JKL is a listed entity preparing financial statements to 31 August. At 1 September 2015, JKL had 6,000,000 50 shares in issue. On 1 February 2016, the entity made a rights issue of 1 for 4 at 125 per share; the issue was successful and all rights were taken up. The market price of one share immediately prior to the issue was 145 per share. Earnings after tax for the year ended 31 August 2016 were $2,763,000. Several years ago, JKL issued a convertible loan of $2,000,000. The loan carries an interest rate of 7% and its terms of conversion (which are at the option of the stockholder) are as follows: For each $100 of loan inventory: Conversion at 31 August 2017 105 shares Conversion at 31 August 2018 103 shares JKL is subject to an income tax rate of 32%. Required: (a) Calculate basic earnings per share and diluted earnings per share for the year ended 31 August 2016. (b) The IASC Framework for the preparation and presentation of financial statements states that the objective of financial statements is to provide information that is useful to a wide range of users in making economic decisions. Explain to a holder of ordinary shares in JKL both the usefulness and limitations of diluted earnings per share.