Chapter 4 - IAS 33

12/27/2022
IAS 33-Earnings per Share
Trình bày: Nguyễn Thị Thu Hiền
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Content
1. Introduction
2. Basic Earnings per Share
3. Diluted Earnings per Share
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1. Introduction
 What is EPS?
 Capital Structure
 Complex capital structure
 Preference Shares
 Changes in Shares
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What is EPS
VIC VNM REE

Gía cổ phiếu 95.600 99.000 30.450
(14/4/20) VND
EPS căn bản (2019) 2.433 5.478 5.286
PE 39,2 18 5,8
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Complex capital structure

• Outstanding potential shares (options, warrants, convertible
instruments, preference shares )
• Contingently issuable shares (the conditions have not been met)
• Contracts based own equity instruments
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Types of Preference Shares

 Cumulative preference shares
− Require the issuer to pay dividends, even if in arrears.
 Non- Cumulative preference shares
 Increasing rate preference shares
− Shares that are issued at a discount and that provide a low
initial dividend to compensate the issuer for selling at a discount.
Cumulative preference shares – Non- Cumulative preference shares
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Changes in Shares Issued during the Year
1. Issue of new shares during the year for cash or other assets
2. Issue of new shares in the form of a bonus issue or share split
3. Issue of new shares at a discounted price as a result of the exercise of a
rights issue
4. Consolidation of existing shares through a reverse split
5. Issue of new shares from the conversion of potential ordinary shares
such as convertible bonds or convertible preference shares
6. Issue of new shares from the exercise of potential ordinary shares
such as stock options issued to employees or creditors
7. Contingently issuable shares become actual issues when conditions have
been met (IFRS 2)
8. Purchase of treasury shares and issue of previously purchased treasury
shares
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Scenario 1: Issue of new shares for cash or other assets

• Issue of new shares for cash or other assets increases the
resources available to the firm
• Additional resources have a positive impact on net earnings
from the date they flow into the firm
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Scenario 2: Issue of bonus shares (stock dividends)
Reserves
Reserves
(Retained
earnings
+ Capital Bonus issue
reserves) Total Total
Equity Equity
Share
capital
Share
capital
shareholders
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Scenario 3: Share splits

• An existing share is split into 2 or more shares
• No inflow of resources
Scenario 4: Consolidation of existing shares through reverse splits
• 2 or more shares are consolidated into one share
• No inflow of resources
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Scenario 5: Rights issue at a discount to market price
• Entitlement of existing shareholders to a rights issue is such that after
subscribing to the new shares, their proportionate interest in the firm
after the rights issue remains the same as before
• Number of shares issued comprises of:
1. Number of shares that would have been issued at the full market price
to achieve the same total proceeds
2. Number of shares that is deemed to be issued for no consideration or
the “bonus element”
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Scenario 6: New issue of shares from the conversion of debt
• No inflow of cash, but reduction of debt
→ Increases net assets of issuer
• Interest expense on debt is saved
Scenario 7: Contingently issuable shares

• IAS 33:5: These are ordinary shares issuable for little/no cash or
other consideration upon the satisfaction of specified conditions in a
contingent share agreement
Scenario 8: Share repurchase and Treasury shares

• IAS 32:33: The entity that reacquires its own equity instruments
should deduct these instruments (“treasury shares”) from equity.
No gain or loss is recognized in P/L.
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Basic vs. Diluted EPS
Capital Structure: Components of Equity
Simple Capital Structure: Does not Complex Capital Structure

include potential ordinary shares
Includes potential ordinary shares, e.g.
convertible bonds/preference shares,
warrants, options, or other contractual
rights which, when exercised, could in
the aggregate decrease earnings per
ordinary share
Report basic EPS only Report basic and diluted EPS

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Content
1. Introduction
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 Basic EPS
 Calculating Basic EPS for Various Scenarios
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VNM
Basic EPS VNM©
Net profit attributable to ordinary shareholders of a parent entity*

Basic EPS =
Weighted average no. of ordinary shares during a reporting period
*after deduction of non-controlling interests’ share of net profit or loss
Numerator:
• After deducting amounts due to preference shareholders in respect of:
– Preference dividends (lưu ý PP hạch toán cổ tức ưu đãi)
– Gains/losses arising on the repurchase or early conversion of preference
shares –(standard PS vs convertible PS)
– Amortization of discount or premium on increasing rate preference
shares
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Adjusting for Preference Dividends
Scenario Treatment
Non-cumulative preference shares Deducted when declared
Cumulative preference shares Deducted when due
Increasing rate preference shares Amortization of discount/premium
treated as part of preference dividend
Preference shares repurchased in a tender Excess deducted from net profit
offer (FV > carrying value) attributable to ordinary equity holders of
Dr- PS- Equity: 10 parent entity
Cr- Cash: 9 & Cr- P/L (gain): 1
Early conversion of preference shares This is a loss to the issuer and a return to
(Consideration > FV of ordinary shares the preference shareholders. Deduct loss
issuable) – P9-2 from net profit attributable to ordinary
Dr- PS(Equity) & Dr- P/L(loss) equity holders of parent entity
Cr-SC (equity) & Cr-20 Cash Thuhien
Example 1 – Basic EPS with share issue for cash

