4. The Sf saertad met bs sb somes coven ef mie mer ofthe * ‘Beginning ofthe easiest insunnce, if later ‘Beginning ofthe easiest time of iaeuance © Middle ofthe eariet period reported regardless ofthe ‘ime issuance A "“Bding ofthe eartiat pid repeid regards of ti time of isoumnee 5. The nature of diluted earnings per shire involving , sdjuatment for ehare options ‘2 Historical because earnings are historical 1h Histaricl brause it indinteé firm's valuation Proforma because it indieates potential changes in umber of sares &. Proforma because it indicates potential changes in enings 1070 peti reported or at time of period reported rgardles of can be described a CHAPTER30 = DILUTED EARNINGS PER SHARE Multiple potential ordinary shares ‘TECHNICAL, KNOWLEDGE To determine dibitéd earnings per share where ‘there is combination of multiple potential - ordinary shares. . ~ To apply the test for dilution of potential ordinary shares. To understand the accounting treatment of written put options in relation to diluted earnings per share. To know the accounting treatment of contingent ordinary shares in EPS computation. a7 wvMultiple potential ordinary shares {ether is only one Autve potenti ordinary share, there is no accounting problem. ‘A problem arises whare the entity has two or more dilutive potential ordinary cheres. 7 ‘in considering whether potential ordinary shares are son. Prem rene“ 800000) Cam asm ordinary hare 13000 ‘Dd yoda shares cctuliyoutondig “aao0 Basis 2m In ealeulating whether potential ordinary shares aré dilutive, the profit Bure used gs the *control number” is {he incoeoe from continuing operations. ‘The second step is to determine whether the potential cordioay shares re tive or etiutve. 1074 ‘Test for dilution 4 The options are dation because the option prc i over Than average mask poe ‘The nuserofincrementa ordinary sbaresis determined flows: pic shares 7 a0 Rerced ancy shares (9000 603,009 000/75) 4200) Toerementaleniarysbaet a0 1b, Convertible preference share . -Anpalpreleryoe divided (Bx, 000000) ‘Silly onineysiavaton orenion _ 25.000 jcemesi) PS 000 ‘The convertible preference share is ctidiluve because ‘he inceseaal EPS higher than the baie HPS of PAS, Convert bod’ parable Interest eps ntoftan 6.00000210%% 70%) 350000, Dediiyiceocenladiayeareten ein 0000 Ieremeatl 7S a8 ‘the convertible bosd payable is potentially dilutive ‘Dunne the inreme asl BPS oer than the basi EPS: ‘The thee share shall bo ranked inthe computation of the dlsted EPS stating with the lowest {heremental EPS. —— — 1075 GeRanking of potential ordinary shares First The options bree nao inremeatl EPS ‘Second ~"The convertible bod payable wth an ineremeatal "BPS ofa i: Third ~-ihe convertibe preference sharé with an iseremental BPS of Plan ‘Observe the following computation of dlsted BPS in Sequence from the mont uve to tp eat dive ® ®t) Insoma Ordinary share’ EPS BasicEs arom woo ao Opto 2 Shop Dian BPS “Groom. “awe” sa Reswersbrboct “ange. Sano SY Dauedzes “Gayo ages aT Gonweribie?S: “zag atmo DisetErs —— “Eammow. 