International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

  profit or loss attributable to ordinary equity holders. The disclosure of the terms and

  conditions of such financial instruments and other contracts is encouraged by IAS 33, if

  not otherwise required by IFRS 7 – Financial Instruments: Disclosures (discussed in

  Chapter 50). [IAS 33.72].

  8 APPENDIX

  Reproduced below is the comprehensive worked example in IAS 33 of the

  computation and presentation of EPS. [IAS 33.IE12]. It illustrates four quarters and then

  the full year, but the principles and calculations would be the same whatever the

  length of the periods considered.

  CALCULATION AND PRESENTATION OF BASIC AND DILUTED EARNINGS PER

  SHARE (COMPREHENSIVE EXAMPLE)

  This example illustrates the quarterly and annual calculations of basic and diluted earnings per share in the

  year 20X1 for Company A, which has a complex capital structure. The control number is profit or loss from

  continuing operations attributable to the parent entity. Other facts assumed are as follows:

  Average market price of ordinary shares: The average market prices of ordinary shares for the calendar

  year 20X1 were as follows:

  First quarter CU

  49

  Second quarter CU

  60

  Third quarter CU

  67

  Fourth quarter CU

  67

  The average market price of ordinary shares from 1 July to 1 September 20X1 was CU 65.

  Ordinary shares: The number of ordinary shares outstanding at the beginning of 20X1 was 5,000,000. On

  1 March 20X1, 200,000 ordinary shares were issued for cash.

  Convertible bonds: In the last quarter of 20X0, 5 per cent convertible bonds with a principal amount of

  CU 12,000,000 due in 20 years were sold for cash at CU 1,000 (par). Interest is payable twice a year, on

  1 November and 1 May. Each CU 1,000 bond is convertible into 40 ordinary shares. No bonds were

  converted in 20X0. The entire issue was converted on 1 April 20X1 because the issue was called by

  Company A.

  Convertible preference shares: In the second quarter of 20X0, 800,000 convertible preference shares were

  issued for assets in a purchase transaction. The quarterly dividend on each convertible preference share is

  CU 0.05, payable at the end of the quarter for shares outstanding at that date. Each share is convertible into

  one ordinary share. Holders of 600,000 convertible preference shares converted their preference shares into

  ordinary shares on 1 June 20X1.

  Warrants: Warrants to buy 600,000 ordinary shares at CU 55 per share for a period of five years were issued

  on 1 January 20X1. All outstanding warrants were exercised on 1 September 20X1.

  Options: Options to buy 1,500,000 ordinary shares at CU 75 per share for a period of 10 years were issued

  on 1 July 20X1. No options were exercised during 20X1 because the exercise price of the options exceeded

  the market price of the ordinary shares.

  Tax rate: The tax rate was 40 per cent for 20X1.

  Earnings per share 2935

  Profit (loss) from continuing

  Profit (loss)

  operations attributable

  attributable to the

  20X1

  to the parent entity (a)

  parent entity

  CU

  CU

  First quarter 5,000,000

  5,000,000

  Second quarter 6,500,000

  6,500,000

  Third quarter 1,000,000

  (1,000,000)

  (b)

  Fourth quarter (700,000)

  (700,000)

  Full year 11,800,000

  9,800,000

  (a) This is the control number (before adjusting for preference dividends).

  (b) Company A had a CU 2,000,000 loss (net of tax) from discontinued operations in the third quarter.

  First Quarter 20X1

  Basic EPS calculation

  CU

  Profit from continuing operations attributable to the parent entity

  5,000,000

  Less: preference shares dividends

  (40,000)

  (c)

  Profit attributable to ordinary equity holders of the parent entity

  4,960,000

  Weighted-

  Shares

  Fraction

  average

  Dates

  Outstanding

  of period

  shares

  1 January 28 February

  5,000,000

  2/3

  3,333,333

  Issue of ordinary shares on 1 March

  200,000

  1 March 31 March

  5,200,000

  1/3

  1,733,333

  Weighted-average shares

  5,066,666

  Basic EPS

  CU 0.98

  (c) 800,000 shares × CU 0.05

  Diluted EPS calculation

  Profit attributable to ordinary equity holders of the parent entity

  CU 4,960,000

  Plus: profit impact of assumed conversions

  Preference share dividends

  CU 40,000

  (d)