 Question:
 ABC company had a share capital of 10 000 ordinary shares of CU 1 each and
1000 redeemable preference shares of CU 1 each as of 1 January 20X1.
 On 1 June 20X1 ABC issued new share capital of 2 000 ordinary shares (CU 1
each) for cash.
 In 20X1 ABC’s profit after tax was CU 20 000. ABC paid the preference dividend
of CU 0.20 per share during 20X1 and it was included as a finance charge within
the net profit.
 Calculate the basic EPS.
Weighted average n.
Dates N. of days N. of ordinary shares
of ord.shares
1 January – 31 May 151 10 000 4 137
1 June – 31 December 214 12 000 7 036
Total 365 n/a 11 173
Or: = 10.000 + 2.000 *(214/365) = 11.173
*Note 1: Weighted average n. of shares is calculated with the n. of days as weighting factor,
e.g. 151/365*10 000 = 4 137
*Note 2: During the exam, you can use months instead of days.
Basic EPS = CU 20 000 / 11 173 = CU 1.79 per share Thuhien
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Example 2– Basic EPS with share issue for cash

 Question:
 ABC company had a share capital of 10 000 ordinary shares of CU 1 each and
1.000 redeemable preference shares of CU 1 each as of 1 January 20X1. Dividend
pay for preferential stocks is CU 0.2/share
 On 1 June 20X1 ABC issued new share capital of 2 000 ordinary shares (CU 1
each) for cash.
 In 20X1 ABC’s profit after tax & before preference dividend was CU 20 000.
 Calculate the basic EPS.
Weighted average n.
Dates N. of days N. of ordinary shares
of ord.shares
1 January – 31 May 151 10 000 4 137
1 June – 31 December 214 12 000 7 036
Total 365 n/a 11 173
*Note 1: Weighted average n. of shares is calculated with the n. of days as weighting

factor, e.g. 151/365*10 000 = 4 137
*Note 2: During the exam, you can use months instead of days.
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Basic
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EPS = (CU 20 000 – (1.000 *0,2)) / 11 173 = CU 1.61 per share
Example 3 Increasing rate preference shares
 Entity D issued non-convertible, non-redeemable class A cumulative preference

shares of CU100 par value on 1 January 20X1. The class A preference shares are
entitled to a cumulative annual dividend of CU7 per share starting in 20X4.
 At the time of issue, the market rate dividend yield on the class A preference shares
was 7 per cent a year. Thus, Entity D could have expected to receive proceeds of
approximately CU100 per class A preference share if the dividend rate of CU7 per
share had been in effect at the date of issue.
 In consideration of the dividend payment terms, however, the class A preference
shares were issued at CU 81.63 per share, ie at a discount of CU18.37 per share.
The issue price can be calculated by taking the present value of CU100, discounted at
7 per cent over a three-year period.
1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4

100.000
87,34/(1+7%) 93,46/(1+7%) 100/(1+7%) 107/(1+7%) 107

=81,63 =87,34 =93,46 =100
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(b
24Year Carrying amount Imputed (a) Carrying amount of ) Dividend
of dividend class A preference paid
class A preference shares 31 December
shares 1 January
20X1 81.63 5.71 87.34 –
20X2 87.34 6.12 93.46 –
20X3 93.46 6.54 100.00 –
Thereafter: 100.00 7.00 107.00 (7.00)
(a) at 7%
(b) This is before dividend payment.
1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4
87,34/(1+7%) 93,46/(1+7%) 100/(1+7%) 107/(1+7%) 107

=81,63 =87,34 =93,46 =100
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D company had a share capital of 10 000 ordinary shares of CU 1 each as of 1

January 20X1.
• Net profit (after tax & before preference dividends) for 20x1 and 20x2, 20X3 &
20X4 were the same $300,000.
• Calculate the basic EPS.
Solution: 20X1: (300.000 -5,71)/ 10.000

20X2: (300.000 – 6,12)/10.000
20X3: (300.000- 6,54)/10.000
20X4: (300.000 -7)/10.000
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Illustration 12.1: Preference Shares and Basic EPS
GTO’s capital structure comprises the following:

− 5,000,000 ordinary shares
− 2,000,000 non-cumulative 6% preference shares
− 1,000,000 cumulative 4.5% preference shares
• Net profit for 20x3 and 20x4 were $300,000 and $5,000,000 respectively
• No dividend was declared or paid in 20x3
• In 20x4, dividends were declared and paid on the non-cumulative preference
shares and cumulative preference shares (for both 20x3 and 20x4)
• During 20x4, 500,000 cumulative preference shares were repurchased in a
tender offer at a premium of 50 cents over their carrying value
• Assume that the preference dividends and gains or losses on repurchase of
preference shares have no tax effects
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Illustration 12.1: Preference Shares and Basic EPS

