Why is the numerator adjusted for convertible bonds when calculating diluted EPS.?

The objective of calculating diluted EPS is to ascertain how the earnings available to each share will be affected if all convertible instruments were converted into shares. i.e. to account for the dilutive potential of convertible bonds; hence the numerator should be adjusted with the interest payment on the bonds, and the denominator should be adjusted with the number of shares that will be issued on conversion.

To calculate fully diluted EPS:Diluted EPS = [(net income - preferred dividend) / weighted average number of shares outstanding - impact of convertible securities - impact of options, warrants and other dilutive securities]Other form:(net income - preferred dividends) + convertible preferred dividend + (convertible debt interest * (1-t))Divided byweighted average shares + shares from conversion of convertible preferred shares + shares from conversion of convertible debt + shares issuable from stock options.To understand this complex calculation we will look at each possibility:

Convertible bones are unique combination of debit and equity, they provide investors with the chance to convert a debt in into shares of the issues's common stock at a set price and usually by a set date