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ind as 33 : earnings per share(eps)

An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.
An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same
rights to receive dividend.

When an entity presents both consolidated financial statements and separate financial statements prepared in
accordance with Ind AS 110, CFS, and Ind AS 27, SFS, respectively,
the disclosures required by this Standard shall be presented both in the CFS and SFS.
In CFS such disclosures shall be based on consolidated information and
in SFS such disclosures shall be based on information given in separate financial statements.

Sr.No. Type of Financial EPS EPS computation should be based on

statements disclosure required
1 Consolidated Yes Information given in consolidated financial statements only
2 Separate Yes Information given in separate financial statements only

Basic earnings per share = Profit/Loss attributable to Equity share holders

Weighted average number of Equity shares outstanding during the period

IMPORTANT NOTE
1. Profit or loss shall be adjusted for the after-tax amounts of preference dividend, differences arising on the
settlement of preference shares, and other similar effects of preference shares classified as equity.

2. An entity that has preference shares in issue, will classify those shares as financial liabilities or equity.

3. preference dividends that are non-cumulative should be deducted ONLY if such dividends are declared.
preference dividends that are cumulative should be deducted whether are not such dividends are declared.
Arrears of cumulative preference dividends paid should not be deducted.

4. Increasing rate preference shares

Preference shares that provide for a low initial or an above-market dividend in later periods to
dividend to compensate an entity for selling the compensate investors for purchasing preference
preference shares at a discount, shares at a premium,
They are sometimes referred to as increasing rate preference shares.
Any original issue discount or premium on increasing rate preference shares is amortised to retained
earnings using the effective interest method and treated as a preference dividend for the purposes of
calculating earnings per share
(irrespective of whether such discount or premium is debited or credited to securities premium account in view of
requirements of any law).

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5. Redemption/Repurchase of preference shares at premium

Preference shares may be repurchased under an entity s tender offer to the holder.

The excess of the fair value of the consideration paid to the preference This amount is deducted in
shareholders over the carrying amount of the preference shares represents calculating profit or loss
a return to the holders of the preference shares and a charge to retained attributable to ordinary equity
earnings for the entity. holders of the parent entity.

Example- ABC L d. had i ed p efe ence ha e a 100 each 10 ea ago. No ABC L d. b back he
ha e fo 120 each. 20 p emi m fo each ha e i cha ged o e ained ea ning . No amo n i eco ded
in the statement of profit and loss for this transaction. However, for EPS purposes, 20 fo each ha e i
charged to the statement of profit or loss for the period of the transaction.

Early conversion of Preference shares at premium

Early conversion of convertible preference shares may be induced by an entity through favourable changes
to the original conversion terms or the payment of additional consideration.

The excess of the fair value of the ordinary shares or other consideration paid over the fair value of the
ordinary shares issuable under the original conversion terms is a return to the preference shareholders,
and is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.

Any excess of the carrying amount of preference shares over the fair value of the consideration paid to settle
them is added in calculating profit or loss attributable to ordinary equity holders of the parent entity.

Weighted Average Number of Shares

For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted
average number of ordinary shares outstanding during the period.
The weighted average number of ordinary shares outstanding during the period
Ordinary shares outstanding at the beginning xxxx
Less: Ordinary shares bought back (multiplied by a time-weighting factor.) xxxx
Add: Ordinary shares issued (multiplied by a time-weighting factor.) xxxx
Ordinary shares outstanding during the period xxxx

The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total
number of days in the period.

Deciding the date for issue of shares

Shares are usually included in the weighted average number of shares from the date consideration is
receivable (which is generally the date of their issue),
for example:
Situations Deciding the date
ordinary shares issued in exchange for cash date when cash is receivable
ordinary shares issued on the voluntary reinvestment of dividend
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ordinary shares issued in place of interest or principal on other date when interest ceases to accrue;
Ifinancial instruments
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ordinary shares issued in exchange for the settlement of a liability the settlement date
ordinary shares issued as consideration for the acquisition of an date on which the acquisition is
asset other than cash recognised;

I
ordinary shares issued for the rendering of services to the entity date on which services are rendered.
Ordinary shares issued as part of the consideration transferred in acquisition date of the business
a business combination.
*Contingently issuable shares Gunpoint Aio3
date when all necessary conditions

2
are satisfied

Entities often issue instruments that are convertible into ordinary shares that may be either mandatorily convertible
or

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or convertible at the option of the issuer or holder.
The issue of ordinary shares is solely dependent on the passage of time for a mandatorily convertible instrument.
Ordinary shares that are issuable on the conversion of a mandatorily convertible instrument should be
included in basic EPS from the date the contract is entered into. so

A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of
specified conditions.
[Example-ABC Ltd. has provided staff with share options. If they work for you for 3 years, they will be able to
buy shares at a discount. This is a contingent share agreement.]