20x4 20x3
Net profit attributable to ordinary shareholders $5,000,000 $300,000
Less preference dividends:
Non-cumulative (120,000)
Cumulative (45,000) (45,000)
Repurchase of preference shares (250,000)
Net profit attributable to ordinary shareholders $4,585,000 $255,000
Number of ordinary shares 5,000,000 5,000,000
Basic EPS 91.7 cents 5.1 cents
Actual amount of preference dividends paid in 20x4 is $210,000 ($120,000 being

the non-cumulative preference dividend and $90,000 being the cumulative
preference dividend)
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1. Issue of new shares:

1. for cash or other assets:
2. in the form of a bonus issue or share split
3. at a discounted price as a result of the exercise of a rights issue
4. from the conversion of potential ordinary shares such as convertible bonds
or convertible preference shares
5. from the exercise of potential ordinary shares such as stock options issued
to employees or creditors
2. Consolidation of existing shares through a reverse split
3. Purchase of treasury shares and issue of previously purchased treasury shares
(i) -> tăng tiền/nguồn lực cho DN/ảnh hưởng đến P/L
-> Thời điểm-> tính trọng số
(ii) Không tăng tiền/nguồn lực -> không tính trọng số/ hồi tố
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1. ordinary shares issued in exchange for cash are included when cash is
receivable;
2. ordinary shares issued on the voluntary reinvestment of dividends on ordinary
or preference shares are included when dividends are reinvested;
3. ordinary shares issued as a result of the conversion of a debt instrument to
ordinary shares are included from the date that interest ceases to accrue;
4. ordinary shares issued in place of interest or principal on other financial
instruments are included from the date that interest ceases to accrue;
5. ordinary shares issued in exchange for the settlement of a liability of the entity
are included from the settlement date;
6. ordinary shares issued as consideration for the acquisition of an asset other
than cash are included as of the date on which the acquisition is recognised; and
7. ordinary shares issued for the rendering of services to the entity are included
as the services are rendered.
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Calculating Basic EPS for Various Scenarios



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• Issue of new shares for cash or other assets increases the

resources available to the firm
• Additional resources have a positive impact on net

earnings from the date they flow into the firm
− Hence, number of shares has to be time-weighted
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Illustration 12.2: Issue of New Shares at Fair Value

•Company A had issued share capital of 5,000,000 ordinary shares at the
beginning of the year.
• On 30 June, it issued 3,000,000 shares at fair market value for cash.
• Net profit attributable to ordinary shares was $300,000 for the first 6 months and
$800,000 for the full year.
Net profit = $300,000 Net profit = $500,000
1 January 30 June 31 December

No. of shares No. of shares No. of shares
= 5,000,000 = 8,000,000 = 8,000,000
$800,000
Basic EPS =
(5,000,000 x ½) + (8,000,000 x ½)
= 5,000,000 + (3,000,000 x ½)
= 12.3 cents
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• Bonus shares are issued out of reserves, such as capital reserves or
retained earnings.
• Share capital increases, total number of shares increase, reserves

decrease, total shareholders’ equity remains unchanged
→ No inflow of resources → not time-weighted
• Treatment:
– Any bonus issues taking place in a period are assumed to be issued
at the beginning of the period. (no time-weighting)
– Retroactively restate previous year’s EPS comparatives based on
new number of shares.
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Illustration 12.3: Issue of Bonus Shares (or Stock Dividend)
•Company A had a paid up share capital of $10,000,000 comprising 10,000,000

ordinary shares at the beginning of 20x3
• Net profit attributable to ordinary shareholders for YE 31 Dec 20x3 and 20x4 were
$2,000,000 and $2,600,000 respectively
• On 30 Jun 20x4, company declared a 1-for-2 bonus issue, the bonus shares being
issued from capital reserves
• Total number of shares increased from 10,000,000 to 15,000,000
¹$2,600,000/15,000,000 Without retroactive restatement to 20x3 comparative figure:
20x4 20x3
²$2,000,000/10,000,000
Basic EPS (cents) 17.33¹ 20²
³$2,000,000/15,000,000 With retroactive restatement to 20x3 comparative figure:

20x4 20x3 (restated)
Basic EPS (cents) 17.33¹ 13.33³
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Scenario 3 &4:

• An existing share is split into 2 or more shares
• No inflow of resources → not time-weighted
• Retroactive restatement of comparative EPS

