Earnings per share Powersys Ltd is an electricity distribution company based in Melbourne. Its business is to manage the electricity assets, including poles, wires and other equipment, that are used to deliver electricity to more than 500 000 retail and business customers in Victoria. Pole wire and substation maintenance and improvements are a large part of the companys operation and teams of highly trained technicians are used for both planned work and emergency response activities. Emergency response is required when storms or fires bring down power lines, the power must be turned off at the direction of police, or the electricity supply fails for any reason. These escalated activities badly affected company earnings. One of the assistant accountants of the company has the task of assessing the liquidity and solvency and earnings of the company and identifying the operational and financial risks arising from this aspect of the business. She discovers that a major long-term debt is due for repayment and company is unable to meet this debt obligation. She suggested converting this long-term debt for ordinary shares after consulting the debt holder, which shareholders resisted badly. Despite these drawbacks, the basic earnings per share and diluted earnings per share presented in 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 had dropped by 5% at the reporting date, according to Yahoo finance. The directors of Powersys Ltd are not sure how to calculate and include basic and diluted earnings per share in companys financial statements in accordance with AASB 133, and called for a report from the chief accountant of the company. On 30 June 2020, Powersys Ltd had the following equity: Preference shares (issued at $ 2 each) 300 000 shares Ordinary shares (issued at $ 4 each) $ 4 000 000 Retained earnings $1 350 000 Reserves $ 275 000 Total equity $ 6 225 000 During the year ended 30 June 2020, the company earned after tax profit of $1 290 000 from ordinary activities. The additional information is available. i. 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. ii. 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. iii. 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. iv. 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. v. The company paid preference dividends of $ 90 000.