Contingently issuable ordinary shares are ordinary shares issuable for little or no cash or other
consideration upon the satisfaction of specified conditions in a contingent share agreement.

[Example-ABC Ltd. buys a XYZ Ltd. s business in exchange for ABC Ltd. s shares. If the share price falls by
more than 25% in the first 6 months, ABC Ltd. will issue more shares (free) to the vendor, as compensation]

Contingently issuable shares are treated as outstanding and are included in the calculation of basic earnings per
share only from the date when all necessary conditions are satisfied (i.e. the events have occurred).
Shares that are issuable solely after the passage of time are not contingently issuable shares, because the
passage of time is a certainty.

T
Outstanding ordinary shares that are contingently returnable (ie subject to recall) are not treated as
outstanding and are excluded from the calculation of basic earnings per share until the date the shares
are no longer subject to recall.
Example ABC Ltd. buys a company for shares in 20X1. If the profits for calendar years 20X1 and 20X2 meet
budget, ABC Ltd. will issue more shares to the vendor in February 20X3. These additional shares will be included
in the weighted-average calculation from 1 January 20X3 (considering reporting date as December end), if the
targets are met.

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issue
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Change in the number of shares without change in value of capital
Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a
corresponding change in resources. Examples include: n
1. a capitalisation or bonus issue (Also referred as stock dividend); Issued to existing shareholders for no

2. a bonus element in any other issue; (E.g. Right issue ) additional consideration.
3. a share split; and Therefore Shares increased without
an increase in resources
4. a reverse share split (consolidation of shares).
where the number of shares change without the change in the resources, the date will be considered from
the beginning of the earliest period presented, irrespective of the fact of the date of actual capitalisation
of the reserves.
I Y 20018 7 Bones issue
Rights issues issue 1 1.4.2017
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Entities might raise additional capital by issuing shares to existing shareholders, on a pro rata basis to their
existing holdings, in the form of a rights issue. pyonuderrert
NoBefmement
The rights shares can either be offered at the current market price or at a price that is below the current
market price.
used
TimeWeittgador sheddwfoe
The bonus element should be factored into the calculation of the weighted average number of shares.

A rights issue is equivalent to a capitalisation issue of part of the shares for no consideration and an issue
of the remainder of the shares at full market price.
Eventsblared
BASILEps 7 Already
DILUTEDEps 1 EVENTS YE10 To
DILUTED EARNINGS PER SHARE
BE OCCURRED
For the purpose of calculating diluted earnings per share, an entity shall adjust
profit or loss attributable to ordinary equity holders of the parent entity, and
the weighted average number of shares outstanding,
for the effects of all dilutive potential ordinary shares.(Convertible Instruments, options,warrants etc.)

Convertible Debenture
Potential ordinary share is a financial instrument or other contractConvekhhh
pref
that may entitle its holder to ordinary
shares. Deb
convertible option
Examples of potential ordinary shares are:
Convertible
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a. financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares;
b. options and warrants.

Options, warrants and their equivalents are financial instruments that give the holder the right to purchase
ordinary shares.

Put options on ordinary shares are contracts that give the holder the right to sell ordinary shares at a specified
price for a given period.
CALL BUY UP
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Example- ABC & Co has issued preference shares with the option to convert these into an equal no of ordinary
shares in 2 years time. They represent potential ordinary shares, even though you do not know whether the
holders will convert them (it will depend on the prices of each class of share at the time). If the price of the
ordinary share is higher than that of the preferred share, the holders will convert, and will make a profit. If the
price is lower, they will not.

DILUTION AND ANTI-DILUTION

Dilution is a reduction in earnings per share or an Antidilution is an increase in earnings per share or a
increase in loss per share reduction in loss per share
resulting from the assumption that convertible resulting from the assumption that convertible
instruments are converted, that options or warrants instruments are converted, that options or warrants
are exercised, or that ordinary shares are issued upon are exercised, or that ordinary shares are issued upon
the satisfaction of specified conditions. the satisfaction of specified conditions.