• 2 or more shares are consolidated into one share
• No inflow of resources → not time-weighted
• Retroactive restatement of comparative EPS
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• Entitlement of existing shareholders to a rights issue is such that after

subscribing to the new shares, their proportionate interest in the firm
after the rights issue remains the same as before
• Number of shares issued comprises of:
1. Number of shares that would have been issued at the full market price
to achieve the same total proceeds
2. Number of shares that is deemed to be issued for no consideration or
the “bonus element”
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Illustration 12.4: Rights Issue
• On 30 Sep 20x4, Atlantis Co. made a one-for-two rights issue at a subscription

price of $1.50 per share to existing shareholders (2 shares -> 1 rights)
• The market price immediately before the exercise of rights issue was $3.00
• Atlantis Co’s paid-up capital consisted of 10,000,000 shares as at 1 Jan 20x4
• The company reported net profit attributable to ordinary shareholders of

$2,500,000 for the year ended 31 Dec 20x4
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• Total proceeds from the rights issue = $7,500,000 (5,000,000 x $1.50)
→ inflow of new resources → time-weighting involved
• If the issue was made at full market price, only 2,500,000 new shares
needed to be issued ($7,500,000/$3)
• No. of shares in bonus element = 2,500,000
Total new shares issued 5,000,000

Comprising:
Shares deemed issue at full market price 2,500,000
Shares deemed issued as bonus shares 2,500,000
5,000,000
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Reasoning – the treasury method:

• Company B needs to buy back 2,500,000 shares from the open market to issue
to shareholders, with the proceeds it collected from the rights issue of $7,500,000.
• An additional 2,500,000 are issued as bonus shares.

− Actual number of shares issued = 15,000,000
− Number of shares issued for cash = 12,500,000
• Bonus issue factor is 1.2 (15,000,000/12,500,000) shares for every 1 existing
share held
• Bonus factor should be applied retrospectively to outstanding shares before the
rights issue
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Bonus issue factor Full market price = 3$

in right issue
= 1,2 Theoretical ex-right price = 2,5$
Fair value of shares

Theoretical ex-right after the right
price
Total number of shares after the right

issue
Value of existing shares (3$* 10 mil)+

Theoretical ex-right Proceeds from the rights issue (1,5$*5mil)
price ($2,5)
Total number of shares after the right

issue (10Mil+5mil)
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1/1/X4 1/10/X4 31/12/X4
10.000.000 OS
10.000.000 OS
5.000.0000 OS:
10 mil *0,2 = 2 mil (Bonus) : 2,5 mil -> bonus S -> Retro
: 2,5 Mil: cash
From 1 January 20x4 to 30 Sep 20x4 10,000,000 x 1.2 x 9/12 9,000,000
From 1 October 20x4 to 31 Dec 20x4 15,000,000 x 3/12 3,750,000

Weighted average no of shares 12,750,00
Net profit attributable to ordinary
$2,500,000
shareholders
Basic EPS (20x4) 19.6 cents
- Trọng số CP thường (1/1): .....................................................................................10.000.000

- Trọng số CP thường phát hành thu tiền1/10: 2.500.000 * 3/12:…………….625.000
- Cố phiếu thưởng (không tính trọng số:)
2.000.000*12/12+ 500.000*3/12………………………………= 2.125.000
Tổng mẫu số..........................................................................................12.750.000
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• No inflow of cash, but reduction of debt
→ Increases net assets of issuer
• Interest expense on debt is saved
→ Earnings increase
• Therefore, time-weighting should be applied
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Illustration 12.5: Additional Shares Issued on the Conversion of Debt

• Capital Ltd had the following capital structure at Jan 20x5:
− 10,000,000 ordinary shares
− $10,000,000 8% convertible bond
• Conversion ratio of bond: every $1,000 nominal value of bond was
convertible into 500 ordinary shares
• On 1 Jul 20x5, 40% of the bond holders exercised their conversion rights
• Net profit for YE 31 Dec 20x5 was $3,300,000 which included interest
expense save because of the partial conversion of the bonds
1/1 1/7 31/12
10M OS 10M OS 12M OS

(+) 2MOS
Number of new shares issued = 40% x $10,000,000/$1,000 x 500
= 2,000,000
Weighted average number of shares = (10,000,000 x ½) + (12,000,000 x ½)
= 11,000,000
Basic EPS = $3,300,000/11,000,000= 30 cent
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• IAS 33:5: These are ordinary shares issuable for little/no

cash or other consideration upon the satisfaction of
specified conditions in a contingent share agreement
• When contingent events have occurred, such shares are
time-weighted, even if the shares have yet to be issued.
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Illustration 12.6: Contingently Issuable Shares
• On 1 Jan 20x5, Alpha Company acquired Beta Corporation, a franchisor for a

reputable brand of footwear
• Consideration was paid entirely in cash
• Terms of acquisition included a contingent share agreement that required Alpha