3 [Notice thatthe diluted EPS is incresed fom P27 to P90 ‘wen tang {nto scsoust the convertible preference share the convertible prefeeice chars i ignored in ‘he calelation ofthe dsted EPS. Presentation of ernings per shire Basic carnings per sharé Tocomt to cciningoperetions (7000/0000 950 Uneitem duomtinudopertane (0000/0000) 200 Net ine 150 Diluted earnings per share Income rom cenaning pertons (6100,00/85000) oun dnrdiauedoprtins (L000,00 2020) Netinome 1076 SS Written put options ‘At options on ordinary shares ae contract that give the Halder the right wo eal ordinary shares at «speced price form given pei. ‘Contract that require the entity to repurchase its ona shares, auch a written put options and forvard purchase Contre ae ecad inte enisation of tad earnings pr abe if the ee a dltive. — hee contacts are “in the ody. meaning the exe cox estlemeat pie Bigher than the average mecha pie, ‘he potntal tre eft ca earning por share skal be pleated afew ‘eis assumed that othe bepinning ofthe period suf cordigary shares will belosued at the average market rice. 1b eis aeumed that the poceds from the ina are asd 1 taliy the contrac buy bask the edinay shares cveredby-the waltn pot optins. purchased under the writen pot opnns-tpresets ‘he incremental ordinary shares. ‘Ms ncomtata oar shares sal nd athe calla of duted earnings per share. wor orMlustration © Anestity bas outstanding 1,000 writen pa options on he frdinay sharea with ap eres pis ef F050. ‘Thin means thatthe entity must purchase te ows 12,600 ‘rdinary shares at P38) per share o otal put bbe ‘oP. 200,000 The average market prc is F200. ‘The queetion is Raw many ordinary vhares would be inva I tent inorder torte the pul oligtin of F4200,000, Ta this ade, itis assumed atthe entity sal nue ordinary shares atthe average prot of P20 per ehare, Accrdily, the total ordinary Shares assumed issued ‘SSR be gual to P4200 000 divided PIBD or 15,000 shares. iintry share t be included ‘Te number of incremeatal Tce is determined 08 in competing Alted earnings per fellows Grsinary shares medion 00 STEEEy Retype undertb wetenputortoas 3200 Incremeital erdnary aces 300 1078 Contingent ordinary shares Contingent ordinary share ate ordinary shares iouable for {sof ro each or eter eonideaton upon satisfaction of teelSed conditions ina oatlaget share agreement. ‘A contingent share agronment is an agreement to josue inary shares that fo dependent on the satisfaction of Specie conditions, 7 Contingent nknary ehqres are tvatad as outstanting and {eluded in the empotation of both basic and diluted tcarkings per share ifthe conditions are satisGied. "Th rece le inthe numberof contingent shaves that trould be fnluded inthe computation of earings per share. CCoatnget ordinry shazes are included in the calelation tbs cig prota rath date the condone Contingeaterdnary shart ee included inthe computation of diluted sarsnge per share fom the beginning of the Deriodor tom the dato ofthe ematngeat apreemeat later: 1018 orMlustration ‘Netincane fore year 2000000 (rlinary shares cuttadingon Jenury 2017 = 6000 ‘An agreement on January 1, 2017 related to 0 business, ‘combination provides forthe lane of adationsl erdinery shares tated on the lowing condos: ‘4, 15,00 addiina ordiny‘sharefer each new ai ite ‘pened during 2017. ‘Reta ites were opened on May 1, 2017 and Ostober 2, sort, 18 10000 additonal ordinary share fr every P,000,000 ‘et income Sn exes P0000 fr 2018 Basic earnings per share ras hares Sanaa 2.2017 Souilate contin ated Tan dsp) ‘Cate [017 Gisooss i) ‘Toatertsry hares asc iesngn er share (12,0000 818700) ‘Bs Note that the sicond condition abostedmings contingency fhas no eflct ea base earnings per sare tocause i not ‘Shan tha tn onion fa ated wat the ead of the ‘Setingensy ptiad on December 31, 2018. leere 1080 Diluted earnings per share Ordinary share uitunting—fnsay 12017 seoon0 Reale oder Mey ha 00 atte 12017 iso antgrenton 10,0023) ‘aetna ited eiraings bare (1200002055200) (As Gated esl, coating odiary shares ae inched {the computa of dilated earnings per share fo the Deginaing ofthe period or from the date of agreement, iiss. ‘Thai th full ordinary share from the rt ite onion fd easing elton are recopaned Sompataion of he diluted earnings per share. fos 1h fe anand of eaing a end art ‘period is th amount of earnings ote end of contingency periee. : ‘Restatent oot parmiid f the conden are nt met ‘whoa the contlageaey epics Deca 83,28. 