Example of Antidilution- One may convert some low interest debt to ordinary shares. The interest saved (earnings)
decreases the earnings per share, as the additional shares in issue increase substantially.

IMPORTANT NOTE
Dilutive potential ordinary shares shall be determined independently for each period presented.
Only potential ordinary shares that are dilutive are considered in the calculation of diluted EPS.
Potential ordinary shares should be treated as dilutive only when their conversion to ordinary shares
would decrease profit per share or increase loss per share from continuing operations attributable to
ordinary equity holders.
The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.
An entity might have a number of different types of potential ordinary shares in issue. Each one would
need to be considered separately rather than in aggregate.

Options, warrants and their equivalents

Options and warrants are dilutive when they would result in the issue of ordinary shares for less than the
average market price of ordinary shares during the period.
.
Example-
ABC Ltd. has issued 20 lacs shares. It has also issued 1 lac warrants convertible into shares at 45 pe ha e.
The average market price of shares during he c en pe iod a 45. Such shares are assumed to be fairly
priced, and to be neither dilutive, nor anti-dilutive. They are ignored in the calculation of diluted earnings per
share.
Example
ABC Ltd. has issued 20 lacs shares. It has also issued 1 lac warrants convertible into shares at 30 pe ha e.
The a e age ma ke p ice of ha e d ing he c en pe iod a 37. 7 (i.e. 37 - 30) i he dil ion pe
share of the warrants.
Such shares generate no proceeds and have no effect on profit attributable to the ordinary shares
outstanding. They are dilutive, and are added to the no of shares outstanding in the calculation of diluted
earnings per share.
Example
In 20X1, ABC Ltd. issued some staff share options that can be exercised after 3 years e ice. The a e
treated as outstanding on the grant date in 20X1, for diluted earnings per share purposes.

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Employee Stock Options fetµfilled
Employee share options with fixed or determinable terms and non-vested ordinary shares are treated as options
in the calculation of diluted earnings per share, even though they may be contingent on vesting. They are treated
as outstanding on the grant date.
Performance-based employee share options are treated as contingently issuable shares because their issue is
contingent upon satisfying specified conditions in addition to the passage of time.
PEPI
Contingently issuable shares
1.For the purpose of calculation of basic earnings per share,Contingently issuable ordinary shares are treated
as outstanding and included in the calculation ofBasic earnings per share if the conditions are satisfied (i.e. the
events have occurred). Contingently issuable shares are included from the beginning of the period (or from the
date of the contingent share agreement, if later).
If the conditions are not satisfied, the number of contingently issuable shares included in the diluted
earnings per share calculation is based on the number of shares that would be issuable if the end of the
period were the end of the contingency period.
Restatement is not permitted if the conditions are not met when the contingency period expires.

2.If attainment or maintenance of a specified amount of earnings for a period is the condition for contingent
a and if that amount has been attained at the end of the reporting period but must be maintained beyond the
issue
end of the reporting period for an additional period, then the additional ordinary shares are treated as outstanding,
if the effect is dilutive, when calculating diluted earnings per share.
In that case, the calculation of diluted earnings per share is based on the number of ordinary shares that would
be issued if the amount of earnings at the end of the reporting period were the amount of earnings at the end of the
contingency period.
the calculation of basic earnings per share does not include such contingently issuable ordinary shares until
the end of the contingency period because not all necessary conditions have been satisfied.

3.The number of ordinary shares contingently issuable may depend on the future market price of the
ordinary shares.
the calculation of diluted earnings per share is based on the number of ordinary shares that would be issued
if the market price at the end of the reporting period were the market price at the end of the contingency period, if
the effect is dilutive.
If the condition is based on an average of market prices over a period of time that extends beyond the end
of the reporting period, the average for the period of time that has lapsed is used.
Because the market price may change in a future period, the calculation of basic earnings per share does not
include such contingently issuable ordinary shares until the end of the contingency period because not all
necessary conditions have been satisfied.

4.The number of ordinary shares contingently issuable may depend on future earnings and future prices
of the ordinary shares. In such cases, the number of ordinary shares included in the diluted earnings per
share calculation is based on both conditions (ie earnings to date and the current market price at the end of the
reporting period). Contingently issuable ordinary shares are not included in the diluted earnings per share
calculation unless both conditions are met.

