IAS 33: EARNINGS PER SHARE

FINANCIAL REPORTING
LEVEL 2
PAPER SEVEN

BY- KIMULI FRED

Lecture notes - 2023

0752818204 / 0787818404

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Objective
To prescribe principles for the determination and presentation of earnings per share, so as to
improve performance comparisons between different entities in the same reporting period and
between different reporting periods for the same entity.
Scope
This Standard shall apply to:
a) the separate or individual financial statements of an entity:
i) whose ordinary shares or potential ordinary shares are traded in a public market (a domestic
or foreign stock exchange or an over-the-counter market, including local and regional
markets); or
ii) that files, or is in the process of filing, its financial statements with a securities commission
or other regulatory organisation for the purpose of issuing ordinary shares in a public market;
and
b) the consolidated financial statements of a group with a parent:
i) whose ordinary shares or potential ordinary shares are traded in a public market (a domestic
or foreign stock exchange or an over-the-counter market, including local and regional
markets); or
ii) That files, or is in the process of filing, its financial statements with a securities commission
or other regulatory organisation for the purpose of issuing ordinary shares in a public market.
Defined terms
An ordinary share is an equity instrument that is subordinate to all other classes of equity
instruments.

A potential ordinary share is a financial instrument or other contract that may entitle its holder to
ordinary shares.
Examples of potential ordinary shares include:
 financial liabilities or equity instruments, including preference shares, that are convertible into
ordinary shares; or
 options and warrants; or
 shares that would be issued upon the satisfaction of conditions resulting from contractual
arrangements, such as the purchase of a business or other assets

Dilution is 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.

Anti-dilution is 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.

Measurement
Basic earnings per share (EPS)
An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary
equity holders of the parent entity and, if presented, profit or loss from continuing operations
attributable to those equity holders.

Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity
holders of the parent entity (the numerator) by the weighted average number of ordinary shares
outstanding (the denominator) during the period.
Formula
Basic earnings per share

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 𝑝𝑟𝑜𝑓𝑖𝑡𝑠 𝑜𝑟 𝑙𝑜𝑠𝑠 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑒𝑞𝑢𝑖𝑡𝑦 ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑎𝑟𝑒𝑛𝑡 𝑒𝑛𝑡𝑖𝑡𝑦
=
𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑖𝑒 𝑖𝑛 𝑖𝑠𝑠𝑢𝑒

Earnings
For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity
holders of the parent entity in respect of:
a) profit or loss from continuing operations attributable to the parent entity; and
b) profit or loss attributable to the parent entity, shall be the amounts in (a) and (b) 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.

Shares
For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the
weighted average number of ordinary shares outstanding during the period.

The weighted average number of ordinary shares outstanding during the period and for all periods
presented shall be adjusted for events, other than the conversion of potential ordinary shares that
have changed the number of ordinary shares outstanding without a corresponding change in
resources.

Date consideration for the inclusion if shares in determining the weighted average number of shares
outstanding:
 ordinary shares issued in exchange for cash are included when cash is receivable;
 ordinary shares issued on the voluntary reinvestment of dividends on ordinary or preference
shares are included when dividends are reinvested;
 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;
 ordinary shares issued in place of interest or principal on other financial instruments are included
from the date that interest ceases to accrue;
 ordinary shares issued in exchange for the settlement of a liability of the entity are included from
the settlement date;
 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
 Ordinary shares issued for the rendering of services to the entity are included as the services
are rendered.

Ordinary shares issued as part of the consideration transferred in a business combination are
included in the weighted average number of shares from the acquisition date. This is because the
acquirer incorporates into its statement of comprehensive income the acquiree’s profits and losses
from that date

Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced,
without a corresponding change in resources. Examples include:
 a capitalisation or bonus issue (sometimes referred to as a stock dividend);
 a bonus element in any other issue, for example a bonus element in a rights issue to existing
shareholders;
 a share split; and
 A reverse share split (consolidation of shares.

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Examples
Example: weighted average number of shares
Uganda clays ltd, a listed company, has the following share transactions during
2019
date details shares issued (shs)
1 st Jan 2019 balance at beginning of year 170,000
1 May 2019 issue of new share for cash 30,000
Required
Calculate the weighted average number of shares outstanding for 2017

Example

Total ltd is a company with a called up and paid up capital of 100,000 ordinary shares
of shs 1 each and 20,000,000 10% redeemable preference shares of shs1 each. The
company manufactures gas appliances. During its financial year to 31 December, the
company had to pay Shs 50,000,000 compensation and costs arising from an uninsured
claim for personal injuries suffered by a customer while on the company premises.

The gross profit was Shs 200,000,000. Total Ltd paid the required preference share
dividend and declared an ordinary dividend of 42c per share.
Required:
Assuming an income tax rate of 30% on the given figures, show the trading results
and EPS of the company.

Effect of EPS of changes in capital structure.

We looked at the effect of issues of new shares on basic EPS above. in these situations, the
corresponding figures for EPS for the previous year will be comparable with the current year
because, as the weighted average number of shares has risen, there has been a corresponding
increase in resources. Money has been received when shares were issued. it is assumed that shares
are issued at full market price.

Example: earnings per share with a new issue

On 30 September 2017, Barclays Bank made an issue at full market price of 1,000,000
ordinary shares. The company's accounting year runs from 1 January to 31 December.
Relevant information for 2016 and 2017 is as follows.
details 2017 2016
Shares in issue as at 31. December 9,000,000 8,000,000
profit after tax and preference dividend shs 3,300,000 shs 3,280,000,000

Required

Calculate the EPS for 2017 and the corresponding figure for 2016.
Bonus issue of shares
The bonus shares are shares issued by a company to its existing shareholders free of
charge but in proportion to their current shareholding. the issue of Bonus share will mean
that the existing shareholders will need / receive additional new shares without any
additional capital being contributed to the company thus if a company makes a bonus issue,
share capital increases but no cash is received hence no effect on the earnings.