08 osConvertible bonds setiled in shares or casli When an entity bas esd bonds payable that nay be tad ‘perdi shares or cu the angers option. the entity shall presue that he bonds willbe ante fn ordinary ‘The resulting potential Gednary shares shall be included ia {he luna of ted eraigy per sar the ect ‘When the convortiblebondp are acsousted fr as partly abity and party equity he tareet expen, nett as, of the abity eompournt ls adled bck to th nat ioe: Mhistration ‘At the beginning ofthe caren ou, an oti issued 3 year ‘rovers tends with face vale of 000,000. ‘Th issu pie is equa to the foe vale andthe intarest ie ‘eyable edly at rat of 6%. ach P1000 bond i oavereil into 200 ordinary shares, ‘he eaiy has tho apo to sete the prindal ema of ends payable in orgary shar or ‘When the bonds ee lun, the prvaling markt intrest {nt solar boas without the conten fone "The following dita are salable forthe current your Betinmne romna000 Sent te aang sooo ‘Potala aren ech 00nd “Savers 20 carer 6001300) secngen ‘The convertible’ bondi shall be scoentd for a8 party aby and partly equi: ‘Ts, the proceed of P5000 abd be allocated ft to (he liaiily component and the reseader to the equ 1082, Liability component "The ability component i egal othe sm of tbe fling 1. Praga nan thea amount 5.000000 dacusted SE fr? paride Tau prevent van of 1 at SW Be 3 Peale O71 1 Prema alan sfth ateret on Bonds payablé contd Sf iclor 3 pride The preset wale of an ediary analy of 19% be pris i 253. Market value ofthe bonds payable ~ Basie earnings per share Nat iaco Diner Me tte Baie? : ~ Diluted earnings perthare ‘et dept mache ‘Gertie ‘Atutadsatinome Died earaineser sare 0283613580000) vosQuestions 1 Esplin the test for dation of share opto 2 Replain the test for elution of convertible preference ‘shave, ‘8. plain the tat fr dilation efcovertie bonds payable 4.Dafine writen pat options haoramscte in te Se gunmen stone in mies ‘Baga th tresthent of eatsgaterinry shares mihtamadsies eaten i Starman 10, Biplai the compte of the aity Component fost {by ise of convertible bonds payable. 1086 | j PROBLEMS problem so (ACE) atin Company repre the flowing information atthe td of rpeta Bengal, 14,000 ‘Pela ty pia 1 cana, F109, ‘oon qna00 steno he tnd are covet no iar hres in the aio. Seis Seine Fahd paienn sare i cmv fo ext haze in BS i iy Sa etn he ete rt er 78,8500 ene Sakon. Required: 4 Bai cea per sae 4 Dit arigs pr aace 7? orsblimn $02 (AA) spent 3,207 a Gn Gorey ed 128200 ‘Cindy hee gd 30000 overt pe Sachse edlte tte omershe ends pe “Gene emount P2000 Diving St, he ety pd eds of PS per sare on Be peee “The prterece sare a onertle to 40000 ediary TL the SNE ahem tt 94000 oan sin ‘The nt incon orth cet yur was P2410,00 andthe Daatarmn ison Required: 1, Basi caring pe hare 2 ‘ited aris por abase ois 533 erett ‘Problem 03 (AICPA Adapted) Amaze Company reported t « ‘antes Company reported th felling Information st Reco Hp = DOK, om etn Alia ©' ann, Ordinary sharesc on tana 70 oc eomeacdopyte here 188 La ‘The entity provided the filling néiona information: (72297 * On Sets, 27, te enti ol 000 atonal cago" ety Si iy wit $3900 a "460 409 NE ct income for the year ended December 51, 2017 was J ‘Pe,ro.000 Y 38, . Met aca. Dang 2017, the eter pid inde of P50 pr chars fon th nonancerble preference shore. C48 the 10% convertible bois are convertible into 40 fa, teem," Sebamed ee oe Ur purchase (60,000) OT rime xi crak” erences ete hats Sr Aas este Th eat pf riya cop SL Racuditathuinesansencs. 