Company to issue 10,000 additional new shares to the shareholders of Beta
Corporation for each franchise contract secured in 20x5
• One contract was secured on 1 June 20x5 and another on 1 Dec 20x5
• Alpha’s share capital is comprised solely of 100,000 ordinary shares
• There had been no issue of new ordinary shares during the year
• Alpha’s Company interim financial statements were prepared half-yearly
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First half Second half Full year

Net profit attributable to ordinary
$138,000 $250,000 $388,000
shareholders
Ordinary share outstanding 100,000 100,000 100,000
Contingently issuable shares 1,667¹ 11,667² 6,667³
Total shares 101,667 111,667 106,667
Basic EPS $1.36 $2.24 $3.36
¹10,0000 x 1/6 (one month for the first half-year)

²10,0000 (issuable as at 1 Jul 20x5) + 10,0000 x 1/6 (one month for the
second half-year)
³(10,000 x 7/12) + (10,000 x 1/12)
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• IAS 32:33: The entity that reacquires its own equity instruments should
deduct these instruments (“treasury shares”) from equity. No gain or
loss is recognized in P/L.
• After repurchase, these shares should not be included in the weighted

average number of ordinary shares. If bought back during the year, they
should be time-weighted.
• For shares repurchased and held since the beginning of the previous
financial year, they should not be included in the weighted average
number of ordinary shares for both prior and current period.
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Illustration 12.7: Impact of Treasury Shares

• On 31 Jan 20x5, Company X issued share capital of 4m ordinary shares
• Profit for the year attributable to ordinary shareholders amounted to $1.2 million.
• In 20x3, a total of 500k were repurchased from the market under the company’s
share repurchase mandate and held in treasury.
• On 30 Sep 20x5, X bought back another 800k shares from the market. Similarly,
these shares are not cancelled and are held in treasury.
• Movement in the share capital account:
30 September
Calculate weighted average number of ordinary shares and basic EPS
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Illustration 12.7: Impact of Treasury Shares
X5
Basic EPS = 1,200,000/3,300,000 = 0.36 or 36 cents
No of Shares = 4.000.000 – 500.000*12/12 – 800.000*3/12 = 3.300.000

or = 3.500.000 *9/12 + 2.300.000 *3/12 =3.300.000
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Content
1. Introduction
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Basic vs. Diluted EPS
Capital Structure: Components of Equity
Simple Capital Structure: Does not Complex Capital Structure

include potential ordinary shares
Includes potential ordinary shares, e.g.
convertible bonds/preference shares,
Potential OS: warrants, options, or other contractual
- Derivative: rights which, when exercised, could in
- Option/W the aggregate decrease earnings per
- Other ordinary share
- Rights
- Contingent
Report basic EPS only Report basic and diluted EPS only
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Diluted EPS
On 1 Jan 20X0, an entity with 10,000,000 units of ordinary shares outstanding
issued a 10,000,000 $ bond that gave the holder the right to convert every $ 1,000
bond to 500 ordinary shares. The entity used the proceeds of the bond issue to
inverst in a project that increased the net profit of the entity. On 1 Jan 20X3, all
holders of the bond exercised their conversion rights.
Year Net profit No of Ordinary shares Basic EPS

20X0 $ 5,000.000 10,000,000 50 cents
20X1 $ 6,000.000 10,000,000 60 cents
20X2 $ 7,000.000 10,000,000 70 cents
20X3 $ 7,5000.000 15,000,000 50 cents
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Basic EPS
Net profit attributable to ordinary shareholders of a parent entity*

Basic EPS =
Weighted average no. of ordinary shares during a reporting period
*after deduction of non-controlling interests’ share of net profit or loss
Numerator:
• After deducting amounts due to preference shareholders in respect of:
– Preference dividends (lưu ý PP hạch toán cổ tức ưu đãi)
– Gains/losses arising on the repurchase or early conversion of preference
shares –(standard PS vs convertible PS)
– Amortization of discount or premium on increasing rate preference
shares
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Complex capital structure
• Outstanding potential shares (rights; options, warrants,

convertible instruments- Trái phiếu chuyển đổi & cổ phiếu ưu đãi
có thể chuyển đổi thành CP thường)
• Contigently issuable shares (the conditions have not been met)
• Contracts based own equity instruments (IAS 32) IFRS 2/IFRS 3
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Diluted EPS
• It is EPS under the assumption of full conversion or exercise of potential
ordinary shares or issuance on satisfaction of specified conditions
− Potential ordinary shares are financial instruments or contracts that give
rise to ordinary shares at the exercise or conversion by the holder or on
satisfaction of specified conditions
• It is the “worst-case scenario” EPS
• What is the purpose of presenting diluted EPS?
– Enhance comparability for firms with complex capital structures
➢ Focuses on profitability rather than timing of actual conversions
– Provides indication of dilutive impact of existing potential ordinary
shares
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Anti-dilution
• If a conversion/exercise of potential ordinary shares cause EPS to

increase, anti-dilution occurs
• IAS 33:41 – Potential ordinary shares that are anti-dilutive are

excluded from the calculation of diluted EPS
− Diluted earnings (loss) per share should never be higher (lower)
than basic EPS
• Use of profit or loss from continuing operations attributable to the

parent entity as the “control number” to determine whether
potential ordinary shares are dilutive or anti-dilutive
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Anti-dilution
Is diluted EPS from continuing operations >

basic EPS from continuing operations?
yes no
Anti-dilution occurs. No anti-dilution. Include

