.3478 (or 34.8 cents).
Common mistakes
Adding the full 500,000 options to the denominator, ignoring the cash proceeds the company would receive.
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