2 + Weis wpe sa spe See camer sae ow Ba snr Twat hein Dit 8,21, oe Rexemnrh i me * The income tax rate in 90%. 7 Reco: 1 Basic earning per sare 22 iar L/, a “eoblem 30-4 (AICPA Adapted) ‘Pagan Copan pre te fobring capital srs =m maegaea tee woogie eben Sonoma oscareaicbodoprtle ——FR008000 FRCE0 During 2017 the ent pl he annul dividend of PS 02 Preletoee share “ preference share are cart, 200.00 Pees i rn te TOD ry shares ‘he et icone fx he arent ear at 5,000.00, The Requires: Basic earangs er sage 17-2 f Dived arog pr tare 7 G51 Aprobein 305 (AICPA Adapted) repel the following infriation oo Cemiguin Comgusy eeeber S12 iar tae ital upon Saar eos lst a EERE ore Beer antec ies ‘The eat aes: bars are conrerale ints 4,00 Ee Po oe bend recovers in 8000 ‘The net income forthe current year was PSS0,00. The {Dehn tr ne 30% Regulred: 1. Basic earnings per share 7 2 Diluted carnage per uae P14 1087 ibProbiemso-6 aFR5) \\ ‘Tucker Company povided th floiagiafraton fr the "year ended December 31, 2017: na ‘Netincins rth year ‘Ordinary share otadig on Jnuty 1.2017 On January 1, 2017, an agrenment rested to e s4cent ‘uiness combination provides forthe ue of adios! ordinary shares based on the flowy cindtoos ‘60,000 aisiona edinrysharsYor eich now brasch Speed urine 207 ‘1,000 addition onary sare far ith 72,000 net Ibeome in excess of 98,000,000 fr the year ended December 31, 2018. “The eat opened to sew bre, oo on Apel, 2017 {ted the ether on dul 1, 2017 seimo00 towne Roquired: 1 ese earings per share ‘2 Diluted earning er ehare 088 ‘Problem 02 GAN) ‘Boch P00 bond ia carer ines shares Dering 2017, wy pi ie PD esa ce Da ee Speen he ee ar ‘Tn sat ce fh cain yur me PRD: ie ck ne 9% 1 Whit asoat hold be epi gs bbe earls Yer nee 010 an the 6 xo 245000 © co0% {4 What sou held be rept is itd eareogs per ohare = 9600 & ase ars a mos _Problem 30-8 (LAA) Venus Company provided the fallowing tu Invavag theory tare epi facuary 1” Hada hlaneot200.000 shares Piopr vale, 1 GomeidP2s000nefenmere tosis are s Selicnnee sayy Beleelinate Sie 1 Bees eleven bee m8 la feat 1 Det iia gi: Se | Raia tise righ zeny mer of his fc 207 2 {abe ued fc baie EPS couputaion or tonparatve Aci stetents on Deomabar 3, 3018) tobe sed bana BPS Statin br Srapreoe nancial statements on December 8120180 a 711500 2 o9}000 © 534000 705500 1090 Problem 30-9 (AICPA Adapted) eet Company hd basi earings per share of F150 fo he erent yar. No coaverton ap exercie of conver Sectrlties occured dating the year. However, pose Severin of converdble bonds would have reduced earsgs ‘er hare by Ph Th eet oft rouble exerioe of share ptone mould have ineeased earaings pe sbare by POO. ‘Wat amet soln mgr ted erage share? ae Bis 2 180 ait ‘Problem 30-10 (AICPA’ Adapted) [Newton Company had baie earaings per share of P220 for fhe current year. No conversion or exerci of dluti courte tok plain the current year. However, ‘Sonversion of caavertible preference shares would bare eduood earnings pr share to 7119. The elec of pose ‘nari of share warrant would have redscd ears per ‘are by an ado FP 1. What i the mastinum amount that ay bo reported as single presentation of earsings Per share? a0 ® ue - eur ain = 2. What amount shuld be reported as diluted earnings wae potted as uted earnings per a a0 Sin 9 aur - eet