IAS 33 EARNINGS PER SHARE

There are two types of EPS:

Basic EPS

Diluted EPS

We do not take such factors while calculating diluted EPS which will increase basic EPS.

Calculations:

Formula:

EPS = Earnings / shares

What are earnings?

Those earnings of the Company through which dividend will be paid to ordinary shareholders in
future periods i.e. Profit after tax (PAT) – Dividend on preference shares.

PAT also includes profit from associates. However, earnings from discontinued operations are
not included. EPS for discontinued operations are calculated separately.

Types of preference share and dividend to be adjusted:

Cumulative:

Type of preference share, in which dividend will be paid to share holder irrespective of the loss
or profit wither in current year or cumulative dividend in next period.

Dividend to adjust from earnings: Required dividend will be adjusted from the earnings whether
announced or not.

Non-Cumulative:

Type of preference share, in which dividend will be paid to share holder only in the periods when
dividend will be announced.

Dividend to adjust from earnings: Only declared dividend will be adjusted from the earnings.
Increasing rate:

Type of preference share, in which dividend will be paid to share holder only after a certain
period. In this type, preference shares are discounted from the period from which dividend will
be paid and recorded at PV. This will be unwinded every year until the agreed period from which
dividend will be paid.
Dividend to adjust from earnings: Imputed i.e. Unwinding cost will be taken as dividend.

Participative:

Type of preference share, in which shareholders are provided with a preference dividend and
they also have participation in the remaining profit after preference dividend (i.e. profit after
tax minus preference dividend).

Dividend to adjust from earnings: Both preference dividend and participation dividend will be
taken as dividend.

Repurchase:
A Company can also repurchase shares issued either by paying a premium or at a discount.

Dividend to adjust from earnings: Premium will be subtracted from the PAT and Discount will
be added to PAT only for EPS purposes.

Convertible:

A Company may also provide option to convert preference shares into ordinary share. Option
of ordinary share may be preferable to Company (i.e. Value of Ordinary share is less than
preference shares) or unpreferable (i.e. Value of Ordinary share is more than preference
shares).
Dividend to adjust from earnings: if preferable than the difference will be added to PAT and if
Unpreferable than difference will be subtracted from PAT.

What are shares?

This will be weighted average number of shares (WANS) that are number of shares multiplied
by number of months from there issuance to the year end. All of ordinary shares and preference
shares which are classified as equity (e.g. irredeemable) under IAS 32 will be taken while
calculating WANS.
New Shares during the year can be issued either:

With consideration

These shares will be considered outstanding from the date of issuance i.e. WANS will be
calculated from the date of issue.

A Time Factor will be calculated (i.e. number of month after the issue of shares / Total number
of months)

Without consideration:
These shares will be considered outstanding from the earliest period presented i.e. from the
starting date of comparative year and balance of previous period will be restated.
There are difference scenarios:

Right issue:

Company offers existing shareholders to buy share on discounted price.

Right issue factor will be calculated as FV / Theoretical Ex Right Price (TERP)

TERP = Weighted average price of the shares = Total price of all the shares after issue /
Total Shares After issue.

Bonus:

Company offer bonus shares to shareholders.

Bonus factor will be calculated as Number of shares in holding after the bonus issue / Number
of shares in holding before the bonus issue

Split / Consolidate:
Split or consolidate factor will be calculated and adjusted with effect from prior period.

Treasury shares:

These are share, which are bought back by the Company from the market and held in its own
name. These will be deducted from the total shares of the Company from the date of purchase
while Calculating WANS.
Diluted EPS:

While calculating diluted EPS, we assume that all of the Potential ordinary shares (those
instruments as a result of which number of shares of the Company will increase in future
periods) are issued or converted at the prior of:

· first day of the year; or

· date at which instruments are issued.

The reason for this is to convey to shareholders the effects on basic EPS of the potential
ordinary shares issued by the Company.

Adjustment: Any finance cost like interest or dividend recorded as expense on these
instruments will also be reversed while calculating diluted EPS. Note: if as a result of this
adjustment basic EPS increase than we will not take this adjustment.

Options:

Gives right to buy share in future at an exercise price.

Adjustments:

There will be no adjustment to earnings as no expense or income recorded as a result of options.

However, WANS will be adjusted by the number of free shares that will be issued as a result of
exercise of options in future.
Free shares are the hypothetical shares for which no consideration would be paid and is
calculated by subtracting actual number of shares to be issued from the number of shares that
would have been issued at current MV from the cash received as a result of exercise of the
option (i.e. exercise price of all the shares).

Note: Options are diluted only if exercise price is lower than MV.

Employee share options (IFRS 02):

The treatment is the same as options, the major difference is that the expense to be recognized
as a result of employees’ services would be added to exercise price (as no cash would be paid
as result of these services) while calculating number of free shares.

Contingent shares:

Those shares whose issuance depends on future events.

Adjustment:

These will be taken in calculations of diluted EPS only if the condition or event that will result
in issuance of these share is met or probable to meet at reporting date.
Convertible instruments:

These give option to convert them into ordinary shares.

Adjustment:

The WANS will be adjusted by the number of shares up to date of conversion.

Number of shares up to date of conversion would be calculated as Number of shares issued

as result of conversion * number of months before conversion / total number of months.

Further, Earnings will also be adjusted by expense or income for the period before the
conversion only.

More than one potential ordinary shares are issued:

If more than one potential ordinary shares are issued by the Company than the effect of most
diluted (i.e. which result in most decrease of EPS) will be taken first and then accordingly.
Options are most diluted as there is no reversal of expense in this case and only number of
shares will increase.

Dilution will be calculated as Increase or (decrease) in earnings / increase in WANS. The most
potential ordinary share with the lowest amount will be the most diluted thus will be adjusted
first.

If potential ordinary shares are antidilutive (result in increase of EPS), than the effect will not
be taken, and diluted EPS would be without there adjustment.

For consolidate statements:

While calculating EPS of consolidated FS, earnings attributable to parent will be taken only.
Earnings of NCI will be excluded.