IFRS

Financial Accounting and New

edition

Reporting Study Text 2019

IAS 33 Earnings per share

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Financial Accounting and Reporting
Study Text

IAS 33 Earnings per share

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 Understanding IAS 33
Earnings Per Share

• Earnings are Profits available for equity (ordinary shareholders)

• Earnings Per Share (EPS) is a measure of the amount of earnings in a
financial period, for each equity share
• EPS is calculated as reported earnings (adjusted for a few things) and
divided by the weighted average number of ordinary shares on that year
• IAS 33 specifies the Profit figure that should be used and explains how
to calculate the appropriate no. of shares, when there have been changes
in share capital during the period under review. and also describes the
concept in dilution (NOT covered here), which is caused by the
existence of Potential ordinary shares

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 Accounting treatment for
IAS 33 Earnings Per Share

Basic Earnings
Per Share

• Basic EPS is calculated by dividing the Profit or loss (Total Earning) on Continuing
Operations by the weighted average no. of ordinary shares in issue during the period.

Guidance
on

Total Weighted average

Earnings no. of Shares

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 • It is the Profit/loss from the continuing operations after deducting tax and preference dividend
• In case of consolidated financial statement, after excluding the earnings attributed to Non-
Total controlling Interest
Earnings • Total earnings include any income from associates
• where there is a net loss, total earnings and EPS are Negative.

• Must be classified as equity or liability;

✓ Equity any dividend relating to the share is recognize in equity. Any dividend must be deducted from
P/L from continuing operations.
Preference
Share ✓ Liability (redeemable pre. share) any dividend relating to that share is recognized as a finance cost in P/L.
It is already deducted from the P/L from continuing operations and no further adjustment needs to be
made.

• where a company fails to declare a preference dividend in a period, the holders are entitled to
receive the missed dividend sometimes in future. The dividend accumulates when not declared.
Cumulative
Preference • if there are cumulative preference shares in issue, the dividend must be deducted from P/L from
shares continuing operations, regardless of whether the dividend has been declared or not.
• for Non-cumulative the dividend would have been deducted only in case of declaration.

Increasing • The amount that arises on discounting the proceeds that will be received in future are amortized
rate
Preference
using the interest rate and treated as preference dividend for calculation of EPS. Other elements
share such as transaction cost may also be amortized.

Early
conversion • where there is early conversion of Convertible preference share, the excess amount transferred is
of
Preference treated as a return to preference shareholders and must be deducted for EPS.
share

• where the fair valve of the consideration paid to pref. shareholder exceeds the carrying value of
the pref share repurchased, the excess is a return to the pref. shareholders and must be deducted
Re-
Purchase of from the profit.
Preference
share
• where the carrying value of pref. share repurchased exceeds the fair valve of consideration paid,
the excess is added in profit.
• where pref. share is treated as liabilities, no adjustment is needed.

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 There are different ways in which the no. of share may change;
Weighted 1) Issue for full consideration. 2) Issued for no consideration. 3) Right issue.
average no. Examples;
of Shares • Bonus shares, Shares splits, Reverse share, Splits, Bonus elements in other issue

Issue at
the full • These are included from the date of issue
market
price

• The no. of ordinary shares is calculated based on the number of fully paid shares. The partly
paid shares are included as an equivalent no. of fully paid shares to the extent they are entitled
to participation in dividends.
Partly • Bonus issue of shares are the new shares issued 'free of charge' to existing shareholders, often
paid by converting equity reserves (share premium a/c) into ordinary share capital.
shares ➢ no cash is raised, therefore no earnings boost from the issue. The new no. of shares is found
by multiplying the no. of shares before the bonus issue by the bonus issue fraction (i.e. =
share after bonus issue divide by share before issue)
➢ bonus issue is treated as if they always been in issue. Therefore, multiply every issue before
bonus issue with bonus fraction
➢ comparative figures; it would be misleading, as there are no earnings boost due to bonus
issue. Therefore, previous year's EPS is restated by multiplying it with inverse of bonus
fraction.

Rights • it is an issue of new shares for cash, where the issue price is always below the current
issue of market price. This means that they include a bonus element which must be taken into
shares account for calculation of weighted average no. of shares
• just like Bonus issue, any comparative figure must be restated by multiplying previous
year's EPS by inverse of the 'Right issue bonus fraction' (Actual cum right price divide
by Theoretical ex-right price)
• Actual cum right price is the market price before the right issue
• Theoretical ex-rights are the price entity issued that shares.

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