Diluted EPS for the potential ordinary
(overall) profit/loss shares in the
attributable to ordinary computation of diluted
shareholders is equal EPS for (overall)
to basic EPS. profit/loss attributable
to ordinary
shareholders.
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Illustration 12.8 – Profit from continuing oparations and overall

loss
For the year ended 31/12/20X4, Reigs Corporation reported the followings:
- Profit from continuing operations : $ 3,800,000
- Loss from discontinued operations: (4,200,000)
- Loss attributable to ordinary shareholders: $ (400,000)
Reigs Corporation had 10,000,000 ordinary shares and stock options outstanding
throughout the year that potentially give rise to 1,000,000 ordinary shares to be issued
without any consideration(payment). Under the traesury method , the stock options
have no impact on earnings when exercised. Reigs Corporation has no other potential
shares such as convertible preference shares or convertible bond.
Basis EPS:
Earings/or loss per share from continuing operations ($ 3,8000,000/10,000,000): $ 0,38
Earings/or loss attributable to ordinary shareholders: ($ (400,000)/10,000,000): $ (0,04)
diluted EPS:
Diluted earings/or loss per share from continuing operations: $ 0,345
($ 3,8000,000/11,000,000)
Diluted Earings/or loss attributable to ordinary shareholders: $ (0,036)
($ (400,000)/11,000,000)
58 Thuhien
Adjustments to the Computation of Diluted EPS

Adjustments to the numerator of diluted EPS:
Scenario Impact on numerator
Dividends on convertible preference shares Not deducted from net profit
After-tax interest and amortization expenses Added back to net profit after
on convertible bond tax
Other expense (income) relating to potential Added back (deducted from)
ordinary shares NPAT
Adjustments to the denominator of diluted EPS:
• Potential ordinary shares are included in the denominator at the beginning of

reporting period or date of issue of potential ordinary shares, whichever is
the later
59 Thuhien
Diluted EPS for Various Scenarios
Scenario 1: Options/Warrants (Rights)

Scenario 2: Convertible Instruments
Scenario 3. Contingently Issuable Shares
R: EP<MP-> CP tiềm tàng
Op &W: EP>MP(trung bình kỳ tính EPS)-> không phải là CP tiềm tàng
EP< AMP -> CP tiềm tàng
TP/CPUD chuyển đổi: CP tiềm tàng-> có thể không pha loãng
60 Thuhien
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Scenario 1: Options/Warrants/right
• Options and warrants are instruments that give their holder the right but not the
obligation to subscribe for shares in the issuing firm at a specified price for a
specified period
• Assumption: all options and warrants are exercised either at the beginning of
the period or at the date of issue if issued during the period
• Call options and warrants are only dilutive if they are “in-the-money”
− Average market price of ordinary shares during the period exceeds the
exercise price
• Use the treasury method to calculate dilutive EPS (the same method as
applied to calculate EPS for a rights issue)
61 Thuhien
Scenario 1: Options/Warrants/right
Total number of new shares:

• Share issued for full consideration
• Share issued for no consideration
✓ Total number of shares issuable to option holders: N

✓ Number of shares repurchased in the open market at market price (MP) from
proceeds received from the issue of options at exercise price (EXP):
->(N*EXP)/MP
✓ Bonus issue element in a stock option that is “in-the-money”:
= N – ( (N*EXP)/MP)
62 Thuhien
Illustration 12.9 – Complex capital structure with options
The following information pertains to Supreme Corporation for the year ended
31/12/20X6:
Net profit $ 2,000.000
Preference shares None
Ordinary shares oustanding 2,000,000
Shares to be issued under option 400,000
Date options issued 1/1/20X6
Exercise price under option during 20X6 $6
Average market price of one ordinary share during 20X6 $8
Proceeds from the assumed exercise of 400,000 options $ 2,400,000
- Shares to be issued on exercise of options (N): 400,000

- Shares that woud have been issued at fair market value: (300,000)
( 2,400,000 / 8)
- Shares deemed to be issued for no consideration: 100,000
63
Diluted EPS= 2,000,000/(2,000,000 + 100,000) = 0,95 $
Thuhien
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• Use the “if-converted” method to compute diluted EPS

