Cima F2 Exam Question No 55

Question No 55:

Options and warrants to subscribe for shares  
An option or warrant gives the holder the right to buy shares at some time in the future at a predetermined price.The cash received by the entity when the option is exercised will be less than the market price of the shares, as the option will only be exercised if the exercise price is lower than the market price. The increase in resources does not match the increase there would be in resources if the issue of shares were at market value. The options will therefore have a dilutive effect on EPS.