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; s
Introduction
The Numerator
f there are preference share s retired ring the period and the
irement
unt of , the pre fer enc e s hares is (more than the ret
carrying ' amo
price, then
The Denominator
ay &
In all computations of earnings per share, the weighted average
utes the basis
number of shares outstanding during the period constit
red during
for the per share amounts reported. Shares issued or reacqui
the period affect the average number of outstanding shares and must be
the fraction of the period they are outstanding. The
weighted by
rationale of this approach is to find ‘the equivalent number of whole
shares outstanding for the year. :
When stock rights are issued, the exercise price is often less
than the fair value of the shares. Therefore, such a rights issue includes
a bonus element. An entity shall use, as the denominator in computing
the basic earnings per share, the number of ordinary shares before the
issue, multiplied by the following factor:
eo:
“3
YP etal
233
calculated by
The theoretical ex-rights fair value per share is
So
S
235
aa-
237
shares may test the dilutive effect. The result is P1.875, which is lower
than the basic earnings per share. After validating its dilutive effect,
proceed to compute the diluted earnings per share, as illustrated above.
P20,000,000 — (800,000 x 8)
2,000,000 © = P6.80
P20,000,000 P20,000,000 - ¥
2,000,000 + (800,000 x 2) 3,600,000 = P3556
238
for a particular
To illustrate, assume the following information
entity that issues only ordinary shares:
239
Profit P 10,000,000
Interest avoidable:
On assumed conversion
From January 1 to July 1
- 10M x5%x 6/12 x 75% 187,500
From July 1 to December 31
10M x 4x 5% x 6/12
x 75% Listy
JAC BTA.
Numerator P 10,234,375_
240
QA
Increase in
earnings Earnings
attributable to Increase in the per
Potential ordinary _ number of incremental
ordinary shares shareholders | ordinary shares share
Options Nil 100,000 (75-60) Nil
i 75
| = 20,000
(1) options
(2) convertible bonds
(3) convertible preference shares
When only the options are considered, the dilutive earnings per
share is computed as:
P10,000,000/2,020,000 = P4.95
The amount is lower than the basic earnings per share. Thus,
the options are dilutive.
242
P10,000,000 + P3,750,000
2,020,000 + 2,000,000 rae
The convertible bonds are also dilutive because their inclusion in
the denominator further decreases the earnings per share.
243
RETROSPECTIVE ADJUSTMENTS
Likewise, the basic and earnings per share shall be adjusted for
errors or adjustments resulting from changes in accounting policies
accounted for retrospectively.