Bass Ltd, a leading producer of construction, mining and electrical equipment, suffered a significant drop in the demand of the companys products due to COVID-19 in 2020 that significantly threatens the financial stability of the company. Bass in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Changes in company strategies and accounting policies have a significant impact on reported profit. The basic earnings per share and diluted earnings per share presented in the companys current year financial statements in accordance with AASB 133 Earnings per Share were comparatively higher than that of the last year. In contrast, company share prices have dropped by 20% at the reporting date, according to Yahoo finance.

While most shareholders seem unhappy to own company shares for the meagre dividend attached to them the question of whether Bass Ltd are fully valued at their current share prices continues to linger.

The directors of Bass Ltd are not sure how to calculate and include basic and diluted earnings per share in the companys financial statements in accordance with AASB 133, and called for a report from the Finance Manager of the company.

On 30 June 2020, Bass Ltd had the following equity:

Preference shares (issued at $ 2 each)	500 000 shares
Ordinary shares (issued at $ 3 each)	$ 3 000 000
Retained earnings	$1 250 000
Reserves	$ 520 000
Total equity	$ 5 770 000

During the year ended 30 June 2020, the company earned after tax profit of $1 240 000 from ordinary activities.

The additional information is available.

1. On 20 November 2019, the company made a one-for-five bonus issue, and on 30 March 2020, the company made a rights issue of 400 000 ordinary shares.
2. On 20 July 2017, the company issued $ 750 000 of 8% convertible notes. Each $ 100 note was convertible into 50 ordinary shares. There was no conversion during the year ended 30 June 2020.
3. On 28 February 2019, the company issued options to purchase 10 000 shares at $ 3.50 each. No options were exercised during the year ended 30 June 2020.
4. The company income tax rate is $ 0.30 in the dollar and the companys ordinary shares are trading at $ 5 per share on 30 June 2020.
5. The company paid preference dividends of $ 40 000.

Required

1. Briefly describe the requirements of AASB 133 earnings per share for the calculation of earnings per share. (5 marks)