IAS 33:

Earnings per share

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Agenda

01 02
Scope Key Definitions

03 04
Basic EPS Diluted EPS

05 06
Presentation in Disclosures
the statement of
comprehensive
income

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Scope

3
 Scope
This standard applies to Separate financial statements of an entity and Consolidated
financial statements of a group:

i. whose ordinary shares or potential ordinary shares are traded in a public market (a
domestic or foreign stock exchange or an over-the-counter market, including local
and regional markets) or

ii. that files, or is in the process of filing, its financial statements with a securities
commission or other regulatory organisation for the purpose of issuing ordinary
shares in a public market

IAS 33 requires EPS to be disclosed in consolidated financials and may disclose EPS in its
separate financial statements voluntarily.

*Under Indian GAAP- EPS to be disclosed both in the separate and consolidated financial
statement of the parent.

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Key Definitions

5
 Key Definitions

Ordinary share Treasury shares

An ordinary share is an equity Treasury shares are equity instruments
instrument that is subordinate to all reacquired and held by the issuing entity or
other classes of equity instruments. by its subsidiaries.

Potential ordinary share Dilutive potential ordinary share

A potential ordinary share is a financial Potential ordinary shares shall be treated as
instrument or other contract that may dilutive when, and only when, their
entitle its holder to ordinary shares. For conversion to ordinary shares would
example – financial liabilities or equity decrease earnings per share or increase
instruments, including preference shares, loss per share from continuing operations.
that are convertible to ordinary shares;
options and warrants.

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Basic EPS

7
Basic EPS
Formula

Profit/loss attributable to ordinary equity holders of the parent

Weighted average number of ordinary shares outstanding during the period

Earnings: The earnings should be the consolidated net profit or loss for the year after adjusting:
Tax,
Non-controlling interests, and
Returns to preference shareholders that are not already included in net profit.

Weighted average number of equity shares:

Ordinary shares outstanding at the beginning xxxx
Less: Ordinary shares bought back* xxxx
Add: Ordinary shares* xxxx
Ordinary shares outstanding during the period xxxx

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Basic EPS
Example
• on 1 January 2020, Entity B had 10,000 ordinary shares in issue of which it holds 1,500 as treasury shares.

• on 1 June 2020, Entity B issues 4,000 new shares for cash.

• on 1 December 2020, Entity B purchases an additional 1,500 of its own shares for cash to hold as treasury shares.

• Entity B's profit after tax attributable to ordinary equity holders of the parent for the year 2020 was $100,000.

Date Number of shares Weightage Total Earnings

1 Jan - 31 May 8,500 5/12 3,542

1 June - 30 November 12,500 6/12 6,250

1 December – 31 December 11,000 1/12 917

10,709 100,000

Basic EPS= $100,000/10,709 Shares= 9.34

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Basic EPS
Bonus Shares

• Bonus issues
o These are treated as if the new shares have been in issue for the whole of the period.

• Stock split
o Issue of new shares with proportionate reduction in par value.
o These are treated similar to bonus issue.

Restatement-Restatement of prior period EPS for events that change the number of shares outstanding without a corresponding change in resources

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Basic EPS
Bonus Shares
Example
X Inc is a company incorporated in US and it follows calendar year for closing it books of accounts. Following are the details of X Inc.

Date Details

1 January 1,000,000 in issue

28 February Issued 200,000 at fair value

31 August Bonus issue 1 for 3

30 November Issued 250,000 at fair value

Required:

Calculate the number of shares which would be used in the basic EPS calculation.

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Basic EPS
Bonus Shares
Solution
Total number of shares outstanding for basic EPS = 1,576,389

Working:

Bonus Fraction: (1.6 m shares /1.2 m shares) = 4 / 3

Calculation of number of shares which would be used in the basic EPS

• Share outstanding from 1 January to 28 February

1,000,000 × 2 / 12 × 4 / 3 = 222,222

• Share outstanding from 1 March - 31 August

1,200,000 × 6 / 12 × 4 / 3 = 800,000

• Share outstanding from 1 September - 30 November

1,600,000 × 3 / 12 = 400,000

• Share outstanding from 1 December - 31 December

1,850,000 × 1 / 12 = 154,167

• Total number of shares outstanding for basic EPS 1,576,389

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Basic EPS
Right Issue
• A rights issue has features in common with a bonus issue and with an issue at fair value
• The company will receive a consideration which is available to boost earnings (like an issue at fair value) and
• The shareholder receives part of the share for no consideration (like a bonus issue)

A) Formula for bonus fraction :

Fair value per share immediately before the exercise of the right
Theoretical ex-rights fair value per share

B)Theoretical ex-rights fair value per share :

(Fair value of all outstanding shares before the exercise of rights + Total amount received from exercise of rights)
(Number of shares outstanding before exercise + Number of shares issued in the exercise)

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Basic EPS
Right Issue
Example

X Ltd provided the following information for three years.