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The issue of bonus shares reduces the EPS
The new bonus shares issued will be treated as if there have always been in issue of new
shares and hence a comparative EPS should be adjusted.

Advantages of Bonus issue of shares

 it is a remedy for under capitalisation
 it is a way of conserving cash
 it improves the perception of company size
 It can also be used to satisfy shareholders or maintain their confidence in times of financial
difficult.
Disadvantages
 it may lead to decrease in the capital of the capital
 it prevents new investors from becoming shareholders
 Shareholders who prefer cash become disappointed.
Example: earnings per share with a bonus issue

UMEME Ltd had 400,000 shares in issue, until on 30 September 2017 when it made a
bonus issue of 100,000 shares.
Required:
Calculate the EPS for 2017 and the corresponding figure for 2016 if total earnings were
Shs 80,000 in 2017 and EPS for 2016 was 18.75. The company's accounting year runs
from 1 January to 31 December.

Right issue of shares

Is the issue of new shares to existing shareholders at price below the current market value?
A right issue is an offer to existing shareholders to subscribe to new shares in proportion
to their existing shareholding at a discounted current market price.
Because the right issue of shares are normally made at less than the market value of price,
it combines the elements of bonus issue and full market price issue.
This means the WANOSO shall include the bonus issue for the whole year and a full market
issue that is time apportion.

Advantages of right issue

 it is cheaper that the public share issue
 it rarely fails
 existing shareholders equity / stake is not diluted provided they all take up the rights
Disadvantages
 Shareholders equity / stake is diluted provided they all don’t take up the rights.

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Example 2
On 1st July 2022 a company issue a 1 new shares for every 2 existing shares held, by way
of right issue at 1.5 shilling per share. The pre – issue market price was shs 3 per share.
The following additional information is also relevant.
details 2022 2021
earnings 550,000,000 400,000,000
number of shares 1,200,000,000 800,000,000
Required

Determine the basic earnings per share

Example: theoretical ex-rights price

Suppose that Uganda Clays Ltd has 10,000,000 shares in issue. It now proposes to
make a 1 for 4 rights issue at a price of Shs 3 per share. The market value of existing
shares on the final day before the issue is made is Shs 3.50 (this is the 'with rights'
value).

Required:

What is the theoretical ex-rights price per share?

Example

Example: earnings per share with a rights issue

Barclays Bank had 100,000 shares in issue, but then made a 1 for 5 rights issue on 1
October 2017 at a price of Shs 100. The market value on the last day of quotation with
rights was Shs 160.
Required:

Calculate the EPS for 2017 and the corresponding figure for 2016 given total earnings of
Shs 50,000,000 in 2017 and Shs 40,000,000 in 2016.

Question (Rights issue)

UMEME Ltd has produced the following net profit figures for the years ending 31
December.
Shs
(million)
2015 1.1
2016 1.5
2017 1.8
On 1 January 2016 the number of shares outstanding was 500,000. During 2016
the company announced a rights issue with the following details.

Rights: 1 new share for each 5 outstanding (100,000

new shares in total)
Exercise price: Shs 5.00

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 Last date to exercise rights: 1 March 2016

The market (fair) value of one share in UMEME Ltd immediately prior to exercise on
1 March 2016 is Shs11.00
Required
Calculate the EPS for 2015, 2016 and 2017.
Diluted earnings per share (DEPS)
An entity shall adjust profit or loss attributable to ordinary equity holders of the parent entity, and
the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential
ordinary shares.

Earnings
For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss
attributable to ordinary equity holders of the parent entity, by the after-tax effect of:
a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at
profit or loss attributable to ordinary equity holders of the parent entity as calculated in basic
earnings per share;
b) any interest recognised in the period related to dilutive potential ordinary shares; and
c) Any other changes in income or expense that would result from the conversion of the dilutive
potential ordinary shares.

Example
Example: diluted EPS (Convertible bonds/loan stock)

In 2017 Uganda Clays had a basic EPS of 105c based on earnings of Shs 105,000 and
100,000 ordinary Shs 1 shares. It also had in issue Shs 40,000 15% convertible loan
stock which is convertible in two years' time at the rate of 4 ordinary shares for every
Shs 5 of stock. The rate of tax is 30%. In 2017 gross profit of Shs 200,000 and expenses
of Shs 50,000 were recorded, including interest payable of Shs 6,000.

Required

Calculate the diluted EPS.

Shares
For the purpose of calculating diluted earnings per share, the number of ordinary shares shall be
the weighted average number of ordinary shares calculated in the determination of basic earnings
per share and adjusted earnings per share, taking into account potential ordinary shares plus the
weighted average number of ordinary shares that would be issued on the conversion of all the
dilutive potential ordinary shares into ordinary shares.
Dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at
the beginning of the period or, if later, the date of the issue of the potential ordinary shares.

Dilutive potential ordinary shares

Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to
ordinary shares would decrease earnings per share or increase loss per share from continuing
operations.
Examples include:
a) Options, warrants and their equivalents;

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b) Convertible instruments;
c) Contingently issuable shares;
d) Contracts that may be settled in ordinary shares or cash;
e) Purchased options;
f) Written put options.

Where more than one basis of conversion exists, the most dilutive basis is used in the computation
of diluted earnings per share.

