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When potential ordinary shares are CANCELLED or LAPSE during the period, they are:
AIncluded for the FULL period in diluted EPS
BIncluded for the portion of the period during which they were outstanding (pro-rata weighting)
CExcluded entirely from diluted EPS
DIncluded only if they were dilutive
Answer & Solution
Correct answer: B. Included for the portion of the period during which they were outstanding (pro-rata weighting)
Potential ordinary shares are weighted for the period they were outstanding. Cancellation/lapse mid-period reduces the weighting to the actual outstanding period. Conversion to ordinary shares moves them from 'potential' (diluted) to 'actual' (both basic and diluted).
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