  Interest on 5% convertible bonds

  CU 90,000

  (e)

  Effect of assumed conversions

  CU 130,000

  Profit attributable to ordinary equity holders of the

  parent entity including assumed conversions

  CU 5,090,000

  Weighted-average shares

  5,066,666

  Plus: incremental shares from assumed conversions

  Warrants 0

  (f)

  Convertible preference shares

  800,000

  5% convertible bonds

  480,000

  Dilutive potential ordinary shares

  1,280,000

  Adjusted weighted-average shares

  6,346,666

  Diluted EPS

  CU 0.80

  (d) 800,000 shares × CU 0.05

  (e) (CU 12,000,000 × 5%) ÷ 4; less taxes at 40%

  (f) The warrants were not assumed to be exercised because they were antidilutive in the period (CU 55

  [exercise price] > CU 49 [average price]).

  2936 Chapter 33

  Second Quarter 20X1

  Basic EPS calculation

  CU

  Profit from continuing operations attributable to the parent entity

  6,500,000

  Less: preference shares dividends

  (10,000)

  (g)

  Profit attributable to ordinary equity holders of the parent entity

  6,490,000

  Shares

  Fraction

  Weighted-

  Dates

  outstanding

  of period

  average shares

  1 April

  5,200,000

  Conversion of 5% bonds on 1April

  480,000

  1 April-31 May

  5,680,000

  2/3

  3,786,666

  Conversion of preference shares on 1June

  600,000

  1 June-30 June

  6,280,000

  1/3

  2,093,333

  Weighted-average shares

  5,880,000

  Basic EPS

  CU 1.10

  (g) 200,000 shares × CU 0.05

  Diluted EPS calculation

  Profit attributable to ordinary equity holders of the parent entity

  CU

  6,490,000

  Plus: profit impact of assumed conversions

  Preference share dividends

  CU 10,000

  (h)

  Effect of assumed conversions

  CU 10,000

&
nbsp; Profit attributable to ordinary equity holders of the parent entity

  including assumed conversions

  CU 6,500,000

  Weighted-average shares

  5,880,000

  Plus: incremental shares from assumed conversions

  Warrants 50,000

  (i)

  Convertible preference shares

  600,000

  (j)

  Dilutive potential ordinary shares

  650,000

  Adjusted weighted-average shares

  6,530,000

  Diluted EPS

  CU 1.00

  (h) 200,000 shares × CU 0.05

  (i) CU 55 × 600,000 = CU 33,000,000; CU 33,000,000 ÷ CU 60 = 550,000;

  600,000 – 550,000 = 50,000 shares or

  [(CU 60 – CU 55) ÷ CU 60] × 600,000 shares = 50,000 shares

  (j) (800,000 shares × 2/3) + (200,000 shares × 1/3)

  Third Quarter 20X1

  Basic EPS calculation

  CU

  Profit from continuing operations attributable to the parent entity

  1,000,000

  Less: preference shares dividends

  (10,000)

  Profit from continuing operations attributable to ordinary equity holders of the

  parent entity

  990,000

  Loss from discontinued operations attributable to the parent entity

  (2,000,000)

  Loss attributable to ordinary equity holders of the parent entity

  (1,010,000)

  Earnings per share 2937

  Shares

  Fraction

  Weighted-

  Dates

  outstanding

  of period

  average shares

  1 July-31 August

  6,280,000

  2/3 4,186,666

  Exercise of warrants on 1 September

  600,000

  1 September-30 September 6,880,000

  1/3

  2,293,333

  Weighted-average shares

  6,480,000

  Basic EPS

  Profit from continuing operations

  CU 0.15

  Loss from discontinued operations

  (CU 0.31)

  Loss

  (CU 0.16)