Treatment of options
It is always assumed that options are exercised and their proceeds received at fair value. Options,
warrants and their equivalents are financial instruments that give the holder the right to purchase
ordinary shares. Options and other share purchase arrangements, are dilutive if they are issued at
less than their fair value the amount of dilution will therefore be, the fair value less the issue price.

In determining the diluted EPS each transaction will consist of two parts.
a) A contract to issue certain number of shares at an average market price.
b) A contract issue the remaining shares for no consideration, such shares generate no proceeds
and have no effect on the earning.

Retrospective adjustments
If the number of shares increase as a result of a capitalisation, bonus issue or share spilt, or
decreases as a result of a reverse share split – the calculation of the basic and diluted earnings per
share for all periods presented shall be adjusted retrospectively.

If these changes occur after the reporting period but before the financial statements are authorized
for issue, the share calculations for those and any prior period financial statements presented shall
be based on the new number of shares. In addition, basic and diluted earnings per share of all
periods presented shall be adjusted for the effects of errors and adjustments resulting from changes
in accounting policies accounted for retrospectively.

Presentation and disclosure

An entity shall present in the statement of comprehensive income basic and diluted earnings per
share for profit or loss from continuing operations attributable to the ordinary equity holders of the
parent entity and for profit 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 of the period.
An entity that reports a discontinued operation shall disclose the basic and diluted amounts per
share for the discontinued operation either in the statement of comprehensive income or in the
notes.
Disclosure requirements
The disclosure requirements are as below:
i The amounts used as the numerators in calculating the basic and diluted EPS, and a reconciliation
of those amounts to P/L attributable to the parent entity for the period. The reconciliation shall
include the individual effect of each class of instruments that affects EPS.
ii The weighted average number of ordinary shares used as the denominator in calculating basic
and diluted EPS, and a reconciliation of these denominators to each other. The reconciliation
shall include the individual effect of each class of instruments that affects EPS.
iii Instruments (including contingently issuable shares) that could potentially dilute basic EPS in the
future, but were not included in the calculation of diluted EPS because they are antidilutive for
the period(s) presented.

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iv A description of ordinary share transactions, or potential ordinary share transactions that occur
after the reporting period and that would have changed significantly the number of ordinary
shares or potential ordinary shares outstanding at the end of the period, if those transactions
had occurred before the end of the reporting period.
Examples include:
a) An issue of shares for cash;
b) An issue of shares when the proceeds are used to repay debt or preference shares outstanding
at the end of the reporting period;
c) The redemption of ordinary shares outstanding;
d) The conversion or exercise of potential ordinary shares outstanding at the end of the reporting
period into ordinary shares.
e) An issue of options, warrants or convertible instruments; and
f) The achievement of conditions that would result in the issue of contingently issuable shares.

EPS amounts are not adjusted for such transactions occurring after the reporting period because
such transactions do not affect the amount of capital used to produce P/L for the period.

Significance of IAS 33-Earnings per Share

 Its significance is to set out the principles for the calculation and presentation of the
performance indicator EPS.
 The aim of the Standard is to improve performance comparisons between different entities in
the same reporting period and between different reporting periods for the same entity.
 However, IAS 33 recognises that EPS calculations have limitations because of the different
accounting policies that may be used for determining earnings by different entities.
 It then states that consistently determined denominator enhances financial reporting.
 The focus of the Standard is on the denominator of the EPS calculation. i.e., to ensure
consistency as to how the shares’ figure is determined.

SAMPLE QUESTIONS
QUESTION ONE
The issue share capital of Uganda Trust, a publicly listed company on the Uganda Stock Exchange,
at 31st March 2013 was shs 10 million. Its shares are denominated at 25 shillings each. Uganda
Trust’s earnings attributable to its ordinary shareholders for the year ended 31st March 2013 were
also shs 10 million, given an earnings per share of 25 shillings.

Year ended 31st March 2014

On 1st July 2013 Uganda Trust issued eight million ordinary shares at full market price. On 1st
January 2014 a bonus issue of one new ordinary share for every four ordinary shares held was
made. Earnings attributable to ordinary shareholders for the year ended 31st March 2014 were shs
13.8 million.

Year ended 31st March 2015

On 1st October 2014 Uganda Trust made a rights issue of shares of two new ordinary shares at a
price of shs 1.00 each for every five ordinary shares held. The offer was fully subscribed. The market
price of Uganda Trust’s ordinary shares immediately prior to the offer was shs 2.40 each. Earnings
attributable to shareholders for the year ended 31st March 2015 were shs 19.5 million.
Required:
Calculate Uganda Trust’s earnings per share for the years ended 31st March 2014 and 2015 including
comparative figures.

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Question 2
On 1st April 2015 Uganda Trust issued shs 20 million 8% convertible loan stock at par. The terms
of the conversion (on 1st April 2018) are that for every shs 100 of loan stock, 50 ordinary shares
will be issued at the option of loan stockholders. Alternatively, the loan stock will be redeemed at
par for cash. Also, on 1st April 2015 the directors of Uganda Trust were awarded share options on
12 million ordinary shares exercisable from 1st April 2018 at shs 1.50 per share. The average market
value of Uganda Trust’s ordinary shares for the year ended 31st March 2015 was shs 2.50 each.
The income tax rate is 25%. Earnings attributable to ordinary shareholders for the year ended 31st
March 2015 were shs 25,200,000. The share options have been correctly recorded in the statement
of profit or loss.
Required:
Calculate Uganda Trust’s basic and diluted earnings per share for the year ended 31st March 2015
(comparative figures are not required).
You may assume that both the convertible loan and the directors’ options are dilutive

