Module 10

PAS 33 – Earnings Per Share

Introduction

Philippine Accounting Standards 33 prescribes the principle in computing and presenting earnings
per share (EPS) to promote inter- and intra-comparability of performing entities.

Because of differing accounting policies, PAS 33 recognizes that EPS data may have limitations
– particularly on “earnings” which is the numerator in the EPS calculation. Therefore, the focus of
PAS 33 is on the consistent determination of the denominator of the EPS calculation.

PAS 22 requires publicly listed entities, including those in the process of enlisting, to present EPS
information. A publicly listed entity is one whose ordinary shares or potential ordinary shares atre
traded in a public market.

Non-publicly listed entities are not required to present EPS information. However, if they choose
to do so, they will need to apply PAS 33.

If both consolidated and separate financial instruments are prepared, EPS is required only for the
consolidated financial statements.

Learning outcomes:
1. Explain how basic EPS is computed.
2. Explain how diluted EPS is computed.

Objective of PAS 33
The objective of PAS 33 is to prescribe principles for determining and presenting earnings per
share (EPS) amounts to improve performance comparisons between different entities in the same
reporting period and between different reporting periods for the same entity.

Earnings per Share

Earnings per share (EPS) is a computation made for ordinary shares. It is a form of profitability
ratio which represents how much was earned by each ordinary share during the period. No EPS is
presented for preference shares because these shares have a fixed return represented by their
dividend rates.

Types of Earnings per share

1. Basic earnings per share

2. Diluted earnings per share

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 Formula:

Basic Earnings per Share

Considerations in computing “Profit or loss”

a. Profit or loss should be net of income tax expense
b. Profit or loss should be adjusted for the after-tax amounts of preference dividends,
differences arising on the settlement of preference shares, and other similar effects of
preference shares classified as equity.

Adjustments for preference dividends

a. If the preference shares are cumulative, one-year dividend is deducted from profit or loss
whether declared or not.
b. If the preference shares are non-cumulative, only the dividend declared is deducted from
profit or loss.

Weighted average number of outstanding ordinary shares

Shares are usually time-weighted from the date consideration is receivable (which is generally the
date of their issue). Thus:

a. Shares issued outright are averaged from the issuance date.

b. Subscribed shares are averaged from the subscription date.
c. Treasury shares are averaged
i. as reduction to the number of outstanding shares from the reacquisition date; or
ii. as addition to the number of outstanding shares from the reissuance date

Restatement of EPS
EPS in previous periods are adjusted retrospectively when an entity issues any of the following:
a. A capitalization or bonus issue (e.g., share dividend);
b. A bonus element in any other issue, for example a bonus element in a rights issue to existing
shareholders (also referred to as preemptive stock rights);
c. A share split (increase in number of shares with corresponding decrease in par value); and
d. A reverse share split (consolidation of shares or decrease in number of shares with
corresponding increase in par value).

Rights issue

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REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
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 Diluted earnings per share
Diluted earnings per share is the amount of profit for the period per share, reflecting the maximum
dilutions that would have resulted from conversions, exercises, and other contingent issuances that
individually would have decreased earnings per share and in the aggregate would have had a
dilutive effect.

Only basic earnings per share is presented if an entity has no dilutive potential ordinary shares
(i.e., simple capital structure).

The computation of diluted earnings per share is based on the assumption that the dilutive potential
ordinary shares were converted or exercised. It is:
1. “As if” the convertible preference shares or convertible bonds have been converted; or
2. “As if” the options or warrants have been exercised.

The conversion or exercise is assumed to have taken place on the date the potential ordinary shares
became outstanding, regardless of the date of actual conversion or exercise.

Formula:

Options, warrants and their equivalents

When computing for diluted earnings per share, the “treasury share method” shall be used in
computing for the incremental shares. This method assumes that:

1. The options or warrants are exercised and

2. The proceeds received from the exercise are used to purchase treasury shares at the average
market price.
3. The difference between the treasury shares assumed to have been purchased and the option
shares represents the incremental shares.

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF
REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.
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 Treasury share method

Financial statement Presentation

Basic and Diluted earnings per share are computed on the following:
1. Profit or loss from continuing operations
2. Profit or loss from discontinued operations, if the entity reports a discontinued operation.
3. Profit or loss for the year

EPS is not computed on other comprehensive income and total comprehensive income.

EPS computed on profit or loss from continuing operations and profit or loss for the year are
presented on the face of the statement of profit or loss and other comprehensive income. If the
entity uses a two-statement presentation, EPS is presented only on the separate income statement.

References:

Millan, Z. V. (2018). PAS 33 Earnings per Share. In Conceptual Framework and Accounting
Standards (2018 Edition, pp. 331-359). Bandolin Enterprise.

IAS 33- Earnings per share

(2020).http://www.iasplus.com/.https://www.iasplus.com.en/standards/oas/ais33

Activity:
Answer Problem 1, PAS Earnings per Share (pp. 360) in your textbook.

THIS MODULE IS FOR THE EXCLUSIVE USE OF THE UNIVERSITY OF LA SALETTE, INC. ANY FORM OF
REPRODUCTION, DISTRIBUTION, UPLOADING, OR POSTING ONLINE IN ANY FORM OR BY ANY MEANS WITHOUT THE
WRITTEN PERMISSION OF THE UNIVERSITY IS STRICTLY PROHIBITED.
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