should the additional stocks be time-weighted when calculation dilutive EPS?

I read on the curriculum saying that when calculating the diluted EPS with convertible debt, the convertible shall be treated as the debt had been converted at the bgn of the period.

What I’m confused is whether the “period” refer to the whole fiscal year or the period starting at the issuance of the convertible debt.

For example, the XXX company has an outstanding common stock of 500,000 shares at the begining of the year. On July the 1st, the company issued a 1000 convertible bond at par with each able to be converted into 10 share of common stock. So should the denominator used in calculating the diluted EPS be 500,000+1,000x10=510,000 or 500,000 + 1,000 x 10 x 6/12months = 505,000?

Thanks for help!

I thiink it should be the second one: 505,000 shares…

I agree with the opinion that it should be the second one.

Use the later of the beginnng of the period and the date the debt was issued.

You cannot convert it before it’s issued.

The method by which you got 505000 is correct.

Is there any statement in CFAI text regaring this issue ?


There is a similar example in the Schwester notes, question 15 on page 82

Thank you so much !