Question 3
Bremang Ltd's draft profit after tax for the year ended 31 October 2018 is shs 10.2 million. At the
beginning of the financial year, the company had 3.6 million, shs 1 ordinary shares in issue. On 1
February 2018, the company entered into an arrangement with a supplier where the supplier would
be given 48,000 shs 1 ordinary shares in Bremang Ltd in return for services with a fair value of shs
600,000 at 1 February 2018 to be performed evenly over the period 1 February 2018 to 31 January
2019. The shares were delivered on 31 January 2019 and earned proportionately over the year to
31 January 2019 as the services were rendered. The arrangement has not been recognised in the
draft financial statements.
Required:
Calculate the basic earnings per share figure for Bremang Ltd for the year ended 31 October
2018(to the nearest shillings) in accordance with IAS 33: Earnings per Share. (Note: There is no
tax or deferred tax consequences of the share issue)
Question 4
On 1 June 2013, EFL’s share capital was made up of 160,000 ordinary shares. During the year, the
farm made a further issue of ordinary shares at a price of Shs 15, 625 (inclusive of a premium of
Shs 3,125 per share).
This had been recognized in the books of account. The remaining long term borrowings as at 31
May 2014 are convertible to ordinary shares in the next three years. The conversion ratio was given
as 5 shares for every Shs 50,000 of the long-term borrowings.
Required:
a) Compute the basic earnings per share for the year ended 31 May 2014 taking into consideration
all the above notes, where applicable.
b) Compute the diluted earnings per share as at 31 May 2014.

Question 5
IAS 33: Earnings per Share (EPS), requires certain entities to disclose information about their EPS
in their financial statements.
Required:
Explain:
i The relevance of the diluted earnings per share measure.
ii Circumstances under which an anti-dilutive effect may occur and whether it should be disclosed.
iii Clays Ltd had in issue throughout the year ended 31 May 2014 3,370,000 Shs 1,000 equity
shares. Their earnings, after tax at 30% for the year, were Shs 10 billion. An average mid-market
price for the year for Clays Ltd’s shares was Shs 4,000.
In addition, Clays Ltd had the following outstanding instruments:

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a) 520,000 options, exercise price Shs 3,000, exercise date 31 May 2016.
b) 2,000,000 options, exercise price Shs 5,000, exercise date 31 May 2018.
c) Shs 20,000,000 10.6% convertible loans from the directors. Conversion terms are: for each Shs
1,000 loan, the holder can acquire 18 equity shares on 31 May 2017 or 30 equity shares on 31
May 2019.
Required:
Calculate Clays Ltd’s basic and diluted EPS for the year ended 31 May 2014.

Question 6: Diluted EPS (Convertible loan)

Standard Chartered Bank has 5,000,000 ordinary shares of 25 cents each in issue,
and also had in issue in 2017:
a) shs 1,000,000 of 14% convertible loan stock, convertible in three years’ time at the rate of 2
share per shs 10 of stock
b) Shs 2,000,000 of 10% convertible loan stock, convertible in one year’s time at the rate of 3
share per shs 5 of stock.
c) The total earnings in 2017 were Shs 1,750,000. The rate of income tax is 30%.
Required
Calculate the basic EPS and diluted EPS.
Question 7
Dakika Ltd. has prepared its consolidated financial statements for the year to 30 September 2019,
extracts of which are shown below. Also provided below are extracts of the consolidated financial
statements for the year to 30 September 2018.
Year ended 30 September: 2019 2018
Shs."000" Shs."000"
Profit before interest and tax 8,830 7,012
Finance cost 1,045 987
Tax charge 1,718 1,264
Ordinary dividends paid 120 100
Preference dividends paid 60 60
Profit attributable to non-controlling interest (NCI) 180 160
You have also obtained the following information in respect of the company's share capital:
a) Ordinary share capital as at 1 October 2017 was Sh.15,000,000 made up of shares of Sh.5 par
value.
b) Dakika Ltd. issued some 500,000 ordinary shares at full market value on 1 January 2018.
c) Dakika Ltd. also made a rights issue of 2 new ordinary shares for every 10 ordinary shares held
as at April 2019. The rights price per share was Sh.42.5 (market value per share as at the same
date was Sh.48).
d) Dakika Ltd. also had 1,000,000 6%, ih.10 par value non-redeemable preference shares as at 1
October 2018. Required:
i) The basic earnings per share (EPS) for the year ended 30 September 2018
ii) The basic earnings per share (EPS) for the year ended 30 September 2019
iii) Mafuta Limited had a deferred tax liability as at 1 October 2018 of Sh.400 million

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Question 8
During the financial year ended 30 June, 2018 the central bank carried outa supervisory review,
which involved an onsite examination of all micro deposit-taking institutions to ensure the safety
and soundness of the individual institutions and the financial system as a whole, complemented with
a robust offsite surveillance and analysis framework. Results showed a decline in performance of
MAFSL and non-compliance with the capital adequacy ratio. With immediate effect, the central bank
suspended MAFSL’s expansion into new banking and financial activities, acquisition of fixed assets,
issuance of guarantees and access to new credit facilities. The following are the financial statement
extracts for MAFSL for the year ended 30 June, 2018.
Statement of profit or loss:
2018 2017
Shs ‘000’ Shs ‘000’
Profit before interest & taxation 750,000 600,000
Interest paid (300,000)
Profit before taxation 450,000 600,000
Taxation on profit (45,000) (60,000)
Profit for the period 405,000 540,000