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5.In other cases, the number of ordinary shares contingently issuable depends on a condition other than earnings
or market price (for example, the opening of a specific number of retail stores).
In such cases, assuming that the present status of the condition remains unchanged until the end of the
contingency period, the contingently issuable ordinary shares are included in the calculation of diluted
earnings per share according to the status at the end of the reporting period.

Shares of subsidiary, joint venture or associate

A subsidiary, joint venture or associate may issue to parties other than

the parent or investors with joint control of, or significant influence over, the investee

potential ordinary shares that are

convertible into either ordinary shares of the subsidiary, joint venture or associate,

or ordinary shares of the parent or investors with joint control of, or significant influence (the reporting entity)
over, the investee.
If these potential ordinary shares of the subsidiary, joint venture or associate have a dilutive effect on
the basic earnings per share of the reporting entity, they are included in the calculation of diluted
earnings per share.

Contracts that may be settled in ordinary shares or cash

When an entity has issued a contract that may be settled in ordinary shares or cash at the entity s option,
the entity shall presume that the contract will be settled in ordinary shares,
and the resulting potential ordinary shares shall be included in diluted earnings per share if the effect is
dilutive.

When an issued contract that may be settled in ordinary shares or cash at the entity s option may give rise
to an asset or a liability, or a hybrid instrument with both an equity and a liability component under Ind AS
32, the entity should adjust the numerator (profit or loss attributable to ordinary equity holders) for any changes
in the profit or loss that would have resulted during the period if the contract had been classified wholly as
an equity instrument.

For contracts that may be settled in ordinary shares or cash at the holder s option, the more dilutive of
cash settlement and share settlement shall be used in calculating diluted earnings per share.

Purchased options
Contracts such as purchased put options and purchased call options (options held by the entity on its own
ordinary shares)
are not included in the calculation of diluted earnings per share because including them would be
antidilutive. [The put option would be exercised only if the exercise price were higher than the market price
and the call option would be exercised only if the exercise price were lower than the market price].
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Written put options

Contracts that require the entity to repurchase its own shares, such as written put options and forward
purchase contracts, are reflected in the calculation of diluted earnings per share if the effect is dilutive. (ie the
exercise or settlement price is above the average market price for that period),
Example
Amount paid for own shares repurchased / buyback / settlement value = Rs. 50000
Average Market price per share during the period = Rs. 250 per share
No. of own shares repurchased = 150 shares
Ans- No. of shares that would have been purchased at Rs. 50000 = 50000/250 = 200 shares
No. of Dilutive Shares = 200-150 = 50 shares

Partly paid shares

Where ordinary shares are issued but not fully paid, they are treated in the calculation of basic earnings per share
as a fraction of an ordinary share to the extent that they were entitled to participate in dividend during the period
relative to a fully paid ordinary share.
To the extent that partly paid shares are not entitled to participate in dividend during the period they are treated
as the equivalent of warrants or options in the calculation of diluted earnings per share.
The unpaid balance is assumed to represent proceeds used to purchase ordinary shares.
The number of shares included in diluted earnings per share is the difference between the number of shares
subscribed and the number of shares assumed to be purchased.

Participating equity instruments and two-class ordinary shares

For the purpose of calculating diluted earnings per share, conversion is assumed for those instruments that are
convertible into ordinary shares if the effect is dilutive.
For those instruments that are not convertible into a class of ordinary shares, profit or loss for the period is allocated
to the different classes of shares and participating equity instruments in accordance with their dividend rights or
other rights to participate in undistributed earnings.
To calculate basic and diluted earnings per share:
(a) profit or loss attributable to ordinary equity holders of the parent entity is adjusted (a profit reduced and a
loss increased) by the amount of dividend declared in the period for each class of shares and by the contractual
amount of dividend (or interest on participating bonds) that must be paid for the period (for example, unpaid
cumulative dividend).
(b) the remaining profit or loss is allocated to ordinary shares and participating equity instruments to the extent
that each instrument shares in earnings as if all of the profit or loss for the period had been distributed. The
total profit or loss allocated to each class of equity instrument is determined by adding together the amount
allocated for dividend and the amount allocated for a participation feature.
(c) the total amount of profit or loss allocated to each class of equity instrument is divided by the number of
outstanding instruments to which the earnings are allocated to determine the earnings per share for the
instrument.
For the calculation of diluted earnings per share, all potential ordinary shares assumed to have been issued are
included in outstanding ordinary shares.