• All convertible instruments are assumed to be converted either at the
beginning of the period or at the date of issue if issued during the
period
• Preference dividends or interest (net of tax) relating to the
convertible instruments are added back to the net profit attributable
to ordinary shareholders
• If the amount of preference dividends declared (or accumulated) for
the period or the interest (net of tax) per ordinary share on
conversion is more than the basic EPS, the convertible preference
shares is anti-dilutive
64 Thuhien
Alternative approach to test whether convertible preference shares

are anti-dilutive:
• If earnings per preference share without conversion > earnings per
preference share with conversion
→ Deemed anti-dilutive
→ Excluded from calculation of diluted EPS
Thuhien
65
Illustration 12.10: Potential Ordinary Shares that are

Convertible Securities
• Company A recorded net profit of $2,320,000 for YE 30 Jun 20x5
• Company had 50,000,000 ordinary shares outstanding at the beginning of

the year
• No new shares were issued during the year
• Company A had outstanding 5,000,000 6.4% cumulative preference

shares that are convertible into ordinary shares at the ratio of one
preference share for one ordinary share (preference dividends are
assumed to be tax-exempt)
66 Thuhien
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Illustration 12.10: Potential Ordinary Shares that are

Convertible Securities
Net profit for the YE 30 Jun 20x5 $2,320,000

Less: preference dividends (5,000,000 x 0.064) (320,000)
Net profit attributable to ordinary shareholders $2,000,000
Basic EPS ($2,000,000/50,000,000) 4 cents

Diluted EPS ($2,320,000/55,000,000) 4.22 cents
Since diluted EPS > basic EPS, the convertible preference shares are
anti-dilutive and excluded from the calculation of diluted EPS
67 Thuhien
Scenario 3: Contingently Issuable Shares
• If the contingent events are met, these shares are included

in the calculation of diluted EPS, from beginning of period
or date of agreement, if later
• If the contingent events are not met, we take the number of

shares issuable if the end of the period is the end of the
contingency period (IAS 33:52)
68 Thuhien
Illustration 12.11: Contingently issuable when conditions

have been met (refer to Illustration 6)
•On 1 Jan 20x5, Alpha Company acquired Beta Corporation, a franchisor for a
reputable brand of footwear
•Consideration was paid entirely in cash
•Terms of acquisition included a contingent share agreement that required Alpha
Company to issue 10,000 additional new shares to the shareholders of Beta
Corporation for each franchise contract secured in 20x5
•One contract was secured on 1 June 20x5 and another on 1 Dec 20x5
•Alpha’s share capital is comprised solely of 100,000 ordinary shares
•There had been no issue of new ordinary shares during the year
•Alpha’s Company interim financial statements were prepared half-yearly
Assume: no other potential ordinary shares than the contigently issuable shares
69 Thuhien
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Net profit attributable to ordinary shareholders $138,000 $250,000 $388,000
Contingently issuable shares 1,667¹ 11,667² 6,667³
Total shares 101,667 111,667 106,667
Basic EPS $1.36 $2.24 $3.36
¹10,0000 x 1/6 (one month for the first half-year)
²10,0000 (issuable as at 1 Jul 20x5) + 10,0000 x 1/6 (one month for the second half-year)
³(10,000 x 7/12) + (10,000 x 1/12)

Net profit attributable to ordinary shareholders $138,000 $250,000 $388,000
Contingently issuable shares 10,000 20,000 20,000
Total shares 110,000 120,000 120,000
Diluted EPS $1.25 $2.08 $3.23
70 Thuhien

have not been met
Delta Corporation entered into a contingent share issue agreement on 1 Jan 20x5 as part of
the compensation plan for its chief executive officer. The terms of the agreement, which
ended on 31 Dec 20X6, required Delta Corp. To issue a bonus of one ordinary share for
every $2 of year-todate consolidated, after- tax net profit in excess of $ 1,000,000 during
the agreement period. Delta Corp. had 5,000,000 ordinary shares outstanding for the entire
year ended 31 Dec 20X5, and had no outstanding options, warrants or convertible
securities. Delta Corp. Prepers FS on a quarterly basis. The consolidated year-to-date after
tax net profit Delta Corp and its subsidiaries for the four quarters of 20X5 is as follows:
Quarter ended Year-to-date consolidated

after-tax net profit
31 March 20X5 $ 800,000
30 June 20X5 $ 1,200,000 +$400.000
30 Sept 20X5 $ 1,000,000 - $200.000

31 Dec 20X5 $ 1,500,000 + $500.000
71 Thuhien

have not been met
Q1 Q2 Q3 Q4 20X5
Basic EPS:
Numerator $ 800,000 $ 400,000 $(200,000) $ 500,000 $ 1,500,000
Denominator:
- Or. Shares out. 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
Basic EPS 16 8 (4) 10 30
Diluted EPS
Numerator $ 800,000 $ 400,000 $(200,000) $ 500,000 $ 1,500,000
Denominator: 5,000,000 5,100,000 5,000,000 5,250,000 5,250,000
- Or. Shares out. 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000
- Contingently shares 0 100,000(*) 0 250,000(**) 250,000
Diluted EPS 16 7,8 (4) 9,5 28,6
(*) ( 1.200.000-1.000.000)/2= 100.000