2018 2017
Shs ‘000’ Shs ‘000’
Profit for the year attributable to:
Owners of the parent 348,000 480,000
Non-controlling interests 57,000 60,000
Profit for the year 405,000 540,000
The earnings per share (EPS) figure reported in 2017 was Shs 0.53.Statement of financial
position:
2018 2017
Shs ‘000’ Shs ‘000’
Equity share capital Shs 5,000 per share 480,000 250,000
4% non-cumulative, non-redeemable
preference shares 120,000 120,000
Share premium 214,500 54,200
Retained earnings 685,000 540,000
Other equity reserves 75,000 55,000
Non-controlling interests 90,000 50,000
Long-term debt 600,000
Total equity & debt 2,264,500 1,069,200

Supplementary capital for the year was Shs 200 million. On 1 July, 2016 100,000 ordinary
shares were issued for cash to existing shareholders. The issue price was Shs 6,500 per
share, which represented a discount of 20% on the traded price immediately before the
issue. The central bank’s Supervisory Review Board has called for a meeting with the Board
of Directors of MAFSL and in which the external auditors shall be in attendance.
Required:

Advise the Board of Directors of MAFSL on the accounting and reporting requirements as laid
out under the Micro Deposit-taking Institutions Act, 2003 and other relevant laws &

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 regulations before the meeting.

Question 9
On 1 January 2020, JPL had 100,000 shares in issue. The company made a 1 for 4 rights issue on
31 March 2020 at a price Shs 20,000 per share. The share price just before the rights issue was Shs
25,000 per share. The net profits after payment of dividends for the years ended 31 December 2019
and 31 December 2020 were Shs 1.8 billion and Shs 1.5 billion respectively. The company policy is
to pay Shs 10,000 for each outstanding share at the end of each year.
Required:
Prepare a report to the Director Finance, advising, with suitable computations and in accordance
with the relevant financial reporting standards, on the:
a) Earnings per share (EPS) for the years ended 31 December 2019 and 31 December 2020 in
respect of transaction 3 above.

Question 10
KUPAC Ltd, a listed company, has provided below an extract from its projectedstatement of
profit or loss for the year ending 31 December 2022.

Shs ‘000’ Shs ‘000’

Profit before tax 33,550,000
Less:
Tax for the year 10,065,000
Deferred tax 290,000
(10,355,000)
Profit for the year 23,195,000
Less dividends paid to:
Irredeemable preference 600,000
Ordinary shareholding 3,540,000
(4,140,000)
Profit retained 19,055,000
Additional information:
1. On 1 January 2022, the issued share capital of KUPAC Ltd comprised
48,000 ordinary shares of Shs 1,200 each and 10 million irredeemable preference shares
of Shs 1,200 each.
2. KUPAC Ltd had challenges in raising additional funds to meet the industry capitalisation
requirements and also, expand its operations as management was concerned that raising
additional capital could adversely affect its earnings per share. As a result, KUPAC Ltd could
face disciplinary action by the regulatory body.
3. On 1 January 2022, management proposed the following options to the board of directors
as possible sources of additional funding for the company:
a) Option 1
Issue 1 share for every 8 on 1 May 2022 at full market value Shs 1,280.
b) Option 2
Make a rights issue of Shs 1,200 ordinary shares on 1 November 2022 in the proportion of
1 for every 5 shares held at Shs 1,240.The middle market price for the shares on the last
day of quotation cum rights was projected to be Shs 1,280 per share.
c) Option 3

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 Issue Shs 10 million 10% convertible unsecured bonds at the end ofthe year. The bonds are
convertible into Shs 1,200 ordinary shares as follows:
Year
2023 600 Shs 1,200 shares for Shs 1,000,000 nominal value bonds.
2024 700 Shs 1,200 shares for Shs 1,000,000 nominal value bonds.
2025 800 Shs 1,200 shares for Shs 1,000,000 nominal value bonds.
2026 750 Shs 1,200 shares for Shs 1,000,000 nominal value bonds.The
applicable tax rate is 30%.
d) Option 4
Issue share options to senior members of staff during the year with an option to purchase
21,500 ordinary shares at Shs 1,260 per share, provided they all remain with the company
for the next five years. The average share price during the year was projected to be Shs
1,340.
Required:

a) Calculate, for the year ending 31 December 2022, KUPAC Ltd’s projected earnings
per share (EPS) and diluted earnings per share (DEPS), where applicable, in respect of
each option in accordance with IAS 33ꟷEarnings Per Share and advise the board on the
best option to take.
b) As Director Finance at KUPAC Ltd, write a memo to the board,discussing the significance of
EPS and its disclosure requirements in accordance with the Standard.

Question 11
Mulembe (U) Ltd (MUL), a listed company on the Uganda Securities Exchange, deals in production
and sale of tiles. The company’s post-tax profits for the year ended 31 December 2020 were Shs
1,250 million after payment of dividends Shs 140 million to both preference and ordinary
shareholders. NMUL had 100,000 ordinary shares of Shs 5,000 each and had in issue the following
during the year ended 31 December 2020:
1. Convertible 10% loan stock of Shs 1,500 million. The loan is convertible into 3,750 ordinary
shares in two years’ time.
2. 10,000 10% preference shares of Shs 10,000 each, convertible at 2 ordinary shares for every
convertible preference share.
The corporation tax rate is 30%.
Required:
Assuming the role of the Chief Finance Officer:
Advise, with suitable computations and in accordance with the relevant financial reporting
standard, the management of MUL on the effects of all dilutive potential ordinary shares.

