Question

Taylor Entity (TE) granted executive share options in 2016 for the year 2017 that are exercisable...

Taylor Entity (TE) granted executive share options in 2016 for the year 2017 that are exercisable for a total of 45,000 shares at $50 per share. No options were exercised during the year. The current average market price is $75 per share. The total reported profit or loss by TE for 2017 is $1,000,000. The total weighted-average number of shares outstanding is 250,000 (excluding share options)

Calculate the basic EPS for TE in the year 2017, as required by IAS 33 (5 points)

b. Calculate the diluted EPS for TE in the year 2017, as required by IAS 33 (10 points)

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Answer #1

a). Basic EPS for TE in the year 2017 = $ 4

b). Diluted EPS for TE in the year 2017 = $ 3.77

Working Notes

1). Calculation of basic EPS :

Basic earnings per share = Total income ÷ No.of weighted average shares outstanding

= $ 1,000,000 ÷ 250,000 = $ 4

2) Calculation of diluted EPS :

  • Amount paid to exercise option = Options issued × Exercise price per option = 45,000 × 50 = $2,250,000
  • Value of options in current shares = Amt paid to exercise option ÷ market price = 2,250,000 ÷ 75 = 30,000
  • Diluted shares = Options issued - value of options in current shares = 45,000 - 30,000 = 15,000

Diluted earnings per share = Total Income ÷ (No.of weighted avg shares outstanding + Diluted shares)

= 1,000,000 ÷ (250,000 + 15,000) = $ 3.77

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