IAS 33Earnings Per Share1The objective of IAS 33 is to prescribe principles for determining and presenting earnings per share (EPS) amounts to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity.ObjectiveIAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securities to the public. [IAS 33.2]Other entities that choose to present EPS information must also comply with IAS 33. [IAS 33.3]If both parent and consolidated statements are presented in a single report, EPS is required only for the consolidated statements. [IAS 33.4]

ScopeOrdinary share:also known as a common share or common stock. An equity instrument that is subordinate to all other classes of equity instruments.

Potential ordinary share:a financial instrument or other contract that may entitle its holder to ordinary shares.

Key definitionsconvertible debtconvertible preferred shares share warrants share optionsshare rights employee stock purchase plans contractual rights to purchase shares contingent issuance contracts or agreements (such as those arising in business combination)Common examples of potential ordinary sharesDilution:a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.Antidilution:an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Key definitionsAn entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the statement of comprehensive income, basic and diluted EPS for: [IAS 33.66]profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity; andprofit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period.Requirement to present EPSIf an entity presents the components of profit or loss in a separate income statement, it presents EPS only in that separate statement. [IAS 33.4A]Basic and diluted EPS must be presented with equal prominence for all periods presented. [IAS 33.66]Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share). [IAS 33.69]If an entity reports a discontinued operation, basic and diluted amounts per share must be disclosed for the discontinued operation either on the face of the of comprehensive income (or separate income statement if presented) or in the notes to the financial statements. [IAS 33.68 and 68A]

Requirement to present EPSEarnings (from BEPS) + after-tax interest expense + PS div

Weighted-average number of ordinary shares outstanding during the period

Diluted EPS Amounts attributable to the ordinary equity holders in respect of profit or loss from continuingoperations and net profit or loss After all expenses including taxes and minority interests After cumulative preference dividend for period whether declared or not After noncumulative preference dividend declared for period After other adjustments relating to preference shares(Cumulative preference dividends for the prior periods are ignored.)

Earning Number of ordinary shares at the beginning of the period are added to the number of shares issued during the period less the number of shares bought back in the period. Shares issued and bought back are multiplied by a time weighting factor dependent on when the event took place. Shares are included from the date the consideration is receivable.WANOS Partly paid shares are included as fractional shares to the extent that they are entitled to participate in dividends during the period relative to a fully paid ordinary share. To the extent that partly paid shares are not entitled to participate in dividends during the period, they are treated as the equivalent of warrants or options. Contingently issuable shares are included when the conditions have been satisfied. Ordinary shares issued as part of a business combination are included from the acquisition date.WANOSAn entity may increase or reduce its ordinary shares without a change in its resources. Examples of this are bonus issues, stock dividends, share splits (i.e., where shares are issued for no consideration), and reverse share splits (consolidation of shares). In these cases, the weighted-average number of shares is adjusted in line with the transaction as if the event had occurred at the beginning of the period. All periods presented should be adjusted for such events

WANOSIf the bonus issue, stock dividend, and other similar events occurred after the balance sheet date but before the financial statements are authorized, then the earnings per share calculations should reflect thesechanges. This applies also to prior periods and to diluted earnings per share.

WANOSExercisesDiluted Earnings Per ShareSimple vs Complex

Capital StructureOrdinary share:also known as a common share or common stock. An equity instrument that is subordinate to all other classes of equity instruments.

Potential ordinary share:a financial instrument or other contract that may entitle its holder to ordinary shares.

Key definitionsconvertible debtconvertible preferred shares share warrants share optionsshare rights employee stock purchase plans contractual rights to purchase shares contingent issuance contracts or agreements (such as those arising in business combination)Common examples of potential ordinary sharesDilution:a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.Antidilution:an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Key definitionsWhen calculating diluted earnings per share, there will be adjustments to both the earnings and to the per share part of the statistic. If the potential ordinary share has given rise to any income or expense in the period, then its effect on profit has to be reversed, as the assumption is that it has now been converted into ordinary shares that would not have given rise to that income or expense.

FormulaEarnings (from BEPS) + after-tax interest expense + PS convertible div

Weighted-average number of ordinary shares outstanding during the period

Diluted EPSConversion is assumed at the earliest date possible that it is convertible.

Bonds actually converted?The after-tax actual interest paid on the bonds up to the date of conversion is added back to net income.Convertible bond payableNet income is not reduced anymore by the amount of preference dividend.The number of ordinary shares outstanding is increased by the number of ordinary shares that would have been issued upon conversion of the preference share.

What if convertible P/S issued on September 1 of the current year?What if P/S actually converted?

Convertible preference shareWhen dilutive? If the exercise price or option price is less than the average market price of the ordinary shares.

Note: For employee share options, the exercise price or option price shall include the fair value of any services to be supplied to the entity in the future under the option plan.

Options and warrantsThe options and warrants are assumed to be exercised at the beginning of the current year or at the date they are issued during the current year.The proceeds from the exercise of the options and warrants are assumed to be used to acquire treasury shares at average market price.The number of incremental ordinary shares is equal to the option shares minus the assumed treasury shares acquired.The incremental ordinary shares represent the issue of ordinary shares for no consideration.Treasury share methodThe option shares or covered shares actually issued are averaged from the date of exercise to the end of the current year.The incremental ordinary shares are averaged from the beginning of the current year to the date of exercise of options and warrants.Actual exercise of options and warrantsThe diluted loss per share is not reported anymore because the effect of the assumed conversion is always antidilutive.If the entity has a net loss, only the basic loss per share is computed.Diluted loss per sharePotential ordinary shares shall be ranked based on their contribution in terms of incremental EPS.The potential ordinary share with the lowest incremental EPS is ranked first.Why?Multiple potential ordinary sharesOptions and warrants - most dilutiveConvertible preference shareConvertible bond payable

Compare incremental EPS with the basic EPSRankTestTest for dilutionWritten put optionsIncluded in BEPS from the date of the condition is satisfiedIncluded in DEPS from the beginning of the period or from the date of the contingent agreement, if laterContingent ordinary sharesRights IssueSaturday (9-12) Quasi, BVPS, Theory on LeasesMonday Lease (9-12)Tuesday / Thursday - (9-12)Next Meeting