14 BY KIMULI FRED
Question 12
Mr. Omagor, who returned from aboard after twenty years, wishes to invest part of his savings
in the shares of one of the top ICT companies in the country. You are his financial advisor and
he asked you to review and advise him in which company to invest based on the following
financial information for the year ended 30 June, 2018:
Statements of financial position as at 30 June
Ladu Agrop Kodi Hi-
Infosys Computing Ltd techLtd
Ltd
Shs ‘000’ Shs ‘000’ Shs ‘000’
Non-current assets:
Property, plant & equipment 359,365 96,840 1,045,340
Intangible assets 85,600 43,200 450,000
444,965 140,040 1,495,340
Current assets:
Inventories 15,000 6,500 332,000
Trade receivables 45,000 22,000 163,000
Cash & cash equivalents 10,500 15,000 149,860
70,500 43,500 644,860
Total assets 515,465 183,540 2,140,200
Equity attributable to owners:
Share capital Shs 1,000 each 80,000 50,000 500,000
Retained earnings 198,765 78,950 625,000
Total equity 278,765 128,950 1,125,000
Non-current liabilities:
2% loan stock - - 200,000
7% loan stock 100,000
Convertible preference shares Shs
1,000 each 600,000
Other long-term borrowings 90,000 23,500 35,000
Total non-current liabilities 190,000 23,500 835,000
Current liabilities:
Trade & other payables 33,300 17,890 128,200
Short-term borrowings 7,800 10,000 25,000
Tax payable 5,600 3,200 27,000
Total current liabilities 46,700 31,090 180,200
Total liabilities 236,700 54,590 1,015,200
Total equity & liabilities 515,465 183,540 2,140,200

Statements of profit or loss

Ladu Agrop Kodi Hi-tech
Infosys Ltd Computing Ltd Ltd
Shs ‘million’ Shs ‘million’ Shs ‘million’
Revenue 230,000 100,000 500,000
Cost of sales (151,200) (72,000) (350,000)
Gross profit 78,800 28,000 150,000
Other income 16,000 8,000 10,000
Distribution cots (27,000) (8,400) (23,000)
15 BY KIMULI FRED 0752818204
 Administrative expenses (18,000) (6,000) (17,800)
Other expenses (4,500) (5,500) (5,690)
Finance costs (19,000) (4,500) (79,000)
Profit before tax 26,300 11,600 34,510
Income tax (10,520) (4,640) (13,804)
Profit for the year 15,780 6,960 20,706
Profit after tax 1 July, 2017 12,500 7,000 35,000

Upon analysis of the financial statements and discussions with the chief finance officers of
the companies, you obtained the following additional information that had not been
incorporated in the financial statements:
1. The tax rate is 40%.
2. Agrop Computing Ltd made a 1for4 rights issue on 1October, 2017 at Shs 1,500 per
share when the market price per share was Shs 1,800. In addition, the company issued
20,000 shares at full market price on 1 April,2018.
3. On 1 October, 2017 Ladu Infosys Ltd made a bonus issue of 1 share for every 4 shares
and on 1 April, 2018 the company made a 1for5 rights issue at Shs 2,000 per share
when the market price per share was Shs 2,500.
4. At the beginning of the year, Kodi Hi-tech Ltd issued a Shs 200 million 2% loan stock,
convertible in five years’ time at a rate of 1 share per Shs2,000 of loan stock.
KodiHi-tech Ltd also issued Shs 600 million preferenceshares convertible in three years’
time at a rate of 1 share per Shs 3 of preference shares. Preference shareholders are
entitled to dividends of Shs20 per share.

Required:

a) Calculate the earnings per share (EPS) for each company as it wouldbe disclosed in the
financial statements for the year ended 30 June, 2018 including comparative
information. (Show all your workings).

Question 13
The non-executive directors of Combination Ltd obtained the previous seminar training materials
from ICPAU that contained the following information that was used to compute investment
ratios such as earnings per share, dividend per share and gearing:

2016 2015
Shs ‘000’ Shs ‘000’
Profit before interest and tax 2,200,000 1,800,000
interest on 8% convertible unsecured loan stock (200,000) (200,000)
Profit before tax 2,000,000 1,600,000
Income tax (1,000,000) (800,000)
Profit after tax 1,000,000 800,000

2016 2015
Nominal amount of convertible debt (Shs ‘000’) 2,500,000 2,500,000
Income tax rate (%) 30 30
Number of ordinary shares 25,000 25,000

16 BY KIMULI FRED 0752818204

 Up to 2023 the maximum number of shares issuable after the end of the financial year
would be at the rate of 1 share for Shs 100,000 whereas thedividend payout would be
at the rate of 30% of profits after tax. The convertible unsecured loan stock is the only
long-term liability.
Required:
Use the information above to demonstrate to the non-executive directors the effects
of the convertible debt on the basic earnings per share, fully diluted earnings per share,
dividend per share and gearing for each of the years 2015 and 2016.

Question 14
Krana Ltd has adopted the international financial reporting standards based on the
International Accounting Standards Board’s conceptual framework for financial reporting. The
following information was extracted from the consolidated financial statements for Krana Ltd
for the year ended 31 December,2016:
Statement of profit or loss and other comprehensive income:
2016 2015
Shs ‘million’ Shs ‘million’
Profit before taxation 400 300
Taxation on profit (75) (60)
Profit for the period 325 240
Other comprehensive income:Gain on revaluation
of land 30 10
Total comprehensive income for the period 355 250
Profit for the year attributable to:Owners of the
parent 280 210
Non-controlling interests 45 30
Profit for the year 325 240
Total comprehensive income for the year
attributable to:
Owners of the parent 310 220
Non-controlling interests 45 30
Total comprehensive income for the year 355 250

Statement of financial position as 31 December:

