Disclosure standards - part 5

In this lesson

1. 0:01 Share options and dilution explained
2. 1:43 Calculating notional free shares
3. 3:20 Fully diluted EPS with options
4. 4:43 Summary of disclosure standards

About this lesson

You'll discover the treasury stock method—how to identify the notional "free" shares being given away when option holders can buy shares below market value, and why this matters for disclosure. This builds on earlier dilution concepts and completes your understanding of IAS 33 earnings per share calculations, essential for Financial Reporting and Strategic Business Reporting papers. The video walks through a worked example where Tim has issued share options with an exercise price of $3 on shares worth $4 in fair value. You'll learn to calculate how many shares would normally be purchased with the exercise proceeds at market price, then identify the difference as notional free shares that dilute earnings. The calculation shows how 1 million options result in 250,000 estimated extra shares, pushing fully diluted EPS down from $0.10 to $0.08 per share—a key disclosure trigger. By the end, you'll understand when both basic and fully diluted EPS must be disclosed, and why: when dilution is real, shareholders need to see the potential impact on their returns. This completes the disclosure standards module, bringing together IAS 24 related party transactions and the full scope of IAS 33 calculations and presentation requirements.

Duration: 6m