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  1. Basic EPS= 45 paisa per share
  2. Diluted EPS=  30.2 paisa per share
  1. Effect of Diluted EPS in corporation shows the maximum potential dilution of earning in the future to the shareholders & potential reduction in net profit per share. Diluted EPS can never be higher than Basic Earning per Share and its effect in corporation shows reduction in earnings per share by increasing the weighted no of shares according to IAS 33.
Following extract belongs to Faisalabad Corporation:
1.
Outstanding 10 million common shares of Rs. 10 each
2.
Issued debentures worth Rs.10 million bearing interest amounting to Rs.55, 000 convertible into common shares in one year time with 5 shares of every Rs.10 debenture.
3.
Tax is charged . 35% by the taxation authority.
4.
Profit after tax Rs. 4.5 million
Required:
1.

What will be the value of basic EPS?
2.

What will be the value of diluted EPS?
3.

Has the dilution really occurred? If so, then analyze its effect on profit and EPS of the

corporation.


Basic (EPS) = 45 Paisa

Diluted (EPS) = 30 Paisa

Dilution = 15 Paisa



Diluted (EPS) is less than basic (EPS), so dilution occurred. Dilution will reduce the profit and EPS of corporation.

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