Question 1

**Section A**

Alpha Co has 10 million ordinary shares in issue. During the year, it had $5 million of 6% convertible bonds outstanding. The bonds are convertible into 2 million ordinary shares. The tax rate is 20%. Basic earnings for the year were $15 million.

What is the diluted earnings per share (EPS)?

Accepted Answer

Calculate adjusted earnings by adding back the post-tax interest saved. Calculate adjusted shares by adding the maximum number of convertible shares. Divide adjusted earnings by adjusted shares.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Adding back the pre-tax interest instead of post-tax interest.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 4

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