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RETROSPECTIVE ADJUSTMENTS
Diluted EPS of any prior period presented should not be restated for changes in the assumptions used (such as
for contingently issuable shares) or for the conversion of potential ordinary shares (such as convertible debt)
outstanding at the end of the previous period. These factors are already taken into account in calculating the basic
and, where applicable, the diluted EPS for the current period. Prior period s EPS data should be restated for the
effects of errors and adjustments resulting from changes to accounting policies accounted for retrospectively.
Basic and diluted EPS figures for the current period and for prior periods should include bonus issues, share splits,
share consolidations and other similar events occurring during the period that change the number of shares in
issue without a corresponding change in the resources of the entity (that is, retrospective application).

PRESENTATION
An entity shall present in the statement of profit and loss basic and diluted earnings per share for profit or loss
from continuing operations.
An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the
discontinued operation either in the statement of profit and loss or in the notes.
An entity shall present basic and diluted earnings per share, even if the amounts are negative (ie a loss per
share).

DISCLOSURE
An entity shall disclose the following:
(a) The amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation.
(b) the weighted average number of ordinary shares used in calculating basic and diluted EPS, and a
reconciliation of these denominators to each other.
(c) Instruments (including contingently issuable shares) that could potentially dilute basic earnings per
share in the future, but were not included in the calculation of diluted earnings per share because they are
antidilutive for the period(s) presented.
(d) a description of ordinary share transactions or potential ordinary share transactions, that occur after
the reporting period and that would have changed significantly the number of ordinary shares or potential
ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the
reporting period.

Examples of transactions in this para include:

an issue of shares for cash; the conversion or exercise of potential ordinary shares
outstanding at the end of the reporting period into
ordinary shares;
an issue of shares when the proceeds are used to the achievement of conditions that would result in the
repay debt or preference shares outstanding at the end issue of contingently issuable shares. Earnings per
of the reporting period share amounts are not adjusted for such transactions
occurring after the reporting period because such
transactions do not affect the amount of capital used to
produce profit or loss for the period.; and

the redemption of ordinary shares outstanding; an issue of options, warrants, or convertible

instruments

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worming
Illustration 1
An entity has following preference shares in issue at the end of 20X4:
5% redeemable, non-cumulative preference shares: These shares are classified as liabilities.
During the year, a dividend was paid on the 5% preference shares – Rs. 100,000.
Increasing-rate, cumulative, non-redeemable preference shares issued at a I discount in
20X0, with a cumulative dividend rate from 20X5 of 10%: The shares were issued at a discount
to compensate the holders, because dividend payments will not commence until 20X5. The
accrual for the discount in the current year, calculated using the effective interest method
amounted to, say, Rs. 18,000. These shares are classified as equity – Rs. 200,000.
8% non-redeemable, non-cumulative preference shares: At the beginning of the year, the
entity had Rs. 100,000 8% preference shares outstanding but, at 30 June 20X4, it repurchased
Rs. 50,000 of these at a discount of Rs. 1,000 – Rs. 50,000.
7% cumulative, convertible preference shares (converted in the year): These shares were
classified as equity, until their conversion into ordinary shares at the beginning of the year. No
dividend was accrued in respect of the year, although the previous year’s dividend was paid
immediately prior to conversion. To induce conversion, the terms of conversion of the 7%
convertible preference shares were also amended, and the revised terms entitled the preference
shareholders to an additional 100 ordinary shares on conversion with a fair value of Rs. 300 –
Nil. Abestandard assumed that it is already adjusted
The profit after tax for the year 20X4 is Rs. 150,000. 1000
PAIN
Determine the adjustments for the purpose of calculating EPS.
yroow 180001