2016 2015
Shs ‘million’ Shs ‘million’
Equity share capital Shs 0.50 per share 460 200
4% non-cumulative, non-redeemablepreference
shares 100 100
Share premium 215 60
Retained earnings 688 570
Other equity reserves 90 60
Non-controlling interests 85 40
Total equity 1,638 1,030
Note: The earnings per share (EPS) figure reported in 2015 was Shs 0.525.
During the year ended 31 December, 2016 the following changes took place to the issued
17 BY KIMULI FRED 0752818204
 share capital of Krana Ltd:
1. 100 million equity shares were issued in conjunction with the acquisition ofanother
business. These were issued at full market price on 1 February, 2016.
2. 150 million ordinary shares were issued for cash to existing shareholders on 2
February, 2016. The issue price was Shs 1.50 per share, which represented a discount
of 25% on the traded price immediately before theissue.
3. On 31 July, 2016 a bonus issue of 270 million shares was completed, capitalising Shs
135 million of retained earnings. Also on this date the preference dividends due for the
year, and an equity dividend of Shs 23 million, were paid.
Required:
(a) Justify the need for a conceptual framework for financial reporting.
(b) Basing on the relevant financial reporting standard(s), determine the basic EPS to be
reported in the financial statements of Krana Ltd for the year ended 31 December,
2016.

Question 15
During the year ended 31 May, 2017 the company issued a 1 for 3 rights shares on 30
November, 2016. The exercise price for the shares was Shs 30,000 whereas the market price
of the shares just prior to the issue of rights was Shs 40,000. All the rights were exercised on
30 November,
2016. The following information relates to the company:
Ordinary shares 1 June, 2016 3,000,000
Shs ‘million’
Earnings attributable to ordinary shareholders 31 May, 2016 233.6
Earnings attributable to ordinary shareholders 31 May, 2017 262.8
The directors have requested for the earnings per share to be presented in the financial
statements for the year ended 31 May, 2017 together with analysis of the solvency and
profitability of the company as far as the information permits.
Required:
Discuss, with suitable computations where necessary, the accounting treatment of the above
transaction in the financial statements of the company for the year ended 31 May, 2017

Question 16
CBEL has a 100% owned subsidiary, Starlight Limited which is a listed company. On the 1
January 2007, Starlight issued one new share for every two existing shares by way of rights
at Shs 600 per share. The pre-issue market price was Shs 1,200 per share. Starlight’s profit
attributable to the ordinary shareholders has the following record:
2007 2006
Shs ‘000 Shs ‘000
Ordinary profit attributable to the ordinary
Shareholders for the year ending 30 June 220,000 184,000
Number of ordinary shares in issue at 30 June 1,500 1,000
Required:
Compute the earnings per share for Starlight Limited to comply with the requirements of IAS
33: Earnings Per Share.

18 BY KIMULI FRED 0752818204

Question 17
ABC ltd had earnings of shs 600,000 for the period ended 31. Dec. 2018 and 2,000,000 shs equity
share capital at 1st jan 2018. On 30th June 2018 the entity issued 3,000,000 new shares at full
market price and on 31 July 2018 the entity made a bonus issue of new shares of 2 new shares
for every 7 already held shares. The disclosed earnings for 2017 was 16 cents.
Required
Calculate the Basic Earnings per share for ABC ltd for the period ended 31.dec. 2018 and restate
the comparative EPS
Question 18
Mifupa Breweries Ltd (MBL) is a Ugandan-based holding company that manufactures opaque
beer, spirits, gins, wines, and energy drinks, with subsidiaries in Kenya, Tanzania, Congo and
South Sudan. MBL’s stock is listed on the Ugandan stock exchange market.
In recent years, there have been signs of Uganda’s walk towards alcohol regulation with the
proposed introduction of the Alcohol Control Bill where its proponents argue that alcohol is a
massive obstacle to development in Uganda. Because of this campaign, the shares seem falling
and so is the demand for MBL’s shares in the secondary market. Actually, some shareholders
are looking for buyers. The shareholders are concerned and worried and therefore, would like
to determine their current earnings in order to make decisions.
During the group annual general meeting that took place last year, shareholders proposed to
hire a financial analyst to come up with detailed computations for their review. You won this
consultancy and signed a contract to deliver on this matter.
You were provided with the following information:
Statement of profit or loss and other comprehensive income for the year ended 31 October
2022:
Shs ‘000’
Turn over 2,830,912
Cost of sales (721,892)
Gross profit 2,109,020
Distribution costs (224,500)
Administrative costs (574,983)
Other operating expenses (389,100)
Finance costs (561,390)
Profit before tax 359,047
Income tax (125,666)
Profit for the period 233,381
OCI–revaluation gains on land 58,000
Total comprehensive income
for the period 291,381
The non-controlling interest for the year was Shs 132,000,000.
In addition, the following information was provided to you by the company’s
Treasury Accountant:
a) The total amount of equity dividends paid was Shs 18,500,000.
b) Preference dividends paid out (none paid to non-controlling interests) were Shs
12,000,000.
19 BY KIMULI FRED 0752818204
c) On 1 September 2021, MBL issued equity share capital amounting to Shs 435,000,000 with
a nominal value of Shs 1,000 per share.
d) On 1 September 2021, MBL issued 8% preference shares amounting to Shs 20,000,000.
During the year ended 31 October 2022, the following transactions took place:
e) On 1 December 2021, MBL wanted to acquire French oak wine barrels and hence issued
Shs 200 million equity at nominal value of Shs 1,000 each at the full market price at the
date of issue.
f) On 1 March 2022, MBL offered its ordinary shareholders as at 1 September 2021 a right to
subscribe to one new ordinary share for every three ordinary shares they hold. The last
date on which the shares are traded is 1 April 2022 and the closing market price on 1 April
2022 is Shs 2,000 whereas the exercise price is Shs 800.
g) The shareholders continued to pressurize the board on the value of their shares and an
extra general meeting was held where it was agreed that the company buys back some of
the shares. Hence, on 1 October 2022, MBL re-purchased 70,000 shares at full market
value.
h) On 31 October 2022, a bonus issue was completed, issuing one new share for every five
equity shares in issue at that date.

