You are the Accounting Manager at Wills and Sons Limited. You asked your assistant Mrs

Beverley Williamson to calculate the EPS for the company for the accounting period ending

December 31, 2019. She did an excellent job with the basic EPS but was unable to calculate the

diluted EPS due to the complexity involved in such calculations. Shown below is the Income

Statement for the period ending December 31, 2019. This was prepared by Mrs. Williamson and

her team.

$000

Turnover 20,000

Cost of Sales (8,000)

Operating Profit 12,000

Interest Payable 500

Exceptional Charges 300

Profit Before Tax 11,200

Tax on Ordinary Activities 3,200

Profit after Tax 8,000

The firms weighted average number of common stocks was 500,000 and preference dividends

were $1m. The firm also has stock options of 50,000 and each is convertible at 2 shares at below

market price and 5000 10% bonds with a value of $5,000,000 each convertible at 20 shares. The

tax rate was 30%.

Required:

A. Explain the following terms:

i. Basic earnings per share (Basic EPS)

ii. Diluted earnings per share

iii. Preference share

B. Calculate the basic earnings per share for Walnut Limited for the year ended 31

December 2019 in accordance with IAS 33?

C. Calculate the diluted EPS to be disclosed in the statutory financial statements of the

company for the year ended 31 December 2019?

D. Briefly comment on the need to disclose a diluted EPS figure and on the relevance of this

figure to the shareholders.