  Diluted EPS calculation

  Profit from continuing operations attributable to ordinary

  equity holders of the parent entity

  CU

  990,000

  Plus: profit impact of assumed conversions

  Preference shares dividends

  CU 10,000

  Effect of assumed conversions

  CU

  10,000

  Profit from continuing operations attributable to ordinary equity

  holders of the parent entity including assumed conversions

  CU 1,000,000

  Loss from discontinued operations attributable to the

  parent entity

  (CU 2,000,000)

  Loss attributable to ordinary equity holders of the parent

  entity including assumed conversions

  (CU 1,000,000)

  Weighted-average shares

  6,480,000

  Plus: incremental shares from assumed conversions

  Warrants 61,538

  (k)

  Convertible preference shares

  200,000

  Dilutive potential ordinary shares

  261,538

  Adjusted weighted-average shares

  6,741,538

  Diluted EPS

  Profit from continuing operations

  CU

  0.15

  Loss from discontinued operations

  (CU

  0.30)

  Loss

  (CU

  0.15)

  (k)

  [(CU 65 – CU 55) ÷ CU 65] × 600,000 = 92,308 shares; 92,308 × 2/3 = 61,538 shares

  Note: The incremental shares from assumed conversions are included in calculating the diluted per-share

  amounts for the loss from discontinued operations and loss even though they are antidilutive. This is because

  the control number (profit from continuing operations attributable to ordinary equity holders of the parent

  entity, adjusted for preference dividends) was positive (i.e. profit, rather than loss).

  Fourth Quarter 20X1

  Basic and diluted EPS calculation

  CU

  Loss from continuing operations attributable to the parent entity

  (700,000)

  Add: preference shares dividends

  (10,000)

  Loss attributable to ordinary equity holders of the parent entity

  (710,000)

  2938 Chapter 33

  Shares

  Fraction

  Weighted-

  Dates

  outstanding

  of period

  average shares

  1October-31 December 6,880,000

  3/3

  6,880,000

  Weighted-average shares

  6,880,000

  Basic and diluted EPS

  Loss attributable to ordinary equity holders of the parent entity

  (CU 0.10)

  Note: The incremental shares from assumed conversions are not included in calculating the diluted per-share

  amounts because the control number (loss from continuing operations attributable to ordinary equity holders

  of the parent entity adjusted for preference dividends) was negative (i.e. a loss, rather than profit).

  Full Year 20X1

  Basic EPS calculation

  CU

  Profit from continuing operations attributable to the parent entity

  11,800,000

  Less: preference shares dividends

  (70,000)

  Profit from continuing operations attributable to ordinary equity holders

  of the parent entity

  11,730,000

  Loss from discontinued operations attributable to the parent entity

  (2,000,000)

  Profit attributable to ordinary equity holders of the parent entity

  9,730,000

  Shares

  Fraction

  Weighted-

  Dates

  Outstanding

  of period

  average shares

  1 January-28 February

  5,000,000

  2/12

  833,333

  Issue of ordinary shares on 1March

  200,000

  1 March-31 March

  5,200,000

  1/12

  433,333

  Conversion of 5% bonds on 1April

  480,000

  1 April-31 May

  5,680,000

  2/12

  946,667

  Conversion of preference shares on 1June

  600,000

  1 June-31 August

  6,280,000

  3/12 1,570,000

  Exercise of warrants on 1September

  600,000

  1 September-31 December 6,880,000

  4/12

  2,293,333

  Weighted-average shares

  6,076,667

  Basic EPS

  Profit from continuing operations

  CU 1.93

  Loss from discontinued operations

  (CU 0.33)

  Profit

  CU 1.60

  Diluted EPS calculation

  Profit from continuing operations attributable

  to ordinary equity holders of the parent entity

  CU

  11,730,000

  Plus: profit impact of assumed conversions

  Preference share dividends

  CU 70,000

  Interest on 5% convertible bonds

  CU 90,000

  (l)

  Effect of assumed conversions

  CU

  160,000

  Earnings per share 2939

  Profit from continuing opera
tions attributable to

  ordinary equity holders of the parent entity including

  assumed conversions

  CU 11,890,000

  Loss from discontinued operations attributable to the

  parent entity