Accounting · Earnings Per Share
Which of the following statements accurately highlights the primary distinction in the computation of Basic Earnings Per Share (EPS) and Diluted Earnings Per Share (EPS)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Basic EPS calculates the profit attributable to preference shareholders, whereas Diluted EPS is used specifically to measure the profit or loss attributable to ordinary equity holders.
- 2Diluted EPS measures profitability exclusively for consolidated financial statements, whereas Basic EPS is a required metric only when an entity presents separate financial statements.
- 3Basic EPS incorporates the potential dilution from future share issues, whereas Diluted EPS restricts its computation strictly to the currently outstanding weighted average number of ordinary shares.
- 4Diluted EPS adjusts basic shareholder profitability by factoring in the impact of potential ordinary shares, whereas Basic EPS calculates profitability based solely on the weighted average number of ordinary shares.✓
Correct answer
Diluted EPS adjusts basic shareholder profitability by factoring in the impact of potential ordinary shares, whereas Basic EPS calculates profitability based solely on the weighted average number of ordinary shares.
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