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Earnings Per Share

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KAYLA SHANE GONZALES
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15 views16 pages

Earnings Per Share

Uploaded by

KAYLA SHANE GONZALES
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Earnings Per Share

PAS 33
Scope
■ Entities with publicly traded (or potential)
ordinary shares
■ Entities in process of issuing
publicly-traded securities
■ Only required on a consolidated basis
■ If EPS disclosed, then must follow IAS 33
Presentation
■ Income Statement
– Basic EPS
– Diluted EPS
– Consolidated Income Statement
▪ Continuing Operations
▪ Profit or loss attributable to the parent entity
Measurement – Basic EPS
■ Numerator: Net profit or loss attributable
to ordinary shareholders after deducting
preference share dividends and gains or
losses on settlement of preference shares
■ Denominator: Weighted average number
of ordinary shares outstanding during the
period
Basic EPS - Numerator
Net income available to ordinary shareholders
■ Deduct preference dividends:
– After-tax amount on non-cumulative preference
shares
– After-tax amount of cumulative dividends even if not
declared
■ Increasing rate preference shares – amortise
upfront discount or premium
■ Any difference in carrying amount from fair value
of consideration paid to settle preference shares
is an adjustment to the numerator
Basic EPS - Denominator
■ Include shares from date consideration is
receivable
■ Contingently issuable shares – include from date
conditions satisfied
■ Passage of time is not a “condition”
■ Adjust retrospectively for events that have
changed the number of ordinary shares without
a change in resources (e.g. share dividend,
share split)
Diluted EPS - Numerator
■ Numerator adjusted for effects of
all dilutive potential ordinary
shares
■ Potential ordinary share: financial
instrument or other contract that
may entitle its holder to ordinary
shares
– E.g. warrants, options, convertible
preference shares, convertible bonds
Diluted EPS - Denominator
■ Denominator as in basic EPS adjusted for
effects of all dilutive potential ordinary
shares:
– On a weighted average basis
– Assumption of conversion at beginning of
period or, if later, at date of issue
■ Dilutive only when conversion would
decrease net profit from continuing
operations per share
Retrospective adjustments
■ as a result of capitalisation, bonus issue or share
split
■ After balance sheet date but before the
authorization for issuance (with disclosure)
■ For effects of errors and changes in accounting
policies
■ Diluted EPS for prior period not restated for
changes in assumptions or fore the conversion
of potential ordinary shares into ordinary shares
Disclosures
■ Amounts used as numerators
– Reconciliation of amounts used to profit or loss
■ Weighted average number of shares used as
denominator
– Reconciliation of shares in used in calculating basic
and diluted EPS
■ Instruments that could potentially dilute basic
EPS in the future that were antidilutive for the
period/s presented
■ Transactions after balance sheet date but
accounted for prospectively
Key points
■ Basic and diluted EPS
■ Required only for publicly traded entities
and for entities are in the process of
issuing ordinary shares or potential
ordinary shares in public markets
■ Retrospective adjustment of EPS for
capitalization, bonus issue or share split
Illustration 1
Veverly Corporation had 1,000 ordinary shares issued and outstanding
at January 1. During the year, Veverly also had the ordinary share
transactions listed below:April 1 Issued 300 previously unissued
shares. May 1 Split the shares 2-for-1. June 30 Purchased 100
shares for the treasury. July 30 Distributed a 20 percent stock
dividend. Dec. 31Split the shares 3-for-1. What is the weighted
average number of shares that Veverly should use for earnings per
share purposes?

1,000 x 12/12 x 2 x 120% x 3 = 7,200


300 x 9/12 x 2 x 120% x 3 = 1,620
(100) x 6/12 x 120% x 3 = ( 180)
Weighted ave. number of shares 8,640
Multiple Potential Ordinary Shares

■ Each issue or series of potential ordinary


shares is considered separately.
■ To maximize dilution, each issue is
considered in sequence from the most
dilutive to the least dilutive.
Illustration – Lilli Pharmaceuticals

Test for Dilutive Effect

Instrument ↑in Earnings ↑in # of shares Earnings/ ↑ share

Options None 100,000 (20-15) Nil


20
Preference P1,250,000 x 8.5% 25,000 x 10 P0.425
= P106,250 = 250,000

7% bonds P5M x 7% x 65% 5,000 x 50 P0.91


= 227,500 = 250,000

The sequence to include in the computation is options, preference and


bonds.
Basic EPS = P1,500,000/ 1,000,000 = P1.50
When only the options are considered
P1,500,000______ = P1.46
1,000,000+25,000
When convertible preference shares are considered:
P1,500,000 + P106,250 = P1.26
1,025,000 + 250,0000
When convertible bonds are considered
P1,606,250 + P227,500 = P1.20
1,275,000 + 250,000
Thus, all are dilutive securities, the diluted EPS is P1.20
KEY DISCLOSURES

● Basic and diluted EPS should be presented on the face of the


income statement for each class of ordinary shares with equal
prominence.
● If an entity reports a discontinued operation, both BEPS and DEPS
should be reported for discontinued operation.
● An entity should report both BEPS and DEPS even if it is a loss per
share.
● The amounts used as the numerator for BEPS and DEPS and
reconciliation of these amounts with profit or loss for the period.
● The weighted average number of ordinary shares used as
denominator and reconciliation of these denominators to each other.
● Potential ordinary shares that were not included in the computation
of DEPS because they are antidilutive.
● Description of ordinary share transactions and potential ordinary
share transactions after the balance sheet date.

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