IAS-33: Earning per share

Example: 1 Issue of shares for cash at full market price

X plc has 10 million ordinary shares in issue at 1 January 2004. Its accounting year end is 31st
December.
During 2004 the following events occur:
1 April 2004 2 million shares are issued to acquire a subsidiary
1 October 2004 2 million shares are issued at full market price.
What is the weighted average number of ordinary shares outstanding during the period?

(Source: IFRS and IAS Training Manual of ICAB, August 2015,Dhaka)

Example: 2 Bonus Issue

X plc has 10 million ordinary shares in issue at 1 January 2003. Its accounting year end is 31st
December.
Earnings:2004 - Tk.13 m, 2003 - Tk.10m
2 million bonus shares are issued on 1 October 2004.What basic EPS amount was presented in
the 2003 financial statements and what two basic EPS amount will be presented in the 2004
financial statements?

(Source: IFRS and IAS Training Manual of ICAB, August 2015,Dhaka)

Example: 3 TERP
A 1 for 3 rights is made at 132p when the market price is 220p. What is the TERP?

(Source: IFRS and IAS Training Manual of ICAB, August 2015,Dhaka)

Example: 4 Rights issue

The following information is available for an entity.
Earnings: 2002 –Tk.10,00,000, 2003 –Tk. 13,00,000, 2004 –Tk.15,00,000.
Number of shares in issues at 1 January 2002- 8,00,000
Rights issues: 1 for 4 at Tk.5 each on 1 April 2003 when the market value was Tk.7
What is the basic EPS amount for each of the three years after adjustment for the rights issue?

(Source: IFRS and IAS Training Manual of ICAB, August 2015,Dhaka)

Example: 5 Rights issue

The following information is provided for an entity which is making a rights issue.
2004 2005 2006
Profit attributable to ordinary shares of the parent entity Tk.1,100 Tk.1,500 Tk.1,800
Share outstanding before rights issue: 500 shares.
Rights issue: One new share for each five outstanding shares (100 new shares total)
Exercise price: Tk.5.00
Date of rights issue: 1 January 2005
Last date to exercise rights: 1 March 2005
Prahallad Chandra Das, ACMA
Assistant Professor
Department of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Mobile: 01718773480
Email: prahalladdas@yahoo.com
 IAS-33: Earning per share

Market price of one ordinary share immediately before exercise on 1 March 2005: Tk.11.00
Reporting date: 31st December
Requirement: Calculate the theoretical ex-rights value per share and the basic EPS for each of
the years 2004, 2005 and 2006.

(Source: Corporate Reporting-Study Manual by ICAEW, page-547)

Example: 6 Convertible debt

On 1 January 2007an entity had in issue 5 million Tk.1 ordinary shares and Tk.4 million of 6%
convertible redeemable loan stock.
The convertible redeemable loan stock can be converted at any time after 31 December 2009 and
the conversion terms are 30 ordinary shares for every Tk.100 of loan stock.
The liability component of the convertible loan stock was carried in the balance sheet on 1
January 2007 at Tk.3.6 million and the effective interest rate is 8%. The company pays tax at the
rate of 25%.
The profit attributable to the ordinary shareholders for the year ended 31 December 2007 is
Tk.1.2 million.
What are the figures for the basic EPS and diluted EPS for the year ended 31 December 2007?

(Source: IFRS and IAS Training Manual of ICAB, August 2015,Dhaka)

Problem-01
On 1 January 2005 Entity A had in issue:
 20 million ordinary shares
 Tk.11 million of 6.5% convertible loan stock, convertible at any time from 1 January
2007. The conversion terms are one ordinary share for each Tk.2 nominal of loan stock,
the 1 January carrying amount of the liability component is Tk.10 million and the
effective interest rate is 9%.
 Tk.9 million of 6.75% convertible loan stock, convertible at any time from 1 January
2008. The conversion terms are one ordinary share for each Tk.2 nominal of loan stock,
the 1 January carrying amount of the liability component is Tk.8 million and the effective
interest rate is 8%.
 Tk.12.6 million of 9% convertible loan stock, convertible at any time from 1 January
2009. The conversion terms are one ordinary share for each Tk.6 nominal of loan stock,
the 1 January carrying amount of the liability component is Tk.12 million and the
effective interest rate is 12%.
The entity reported profit attributable to the ordinary equity holders of Tk.4 million for its year
ended 31 December 2005.
Requirement: Ignoring taxes, calculate diluted EPS.
(Source: Corporate Reporting-Study Manual by ICAEW, page-558)

Problem: 02

Prahallad Chandra Das, ACMA

Assistant Professor
Department of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Mobile: 01718773480
Email: prahalladdas@yahoo.com
 IAS-33: Earning per share

Lemon Ltd. prepares its financial statements to 31 December each year. On 1 January 2013,
Lemon had 1 million Tk.10 per share in issue and on 1 July 2013 made 1 for 5 rights issue at
price of Tk.12 per share. The market price of a Lemon share immediately before the rights issue
was Tk.15. Earnings for the year ended 31 December 2013 were Tk.46,97,000. Lemon Ltd. also
has in issue Tk.32,00,000 of 8% convertible redeemable loan stock with the following terms of
conversion for every Tk.100 of loan stock.
a) Conversion at December 2014 12 shares
b) Conversion at December 2015 11 shares
The liability component of the convertible redeemable loan stock was carried in the Balance
Sheet on 1 January 2013 at Tk. 3 million and the effective interest rate is 9%. Lemon Ltd. pays
tax at a rate of 35%.
The basic EPS for the year ending 2012 was Tk.4.5
Required:
i) Calculate the basic EPS for 2013 and provide the adjusted comparative EPS for 2012.
ii) Calculate the diluted EPS for the year ending 31 December 2013.