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profit 13300g
llustration 2
ABC Ltd. issues 9% preference shares of fair value of Rs. 10 each on 1.4.20X1. Total value of the
issue is Rs. 10,00,000. The shares are issued for a period of 5 years and would be redeemed at
the end of 5th year. The shares are to be redeemed at Rs. 11 each.
At the end of the year 3, i.e. on 31.3.20X4, company finds that it has earned good returns than
expected over last three years and can make the redemption of preference shares early. To
compensate the shareholders for two years of dividend which they need to forego, company
decided to redeem the shares at Rs. 12 each instead of original agreement of Rs. 11. Comment
on the earnings for the year 20X3-20X4. Ignore the EIR impact in the solution and answer on in
the basis of Ind AS 33 only. Actual 12 painted

Illustration 3 2 I eytrapwpref.shhe.nu frpA

I Total loss soooo x I Elwaff
Following is the data for company XYZ in respect of number of equity shares during the
financial year 20X1-20X2. Find out the number of shares for the purpose of calculation of basic
EPS as per Ind AS 33. WAN ofe caf no days Alsoincludedall
f
S. Date Particulars No of shares
No. offnansactionlevent

1 1-Apr-20X1 Opening balance of outstanding equity shares 100,000

2 15-Jun-20X1 Issue of equity shares 75,000
3 8-Nov-20X1 Conversion of convertible preference shares in Equity 50,000
4 22-Feb-20X2 Buy back of shares (20,000)
5 31-Mar-20X2 Closing balance of outstanding equity shares 205,000
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Illustration 4 176945 wahoos fun EM purpose prelim
On 31 March, 20X2, the issued share capital of a company consisted of Rs. 100,000,000 in
ordinary shares of Rs. 25 each and Rs. 500,000 in 10% cumulative preference shares of Re 1
each. On 1 October, 20X2, the company issued 1,000,000 ordinary shares fully paid by way of
capitalization of reserves in the proportion 1:4 for the year ended 31 March, 20X3.
Profit for 20X1-20X2 and 20X2-20X3 is Rs. 450,000 and Rs. 550,000 respectively.
Calculate the basic EPS for 20X1-20X2 and 20X2-20X3.

Illustration 5
Ordinary Sh two yoworo
Nos

X Ltd.
WANUS
1 January 1,000,000 shares in issue
10 wow Sh
28 February Issued 200,000 shares at fair value
31 August Bonus issue 1 share for 3 shares held
166667M 2ww
30 November Issued 250,000 shares at fair value 333333Sh
H 55555Sh
Calculate the number of shares which would be used in the basic EPS calculation.
Consider reporting date as December end. 208331h
22
Illustration 6 1576388Sh

Dee
At 31 December 20X1, the issued share capital of a company consisted of 1.8 million ordinary
shares of Rs. 10 each, fully paid. The profits for the year ended 31 December 20X1 and 20X2
amounted to Rs. 630,000 and Rs. 875,000 respectively. On 31 March 20X2, the company made a
rights issue on a 1 for 4 basis at Rs. 30. The market price of the shares immediately before the
rights issue was Rs. 60.
F Ordinary th Ms if wow I
Calculate EPS.
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Illustration 7 price
p fboy
Entity A has in issue 25,000 4% debentures with a nominal value of Re 1. The debentures are
convertible to ordinary shares at a rate of 1:1 at any time until 20X9. The entity’s management
receives a bonus based on 1% of profit before tax.
V on PB1 1t.MPA
fs.me qmploylls
Entity A’s results for 20X2 showed a profit before tax of Rs. 80,000 and a profit after tax of Rs.
64,000 (for simplicity, a tax rate of 20% is assumed in this example).
Calculate Earnings for the purpose of diluted EPS.

Illustration 8
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Reprized 6336
ABC Ltd. has 1,000,000 Rs. 1 ordinary shares and 1,000 Rs. 100 10% convertible bonds (issued at
par), each convertible into 20 ordinary shares on demand, all of which have been in issue for the
whole of the reporting period.

rate applicable to the entity is 21%. O

ABC Ltd.’s share price is Rs. 4.50 per share and earnings for the period are Rs. 500,000. The tax