(**) (1.500.000-1.000.000)/2=250.000
72 Thuhien
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Contracts that May be Settled in Ordinary Shares or Cash
• Potential ordinary shares are present when a firm enters into a contract
that gives the issuer or the holder the option for settlement of the
contract in ordinary shares or cash
• If the option lies with the entity, presumption is that the contract will
be settled in ordinary shares
− Resulting potential ordinary shares are to be included in diluted EPS if
the shares are dilutive
• If the option for settlement lies with the holder of the instrument, the
more dilutive of the two options of cash settlement and share
settlement is assumed in calculating EPS
73 Thuhien
Example: written put option

• If the option is “in-the-money” during the period (i.e. exercise price above
average market price)
− Dilutive effect on EPS calculated using treasury method for a share-

buy-back arrangement (IAS 33 Para 63)
− Assumes that at the beginning of the period, sufficient ordinary

shares are issued at the average market price during the period to
raise funds to finance the share buy-back
− Incremental ordinary shares is the difference between the shares

issued and the shares bought back
74 Thuhien
Total number of shares to be bough back under a written option = N
Exercise price = EXP
Market price = MP
Number of shares to be issued to finance the share buy back = (N x EXP)/MP
Incremental ordinary Number of shares to issue Number of shares

shares from a written put = in the open market to – to be bought back
option finance share buy-back
(N x EXP) -N
=
MP
75 Thuhien
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76 Thuhien
26

Chapter 4 - IAS 33

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Chapter 4 - IAS 33

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12/27/2022

IAS 33-Earnings per Share

Trình bày: Nguyễn Thị Thu Hiền

2. Basic Earnings per Share

3. Diluted Earnings per Share

VIC VNM REE

Complex capital structure

Types of Preference Shares

Cumulative preference shares – Non- Cumulative preference shares

Changes in Shares Issued during the Year

Changes in Shares Issued during the Year

Scenario 1: Issue of new shares for cash or other assets

Changes in Shares Issued during the Year

Scenario 2: Issue of bonus shares (stock dividends)

Changes in Shares Issued during the Year

Scenario 3: Share splits

Changes in Shares Issued during the Year

Changes in Shares Issued during the Year

Scenario 7: Contingently issuable shares

Scenario 8: Share repurchase and Treasury shares

Basic vs. Diluted EPS

Capital Structure: Components of Equity

Simple Capital Structure: Does not Complex Capital Structure

Report basic EPS only Report basic and diluted EPS

2. Basic Earnings per Share

3. Diluted Earnings per Share

2. Basic Earnings per Share

Basic EPS VNM©

Net profit attributable to ordinary shareholders of a parent entity*

*after deduction of non-controlling interests’ share of net profit or loss

Adjusting for Preference Dividends

Example 1 – Basic EPS with share issue for cash

Example 2– Basic EPS with share issue for cash

*Note 1: Weighted average n. of shares is calculated with the n. of days as weighting

Example 3 Increasing rate preference shares

 Entity D issued non-convertible, non-redeemable class A cumulative preference

1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4

87,34/(1+7%) 93,46/(1+7%) 100/(1+7%) 107/(1+7%) 107

Example 3 Increasing rate preference shares

87,34/(1+7%) 93,46/(1+7%) 100/(1+7%) 107/(1+7%) 107

Example 3 Increasing rate preference shares

D company had a share capital of 10 000 ordinary shares of CU 1 each as of 1

Solution: 20X1: (300.000 -5,71)/ 10.000

Illustration 12.1: Preference Shares and Basic EPS

GTO’s capital structure comprises the following:

Illustration 12.1: Preference Shares and Basic EPS

Actual amount of preference dividends paid in 20x4 is $210,000 ($120,000 being

Changes in Shares Issued during the Year

1. Issue of new shares:

Changes in Shares Issued during the Year

Calculating Basic EPS for Various Scenarios

Scenario 3: Share splits

Scenario 4: Consolidation of existing shares through reverse splits

Scenario 6: New issue of shares from the conversion of debt

Scenario 7: Contingently issuable shares

Scenario 8: Share repurchase and Treasury shares

Scenario 1: Issue of new shares for cash or other assets

• Issue of new shares for cash or other assets increases the

• Additional resources have a positive impact on net

− Hence, number of shares has to be time-weighted

Illustration 12.2: Issue of New Shares at Fair Value

Net profit = $300,000 Net profit = $500,000

1 January 30 June 31 December

No of Shares = 4.000.000 – 500.00012/12 – 800.0003/12 = 3.300.000