Pas 33 - Eps-1

CONCEPTUAL
FRAMEWORK
&
ACCOUNTING
STANDARDS
2020 Edition
Lecture Aid
By: Zeus Vernon B. Millan
1
PAS 33 Earnings Per Share
Learning Competencies
• Explain how basic earnings per share is

computed.
• Explain how diluted earnings per share is
computed.
Conceptual Framework & Acctg. S 2

tandards (by: Zeus Vernon B. Milla
Definition
• Earnings per share (EPS) is a computation

made for ordinary shares. It is a form of
profitability ratio which represents how much
was earned by each ordinary share during the
period. No EPS is presented for preference
shares because these shares have a fixed return
represented by their dividend rates.

Types of Earnings per share
1. Basic earnings per share

2. Diluted earnings per share

Basic Earnings Per Share

Considerations in computing “Profit or loss”
a. Profit or loss should be net of income tax expense

b. Profit or loss should be adjusted for the after-tax
amounts of preference dividends, differences arising
on the settlement of preference shares, and other
similar effects of preference shares classified as
equity.

Adjustments for preference dividends
a. If the preference shares are cumulative, one-

year dividend is deducted from profit or loss
whether declared or not.
b. If the preference shares are non-cumulative,
only the dividend declared is deducted from
profit or loss.

Weighted average number of outstanding ordinary shares
• Shares are usually time-weighted from the date consideration is

receivable (which is generally the date of their issue). Thus:
a.Shares issued outright are averaged from the issuance date.
b.Subscribed shares are averaged from the subscription date.
c. Treasury shares are averaged
i. as reduction to the number of outstanding shares from
the reacquisition date; or
ii. as addition to the number of outstanding shares from
the reissuance date

Restatement of EPS
• EPS in previous periods are adjusted retrospectively
when an entity issues any of the following:
a. A capitalization or bonus issue (e.g., share dividend);
b. A bonus element in any other issue, for example a bonus
element in a rights issue to existing shareholders (also
referred to as preemptive stock rights);
c. A share split (increase in number of shares with
corresponding decrease in par value); and
d. A reverse share split (consolidation of shares or
decrease in number of shares with corresponding
increase in par value).

Rights issue

Diluted earnings per share
• Diluted earnings per share is the amount of profit for

the period per share, reflecting the maximum
dilutions that would have resulted from conversions,
exercises, and other contingent issuances that
individually would have decreased earnings per share
and in the aggregate would have had a dilutive effect.
• Only basic earnings per share is presented if an entity
has no dilutive potential ordinary shares (i.e., simple
capital structure).
• The computation of diluted earnings per share is based on
the assumption that the dilutive potential ordinary shares
were converted or exercised. It is:
1. “As if” the convertible preference shares or convertible
bonds have been converted; or
2. “As if” the options or warrants have been exercised.
• The conversion or exercise is assumed to have taken

place on the date the potential ordinary shares
became outstanding, regardless of the date of actual
conversion or exercise.

Options, warrants and their equivalents
• When computing for diluted earnings per share, the

“treasury share method” shall be used in computing for
the incremental shares. This method assumes that:
1. The options or warrants are exercised and
2. The proceeds received from the exercise are used to
purchase treasury shares at the average market price.
3. The difference between the treasury shares assumed to
have been purchased and the option shares represents
the incremental shares.

Treasury share method

Financial statement Presentation
• Basic and Diluted earnings per share are computed on

the following:
1. Profit or loss from continuing operations
2. Profit or loss from discontinued operations, if the entity
reports a discontinued operation.
3. Profit or loss for the year
• EPS is not computed on other comprehensive income

and total comprehensive income.
Financial statement Presentation (Continuation)
• EPS computed on profit or loss from continuing

operations and profit or loss for the year are
presented on the face of the statement of profit
or loss and other comprehensive income. If the
entity uses a two-statement presentation, EPS is
presented only on the separate income
statement.

APPLICATION OF CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B.

18
Millan)
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

END
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B.
Millan) 20

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CONCEPTUAL

• Explain how basic earnings per share is

Conceptual Framework & Acctg. S 2

• Earnings per share (EPS) is a computation

Conceptual Framework & Acctg. S 3

1. Basic earnings per share

Conceptual Framework & Acctg. S 4

Conceptual Framework & Acctg. S 5

a. Profit or loss should be net of income tax expense

Conceptual Framework & Acctg. S 6

a. If the preference shares are cumulative, one-

Conceptual Framework & Acctg. S 7

• Shares are usually time-weighted from the date consideration is

Conceptual Framework & Acctg. S 8

Conceptual Framework & Acctg. S 9

Conceptual Framework & Acctg. S 10

• Diluted earnings per share is the amount of profit for

• The conversion or exercise is assumed to have taken

Conceptual Framework & Acctg. S 12

• When computing for diluted earnings per share, the

Conceptual Framework & Acctg. S 14

Conceptual Framework & Acctg. S 15

• Basic and Diluted earnings per share are computed on

• EPS is not computed on other comprehensive income

• EPS computed on profit or loss from continuing

Conceptual Framework & Acctg. S 17

PROBLEM 2: FOR CLASSROOM DISCUSSION

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B.

Conceptual Framework & Acctg. S 19

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