Anchemafaf 8h 20000
Calculate earnings per incremental share for the convertible bonds.
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incremented
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Illustration 9
At 30 June 20X1, the issued share capital of an entity consisted of 1,500,000 ordinary shares of Rs.
1 each. On 1 October 20X1, the entity issued Rs. 1,250,000 of 8% convertible loan stock for cash
at par. Each Rs. 100 nominal of the loan stock may be converted, at any time during the years
ended 20X6 to 20X9, into the number of ordinary shares set out below:
30 June 20X6: 135 ordinary shares;
30 June 20X7: 130 ordinary shares;
30 June 20X8: 125 ordinary shares; and 30 June 20X9: 120 ordinary shares.
If the loan stocks are not converted by 20X9, they would be redeemed at par. There are two
different ways of assessing these instruments under Ind AS 32: the conversion option, to
convert to a number of shares which varies only with time, could be viewed as either an option
to convert to a variable or a fixed number of shares and recognised as either a liability or
equity respectively.
This illustration assumes that the written equity conversion option is accounted for as a
derivative liability and marked to market through profit or loss. The change in the options’ fair
value reported in 20X2 and 20X3 amounted to losses of Rs. 2,500 and Rs. 2,650 respectively. It
is assumed that there are no tax consequences arising from these losses.
The profit before interest, fair value movements and taxation for the year ended 30 June 20X2
and 20X3 amounted to Rs. 825,000 and Rs. 895,000 respectively and relate wholly to continuing
operations. The rate of tax for both periods is 33%.
Calculate Basic and Diluted EPS.

Illustration 10
At 31 December 20X7 and 20X8, the issued share capital of an entity consisted of 4,000,000
ordinary shares of Rs. 25 each. The entity has granted options that give holders the right to
subscribe for ordinary shares between 20Y6 and 20Y9 at Rs. 70 per share. Options outstanding
at 31 December 20X7 and 20X8 were 630,000. There were no grants, exercises or lapses of
options during the year. The profit after tax, attributable to ordinary equity holders for the
years ended 31 December 20X7 and 20X8, amounted to Rs. 500,000 and Rs. 600,000 respectively
(wholly relating to continuing operations).
Average market price of share:
Year ended 31 December 20X7 = Rs. 120 Year ended 31 December 20X8 = Rs. 160
Calculate basic and diluted EPS.

Illustration 11- Effects of share options on diluted earnings per share

Profit attributable to ordinary equity holders of the parent entity for Rs. 1,200,000
year 20X1
Weighted average number of ordinary shares outstanding during 500,000 shares
year 20X1
Average market price of one ordinary share during year 20X1 Rs. 20.00
Weighted average number of shares under option during year 20X1 100,000 shares
Exercise price for shares under option during year 20X1 Rs. 15.00
Calculate basic and diluted EPS.

by ca pratik jagati
FINAL KICK

Illustration 12- Contingently issuable shares

Ordinary shares outstanding during 20X1 1,000,000 (there were no options, warrants or
convertible instruments outstanding during the period)
An agreement related to a recent business combination provides for the issue of additional
ordinary shares based on the following conditions:
5,000 additional ordinary shares for each new retail site opened during 20X1
1,000 additional ordinary shares for each Rs. 1,000 of
consolidated profit in excess of Rs. 2,000,000 for the year ended 31 December 20X1

Retail sites opened during the year.: one on 1 May 20X1

one on 1 September 20X1
Consolidated year-to-date profit attributable to ordinary equity holders of the parent entity:
Rs. 1,100,000 as of 31 March 20X1
Rs. 2,300,000 as of 30 June 20X1
Rs. 1,900,000 as of 30 September 20X1 (including a Rs. 450,000 loss from a discontinued operation)
Rs. 2,900,000 as of 31 December 20X1
Calculate basic and diluted EPS

Illustration 13
An entity issues 2,000 convertible bonds at the beginning of Year 1. The bonds have a three-year
term, and are issued at par with a face value of Rs. 1,000 per bond, giving total proceeds of
Rs. 2,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 6 per cent.
Each bond is convertible at any time up to maturity into 250 ordinary shares. The entity has an
option to settle the principal amount of the convertible bonds in ordinary shares or in cash.
When the bonds are issued, the prevailing market interest rate for similar debt without a
conversion option is 9 per cent. At the issue date, the market price of one ordinary share is Rs.
3. Income tax is ignored.
Calculate basic and diluted EPS when
Profit attributable to ordinary equity holders of the parent entity Rs. 1,000,000
Year 1
Ordinary shares outstanding 1,200,000
Convertible bonds outstanding 2,000

Illustration 14
An entity has two classes of shares in issue:
5,000 non-convertible preference shares
10,000 ordinary shares
The preference shares are entitled to a fixed dividend of Rs. 5 per share before any dividends
are paid on the ordinary shares. Ordinary dividends are then paid in which the preference
shareholders do not participate. Each preference share then participates in any additional
ordinary dividend above Rs. 2 at a rate of 50% of any additional dividend payable on an
by ca pratik jagati
FINAL KICK

ordinary share.
The entity’s profit for the year is Rs. 100,000, and dividends of Rs. 2 per share are declared on the
ordinary shares.
Compute the allocation of earnings for the purpose of calculation of Basic EPS when an entity has
ordinary shares & participating equity instruments that are not convertible into ordinary shares.

