ACCA FR · Chapter 10 · Question 8 of 9
What is the main purpose of disclosing diluted earnings per share?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) To warn shareholders of the possible fall in EPS if potential ordinary shares, such as convertibles and options, become actual shares
Explanation
Diluted EPS adjusts basic EPS for the effect of potential ordinary shares outstanding, such as convertible instruments, options and warrants. It warns current shareholders how far their share of earnings could fall if those instruments were converted or exercised. It is not a forecast.
More Earnings per share MCQs
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