Profit attributable to ordinary equity holders of parent company:

Year 2018 2019 2020

Profit 3,000 3,500 4,200

No. of shares outstanding at rights issue: 1,000

The company had a 1 for 4 rights issue

Exercise price: $6.00

Date of rights issue: 31 January 2019

Last date to exercise rights: 1 April 2019

Market price of 1 ordinary share immediately before exercise on 1 April 2019: $12.00

Calculate EPS on 31 December (the reporting date) for each of the three years.

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Basic EPS
Right Issue
Solution
First, we need to calculate the theoretical ex-rights per share

FV of all outstanding shares before rights + total amount received from exercise

No. of shares outstanding before exercise + no. of shares issued in exercise

Numerator: (1,000 x 12) + (1000/4 x6) = $13,500

Denominator: 1000 + 250 = 1,250

Theoretical ex-rights value = $10.8

Adjustment factor = FV per share, before exercise of rights

Theoretical ex rights value per share

= 12 / 10.8 = 1.11

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Basic EPS
Right Issue
Solution (Continued…)
Calculation of basic earnings per share:

2018: Earnings / EPS for rights reinstated = 3000 / (1000*1.11) = 2.70

2019:EPS for rights reinstated = 3500 / (1000 * 1.11 *3/12) + (1250 * 9 /12) = 2.88

2020: EPS = 4200 / 1,250 = 3.36

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Basic EPS
Right Issue
Example
X Inc is a company incorporated in US. Following are the details of X Inc.

01 January Shares in issue 1,000,000

31 March Rights issue 1 for 5 at $0.90

Fair value of shares $1 (cum-rights price)

Required to calculate the number of shares for use in the EPS calculation.

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Basic EPS
Right Issue
Solution
Number

1 January - 31 March: (1,000,000 × 3/12x1/0.9833) 254,237

1 April -31 December: (1,200,000 × 9/12) 900,000

1,154,237

Rights issue bonus fraction

Shares Value per share ($) Total Amount ($)

Cum-rights 5 1 5.0

Rights 1 0.9 0.9

Ex-rights 6 5.9

Theoretical ex-rights price 5.9/6 = 0.9833

Bonus fraction = Cum - rights price / Theoretical ex - rights price =1/0.9833 = 1.0173

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Diluted EPS

19
Diluted EPS
The numerator should be adjusted by the after tax effect of:

1. dividends or other effects related to dilutive potential ordinary shares which were deducted from the numerator in the Basic EPS
calculation.

2. P&L effects related to:

a) dilutive potential ordinary shares and

b) the conversion of the dilutive potential ordinary shares.

The denominator should be:

adjusted to the weighted average number of ordinary shares that would be issued on the conversion of the dilutive potential ordinary shares

the adjustment date is the LATER of:

1. the beginning of the period
2. the date of the issue of the potential ordinary shares.

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Diluted EPS
Options, warrants and equivalent instruments

Options and warrants are financial instruments that give the holder the right to purchase ordinary shares.

1. calculate the proceeds from exercising the instrument

2. calculate full price shares by dividing the proceeds in Step 1 to the average market price of the ordinary shares during the period
3. calculate the ''free shares'' i.e. the difference between:
• the number of shares that will be issued as a result of the exercise of the instrument
• the full price shares in Step 2 above.

Options and warrants are dilutive when the result of Step 3 above is positive (ie they are 'in the money').
Otherwise, they are not included in the calculation of Diluted EPS.

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Diluted EPS
Conversion
Example
1st January Shares in issue 1,000,000

Profit for the year ended 31st December $200,000

31st March

Issue of convertible bonds. The liability element is measured at $200,000, calculated using an effective interest rate of 6%.

The terms of conversion are as follows:

200,000 shares will be issued if converted within five years

220,000 shares will be issued if converted after five years

Tax rate 33%

Basic EPS: 200,000 / 1,000,000 = $0.20

Calculate diluted EPS.

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Diluted EPS
Conversion
Solution

Number of shares Profit($)

Basic Dilution 1,000,000 200,000

Shares 220,000x9/12 165,000

Interest $200,000x6%x9/12x(1-0.33) 6,030

1,165,000 206,030

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Diluted EPS
Option
Example
1 January

Shares in issue 1,000,000

Profit for the year ended 31 December $100,000

Average fair value during period $8

The company has in issue options to purchase 200,000 ordinary shares

Exercise price $6

Required:

Calculate the diluted EPS for the period.