Required:
i) Calculate, using the information provided, the basic earnings per share (EPS) for the
year ended 31 October 2022.
ii) Discuss the examples of shares usually included in the weighted number of shares from
the date consideration is receivable.

Question 20
Determining the order in which to include dilutive securities in the calculation of weighted
Average number of shares
Earnings - net profit attributable to ordinary shareholders shs 12 million
Net profit attributable to discontinued operations shs 2 million
Ordinary shares outstanding 20 million
Average fair value of one ordinary share during year shs 7.50
Potential ordinary shares:
Options
5 million with exercise price of shs 6
Convertible preference shares 800,000 entitled to a cumulative dividend of shs 8 per share.
Each is convertible to two ordinary shares.
2% Convertible bond Nominal amount shs 100 million. Each shs 1,000 bond is convertible to
40 ordinary shares.
Tax rate 30%
Determining the order in which to include dilutive securities in the calculation of diluted
earnings per share.
Calculate the earnings per incremental share for each dilutive security.

20 BY KIMULI FRED 0752818204

QUESTION 21
KMD ltd is a listed company incorporated in accordance with Rwandan law. The equity as at
January 2018 was as follows:
 100,000 equity shares of SHS 10 each.
 Shs 800,000, 8% convertible preference shares of shs 10 each. Each preference share is
convertible to two ordinary shares.
During the year the following events took place;
i) In order to motivate the management, the company has decided to provide 5 000 share
options to its employees at an exercise price of shs 5. The average market fair value of
the share price is equal to the par value of one share. None of the share options were
exercised as at 31st December 2018.
ii) During the year, the company made a profit before tax of shs 400,000.
iii) On 01st April 2018 the company made a bonus issue of a one for every 3 shares to existing
shareholders and on the same date, the company issued 20,000 shares at full market
value.
iv) As at 31st December 2018, the convertible preference shares were not yet converted.
During the year ended 31st December 2017, the company reported an Earnings per Share
(EPS) of shs 5.
The tax rate applicable is 30%.
Required:
a) Determine basic EPS for the year ended 31st December 2018.
b) Adjust previous EPS as reported in 2017.
c) Compute diluted EPS for the year ended 31st December 2018.

Question 22
Axle and Company (AC) is a company whose shares are publicly traded on the Ugandan stock
exchange market. Given the nature of its trade, AC has various actual and potential
stakeholders who require information regarding its performance to make their decisions.
Management is working tirelessly to ensure that they provide such information and has been
advised by its consultants to apply the fundamental qualitative characteristics of useful
financial information, if the company’s information is to be useful to its stakeholders.
On 1 January 2021, AC had in issue Shs 50 million 10% convertible debenture. This debenture
is convertible into ordinary shares at a rate of 500 ordinary shares for every one million
debenture stock. The company also had outstanding 10,000 share options which are to be
exercised five years later at a price Shs 9,000 per share. The average market price per share
of AC shares during the year ended 31 December 2021 was Shs 11,000. AC had 100,000
ordinary shares during the year and made a net profit Shs 820 million for the year ended 31
December 2021. Out of the net profit for the year, Shs 57 million is attributed to the non-
controlling interest. The corporate tax rate is 30%.
Required:
As the head of financial reporting, write a memo to the board of directors advising on:
a) How the fundamental qualitative characteristics of financial information set out by the
International Accounting Standards Board’s conceptual framework can be achieved.
b) How to determine the diluted earnings per share (EPS) where there are several different
types of potential ordinary shares.
c) The diluted EPS for the year ended 31 December 2021.

21 BY KIMULI FRED 0752818204

Question 23
Dome Ltd has 5,000,000 ordinary shares in issue and also had in issue in 2020:
 Shs 1,000, 000 of 14% convertible loan stock, convertible in three years at the rate of 2
shares for every shs 10 of stock.
 Shs 2,000, 000 of 10% convertible loan stock, convertible in a year’s time at the rate of 3
shares for every shs 5 of stock.
 The total earning in 2020 was shs 1,750,000. The rate of income tax is 30%.
Required:
In accordance with IAS 33: Earnings per Share, Calculate the basic and diluted earnings
per share.

Question 24
Abu Ltd had 100,000 shares in issue, but then makes a 1 for 5 rights issue on 1 October 2017
at a price of shs 1. The market value on the last day of quotation with rights was shs 1.60.
Total earnings are shs 50,000 in 2017, and shs 40,000 in 2016.
Required:
Calculate the Earnings per Share for the year ended 31 December 2017 and the corresponding
figure for 2016 in accordance with IAS 33: Earnings per Share.
Question 25
Bremang Ltd's draft profit after tax for the year ended 31 October 2018 is shs 10.2 million. At the
beginning of the financial year, the company had 3.6 million, shs 1 ordinary shares in issue. On 1
February 2018, the company entered into an arrangement with a supplier where the supplier would
be given 48,000 shs 1 ordinary shares in Bremang Ltd in return for services with a fair value of
shs 600,000 at 1 February 2018 to be performed evenly over the period 1 February 2018 to 31
January 2019. The shares were delivered on 31 January 2019 and earned proportionately over the
year to 31 January 2019 as the services were rendered. The arrangement has not been recognised
in the draft financial statements.
Required:
Calculate the basic earnings per share figure for Bremang Ltd for the year ended 31 October
2018 (to the nearest shillings) in accordance with IAS 33: Earnings per Share. (Note: There is
no tax or deferred tax consequences of the share issue).
END

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