F Ltd was incorporated in 20x1 with share capital of 20,000,000 ordinary shares of $1 each.

On 1 January 20x3, F Ltd issued 10,000,000 cumulative convertible preference shares at $5 each. The cumulative convertible preference shares pay net dividends of 6% per year and are convertible into ordinary shares from the year 20x5 onwards at the rate of three ordinary shares for two preference shares.

As at 31 December 20x5, none of the convertible preference shares had been converted to ordinary shares. F Ltds profit after tax was $10,000,000 for the year ended 31 December 20x5.

Required: (a)(i) How do we assess whether convertible preference shares are dilutive or anti-dilutive?

(a)(ii) Assess whether F Ltds convertible preference shares are deemed dilutive or anti-dilutive for the computation of diluted EPS for the year ended 31 December 20x5.

(b)(i) How do we compute diluted EPS for a company that has dilutive convertible preference shares?

(b)(ii) Compute the basic EPS and diluted EPS for F Ltd for the year ended 31 December 20x5. Present your answers in dollars and round off your answers to four decimal places.

(c)(i) Assuming that on 1 January 20x5, 30% of the convertible preference shares were converted to ordinary shares, compute the basic EPS and diluted EPS for F Ltd for the year ended 31 December 20x5. Present your answers in dollars and round off your answers to four decimal places.

(c)(ii) Comment on how the actual conversion of convertible preference shares into ordinary shares affects the computation of basic EPS and diluted EPS.