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Diluted EPS
Option
Solution
Calculation of Diluted EPS

Number of Shares Profit($) EPS(cents)

Basic 1,000,000 100,000 10

Dilution(W) 50,000 –

1,050,000 100,000 9.5

Working :

Proceeds of issue (200,000 × $6) 1,200,000

Number that would have been issued at FV /$8 150,000

Number actually issued 200,000

Number for “free” 50,000

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Diluted EPS
Example
Entity A had the same 1,000,000 ordinary shares in issue on both 1 January 2015 and 31 December 2015
on 1 January 2015, Entity A issues 200,000 $1 options each option is exercisable to one ordinary share on 1 January 2019 for a price of $ 8
Entity A's profit after tax for the year 2015 was $2,000,000
the average price per share during the year 2015 was $20.

Shares Earnings

Basic 1,000,000 $ 2,000,000

Benefit 120,000 (Note)

Diluted 1,120,000 $ 2,000,000

Note - Proceeds from exercising the options: 200,000*INR 8= $1,600,000

- Full price shares: $1,600,000/20= 80,000 shares
- ''Free shares'': 200,000-80,000= 120,000 shares.

Basic EPS= $ 2,000,000/1,000,000 Shares = 2

Diluted EPS = $ 2,000,000/1,120,000 Shares = 1.79

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Diluted EPS
Contingently Issuable Shares
The conditions satisfied during the period

Include from the later of:

Assume the reporting date is end
• beginning of period
of contingency period
• the agreement date

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Diluted EPS
Contingently Issuable Shares
Example
• Entity A had the same 1,000,000 ordinary shares in issue on both 1 January 2020 and 31 December 2020

• on 1 January 2020, Entity A issues 1,201 units of convertible bonds for $1,200,000. Each $5 bonds are convertible into 1 ordinary share

• on 1 January 2020, Entity A issues 200,000 $1 options

• each option is exercisable to one ordinary share on 1 January 2024 for a price of $8

• the average price per share during the year 2020 was $20

• Entity A's profit after tax for the year 2020 was INR 5,000,000 and it includes:

•$100,000 interest expense on the convertible bonds

•$30,000 tax income effects.

What is the Basic and Diluted EPS for year ended 31 December 2020?

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Diluted EPS
Contingently Issuable Shares
Solution

Shares Earnings

Basic 1,000,000 $5,000,000

Options- Benefit 120,000 (*)

Conversion effect 240,000 (**) $ 70,000 (***)

(*)
1. Proceeds from the exercise of the options: 200,000* $ 8= $1,600,000
2. Full price shares: $1,600,000/20= 80,000 shares
3. ''Free shares'': 200,000-80,000= 120,000 shares

(**) the denominator: 1,200,000 bonds/5= 240,000 shares

(***) the numerator: $100,000-$30,000= $70,000

The dilution ratios are as follows:

Options: $0/80,000 Shares= $0/share
Convertible bonds: $70,000/240,000 Shares= $0.3/share.

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Diluted EPS
Combination of Potential Ordinary Shares

Example
Basic EPS = $5,000,000/1,000,000 Shares = $5/share

Diluted EPS

Include the most dilutive instrument (options only)

= $5,000,000/(1,000,000Shares + 120,000Shares)= $4.46

Include the next most dilutive instrument

= $5,070,000/(1,120,000Shares + 240,000Shares)= $3.68

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Presentation in the
Statement of
Comprehensive
Income

31
Presentation
Statement of Comprehensive Income

Basic and Diluted EPS attributable for the parent EPS is presented for every period for which a
from continuing operations and in total. Those statement of comprehensive income is presented
presented even if the amounts are negative (loss
for share)

Presentatio
n
If Basic and Diluted EPS are equal- If Diluted EPS is reported for at least one period, it
present Basic and Diluted EPS in one line in the should be reported for all periods presented, even
statement of comprehensive income if it equals Basic EPS

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Disclosures

33
Disclosures
Summary of Key Points

• The numerators of the Basic and Diluted EPS

• A reconciliation of these numerators to profit or loss for each classes
• The denominators of the Basic and Diluted EPS
• A reconciliation of these denominators to each other by classes
• The antidilutive instruments for the period not included at present but that could potentially dilute in the future
• Details of ordinary share/potential ordinary share transactions:
1. That occur after the reporting period and
2. That would have changed Basic or Diluted EPS significantly if they occurred before the end of the reporting period.
Examples: issue of shares, options, warrants, or convertible instrument.

*Under Indian IGAAP- certain additional disclosure required under IFRS not mandatory.

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Thank you for your attention

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