[Source: CMA Examination-December-2010, 2012, August-2012, April-2012(Modified)]

Problem: 03
Taka
Earnings
Profit from continuing operations attributable to the parent entity 16,400,000
Less: Dividends on preference shares (6,400,000)
Profit from continuing operations attributable to ordinary equity holders of the parent 10,000,000
entity
Loss from discontinued operations attributable to the parent entity (4,000,000)
Profit attributable to ordinary equity holders of the parent entity 6,000,000
Ordinary shares outstanding 2,000,000
shares
Average market price of one ordinary share during year Tk.75.00

Potential ordinary shares

Options 1,00,000 with exercise price of Tk.60

Convertible 8,00,000 shares with a par value of Tk.100 entitled to a cumulative dividend of
preference shares Tk.8 per share. Each preference share is convertible to two ordinary shares.
5% Convertible Nominal amount Tk.1,00,000,000. Each Tk.1000 bond is convertible to 20
bonds ordinary shares. There is no amortization of premium or discount affecting the
determination of interest expense.
*Tax rate 40%

Required:

Prahallad Chandra Das, ACMA

Assistant Professor
Department of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Mobile: 01718773480
Email: prahalladdas@yahoo.com
 IAS-33: Earning per share

Calculate the weighted average number of shares and determining the order in which to include
dilutive instruments and also calculate basic EPS and diluted EPS.

(Source: IAS -33, Example-09)

Problem-04
From the following particulars, you are required to calculate basic and diluted earnings per
share.
Parent:
Profit attributable to ordinary equity holders of Tk.12,000 (excluding any earnings of, or
the parent entity dividends paid by, the subsidiary)
Ordinary shares outstanding 10,000
Instruments of subsidiary owned by the parent 800 ordinary shares
30 warrants exercisable to purchase ordinary
shares of subsidiary
300 convertible preference shares
Subsidiary:
Profit Tk.5,400
Ordinary shares outstanding 1,000
Warrants 150, exercisable to purchase ordinary shares of
the subsidiary
Exercise price Tk.10
Average market price of one ordinary share Tk.20
Convertible preference shares 400, each convertible into one ordinary share
Dividends on preference shares Tk.1 per share
(Source: IAS -33, Example-10)

Problem-05

On I January 2009 an entity had in issue 4,000,000 ordinary shares at Tk. 1 each and
Tk. 5,000,000 of 7% convertible shares redeemable loan stock, on which the
conversion terms were:
On 31 December 2012: 40 ordinary shares for each Tk. 125 of loan stock
On 31 December 2013: 40 ordinary share for each Tk. 130 loan stock
On 31 December 2014: 40 Ordinary shares for each Tk. 135 of loan stock
The liability component of the convertible redeemable loan stock was carried in the balance
sheet on 1 January 2004 at Tk. 4,800,000 and the effective rate of return @ 8.5% The company
pays tax at the rate of 20%
The profit attributable to the ordinary shareholders for the year ended 31 December 2009 was
Tk. 1,000,000.
Required:
Calculate the basic and diluted EPS for the year ended 31 December 2009.
Prahallad Chandra Das, ACMA
Assistant Professor
Department of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Mobile: 01718773480
Email: prahalladdas@yahoo.com
 IAS-33: Earning per share

(Source: CMA Exam. December-2010)

Problem-06
For the year ending 30 June, 2011, Kirra Ltd. reported net profit after tax of Tk. 130, 000. As at
1 July 2010 Kirra Ltd. had 20,000 fully paid ordinary shares of Tk. 10 each. The following issues
and purchases were subsequently made during the year:
 10,000 fully paid ordinary shares issued on 1 September 2010 at the prevailing market
price;
 2,500 fully paid ordinary shares purchased back on 1 February 2011 prevailing market
price;
 7,000 partly paid ordinary shares issued on 1 April 2011 at an issue price of Tk. 20.00.
The shares were partly paid to Tk. 13.00. The partly paid shares carry the right to
participate in dividends in proportion to the amount paid as a fraction of the issue price.
For the entire financial year kirra Ltd. had 5,000 preference shares of Tk. 100 each, which
provide dividends at a rate of 10 percent per year. The dividend rights are cumulative.
Required: Compute the basic earnings per share amount for 2011.
(Source: CMA Exam. December-2013)

Problem-07
Lemon Ltd. prepares its financial statements to 30 September each year. On 1 October 2006
Lemon had 10 million 50c shares in issue and on 1 April 2007 made a 1 for 5 rights issue at price
of $1.20 per share. The market price of a Lemon share immediately before the rights issue was
$1.50. Earnings for the year ended 30 September 2007 were $4,697,000. Lemon Ltd. also has in
issue 3,200,000 of 6% convertible redeemable loan stock with the following terms of conversion
for every $100 of loan stock.
c) Conversion at 30 September 2008 108 shares
d) Conversion at 30 September 2009 104 shares

The liability component of the convertible redeemable loan stock was carried in the Balance
Sheet on 1 October 2006 at $ 3 million and the effective interest rate is 9%. Lemon Ltd. pays tax
at a rate of 30%.
Required:
iii) Calculate basic and diluted EPS for the year ended 30 September 2007.
iv) Explain to a shareholder of Lemon Ltd. the usefulness and limitations of the diluted
EPS figure.
(Source: CMA Exam. April-2012)

Prahallad Chandra Das, ACMA

Assistant Professor
Department of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Mobile: 01718773480
Email: prahalladdas@yahoo.com