PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY, INC

MAY 2020 CPALE (BATCH NO. 05)

Financial Accounting and Reporting (FAR) Nenita S. Robles/ Floyd C. Paguio

EARNINGS PER SHARE

(PAS 33)
CLASSROOM DISCUSSION QUESTIONS
Basic earnings per share
1. Required: Compute the December 31, 20x2 basic earnings per share under each of the following situation:
a. PRIA paid no preferred dividends during 20x1 and paid P15,000 in preferred dividends during 20x2.
b. In addition, PRIA had 20,000, 5% non-cumulative, preference shares issued and outstanding with par value of P20
per share. Dividends declared during the year are as follows:
i. P70,000 to cumulative preference shares
ii. P25,000 to non-cumulative shares
iii. P45,000 to ordinary shares
c. In 20x2, PRIA reported loss from lawsuit of P350,000, what amount of earnings should be used in computing basic
earnings per share?
d. Preferred shares are also fully participating.

Notes and solution

a. P1,200,000 – (P500,000 x 6%) / 200,000 = P5.85

One-year dividend (whether declared or not) is deducted from profit or loss because the preference shares are
cumulative. Dividends in arrears are ignored in the computation of EPS.

b. P1,200,000 – (P500,000 x 6%) – 25,000) / 200,000 = P5.73

Cumulative – Although the dividend declared is P70,000, only one-year dividend of P30,000 is deducted from profit
or loss.
Non-cumulative – Only the P25,000 dividend declared during the period is deducted from profit or loss. Dividends
in arrears are ignored in the computation of EPS. Dividends declared on ordinary shares are ignored because these
dividends are properly considered as return to ordinary shareholders.

c. P1,200,000 – unusual and infrequent losses and gains are appropriately included in the profit used for EPS
computation.

d.
Profit for the year 1,200,000
Allocation of basic dividends:
Basic allocation to preference shares (P500,000 x 6%) 30,000
Basic allocation to ordinary shares (P2,000,000 x 6%) 120,000
Excess subject to participation 1,050,000
Participation of preference shares 1,050,000 x 500,000 /2,500,000 210,000
Participation of ordinary shares 1,050,000 x 2,000,000 /2,500,000 840,000
Balance -

Preference Ordinary
shares shares
Allocation of profit:
(30,000 + 210,000) 240,000
(120,000 + 840,000) 960,000
Total allocated earnings 240,000 960,000
Outstanding shares 50,000 200,000
Basic EPS 4.8 4.8

Weighted average number of shares

2. Required
Compute the basic EPS for December 31, 20x1.

Notes and solution

Jan. 1 200,000 x 110% x 2 x 12/12 440,000

Feb. 1 N/A
May 1 (12,000) x2 x 8/12 (16,000)

PRIA: Earnings per Share (HO. No. 17)

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 PHILIPPINE REVIEW INSTITUTE FOR ACCOUNTANCY, INC
MAY 2020 CPALE (BATCH NO. 05)
Financial Accounting and Reporting (FAR) Nenita S. Robles/ Floyd C. Paguio

June 1 60,000 x 2 x 7/12 70,000

Aug. 1 30,000 x 2 x 5/12 25,000
Sept. 1 N/A
Dec. 1 6,000 x 1/12 500
WA Number of shares 519,500

15,585,000/ 519,500 = P30

Ordinary shares issued as dividends or share splits are included from the time the original shares, on which the share
dividends or share splits are based, were originally issued.

Feb. 1 – assumed to have been issued as of Jan. 1 (x110%)

Sept 1 – assumed to have been issued as of Jan. 1 (x2)

Jun 1 – included from acquisition date.

Diluted earnings per share

3. Required: Compute the December 31, 20x1 basic and diluted earnings per share.

BEPS
1,200,000 – (500,000 x 6%) / 200,000 = 5.85

DEPS
1,200,000 + 0/ 200,000 + (50,000 x 2) = 4.00

Profit is not reduced by the dividends because the convertible preference shares are assumed to have been converted into
ordinary shares
No after tax interest expense is added because the potential ordinary shares are convertible preference shares and not
convertible bonds
The incremental shares are computed as 50,000 x 2 because each of the 50,000 outstanding preference shares is
convertible into two ordinary shares.

Profit (loss) plus after tax interest expense on convertible bonds

WA number of ordinary shares plus incremental shares arising from the assumed conversion or exercise of dilutive potential
ordinary shares

If the computed DEPS is higher than the BEPS, only the BEPS shall be presented.

DO-IT-YOURSELF (DIY)

1. C 11. B
2. A 12. C
3. D 13. B
4. C
5. B
6. C
7. B
8. C
9. C
10. B

***
"The ones who are crazy enough to think they can change the world,
are the ones that do."
-- Anonymous

PRIA: Earnings per Share (HO. No. 17)

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