Adjusting the diluted numerator

Learning objectives

• Calculate the numerator of diluted earnings per share (after-tax interest saved, dividends on convertible preference shares).L3, L4

Normative references

• IAS 33 §33For diluted earnings per share, basic earnings are adjusted for the after-tax effect of dividends, interest and any other changes in income or expense that would no longer arise if the dilutive potential ordinary shares were converted into ordinary shares (for example, after-tax interest saved on convertible debt).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• The management accountant of Quercy SA, which has convertible debt, describes the adjustment to the diluted numerator in a note. Which sentence is incorrect?L3
• Vernet SA has issued a convertible bond whose interest expense for the year is {pre_tax_interest} (in euros). This expense is deductible at a rate of {tax_rate}% (case datum). The basic profit attributable to ordinary equity holders is {earnings_ordinary}. On conversion, the interest expense would no longer be incurred. Calculate the after-tax adjustment to be made to the numerator of diluted earnings, then the diluted numerator.L4
• The basic profit of Bernay SA attributable to ordinary equity holders, already net of preference dividends, is {earnings_ordinary} (in euros). The entity has two dilutive convertible instruments: a bond whose interest expense before tax is {pre_tax_interest}, deductible at a rate of {tax_rate}% (case datum), and convertible preference shares whose dividends of {convertible_pref_dividends}, already deducted in basic earnings, carry no tax effect. Calculate the numerator of diluted earnings if both instruments are included.L4