Illustration 15
Profit attributable to equity holders of the parent entity Rs. 100,000
Ordinary shares outstanding 10,000
Non-convertible preference shares 6,000
Non-cumulative annual dividend on preference shares (before Rs. 5.50 per share
any dividend is paid on ordinary shares)
After ordinary shares have been paid a dividend of Rs. 2.10 per share, the preference shares
participate in any additional dividends on a 20:80 ratio with ordinary shares.
Compute the allocation of earnings for the purpose of calculation of Basic EPS when an entity has
ordinary shares & participating equity instruments that are not convertible into ordinary shares.

Illustration 16
An entity issues 100,000 ordinary shares of Re 1 each for a consideration of Rs. 2.50 per share.
Cash of Rs. 1.75 per share was received by the balance sheet date. The partly paid shares
are entitled to participate in dividends for the period in proportion to the amount paid.
Calculate number of shares for calculation of Basic EPS.

Exercise Question

Question 1

ABC Ltd 1 January 20X1 Shares in issue 1,000,000 aims'm

31 March 20X1 (a) Rights issue 1 for 5 at 90 paise
(b) Fair value of shares Re1 (cum-rights price)

Calculate the number of shares for use in the EPS calculation for the calendar year.

Question 2
1 January Shares in issue 1,000,000

5% Convertible bonds Rs. 100,000

(terms of conversion 120 ordinary shares for Rs. 100)

31 March Holders of Rs. 25,000 bonds converted to ordinary shares.

Profit for the year ended 31 December Rs. 200,000

Tax rate 30%.

Calculate basic and diluted EPS. Ignore the need to split the convertible bonds into liability and
equity elements.
by ca pratik jagati
FINAL KICK

Question 3

1 January Shares in issue 1,000,000

Profit for the year ended 31Rs. 100,000
December
Average fair value during period Rs. 8
The company has in issue 200,000 options to purchase equal ordinary shares

Exercise price Rs. 6

Calculate the diluted EPS for the period.

EH
Question 4
Calculate EPS, when

20X0 20X1 20X2

Profit attributable to ordinary equity holders of the Rs. 1,100 Rs. 1,500 Rs. 1,800
parent entity w

Shares outstanding before rights issue 500 shares w

Rights issue One new share for each five outstanding shares
taint
f
Exercise price
Date of rights issue
bogged

Last date to exercise rights

L Rs. 5.00 To
1 January 20X1 a
1 March 20X1 ftp.umt
Market price of one ordinary share Rs. 11.00
immediately before exercise on 1 March
we have to determine Arg
20X1:
Reporting date 31st december
Price

by ca pratik jagati
FINAL KICK

Question 5
Toughest
Calculate Subsidiary’s and Group’s Basic EPS and Diluted EPS, when

Parent:

Is
Profit attributable to ordinary equity Rs. 12,000 (excluding any earnings of, or dividends
holders of the parent entity paid by, the subsidiary)
0
Ordinary shares outstanding 10,000
Instruments of subsidiary owned by the 800 ordinary shares
1
80 ownership
I
parent 30 warrants exercisable to purchase ordinary shares of

B
2
subsidiary
300 convertible preference shares
Subsidiary:
Profit Rs. 5,400 m
Ordinary shares outstanding 1,000 met
Warrants 150, exercisable to purchase ordinary shares of the
subsidiary
Exercise price Rs. 10
Average market price of one ordinary Rs. 20
share E zoofat
Convertible preference shares 400, each convertible into one ordinary share
Dividends on preference shares Re 1 per share
No inter-company eliminations or adjustments were necessary except for dividends.
Ignore income taxes. Also, ignore classification of the components of convertible financial
instruments as liabilities and equity or the classification of related interest and dividends as
expenses and equity as required by Ind AS 32.

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