13.

6 FR (Ind AS on Disclosure in the Financial Statements)

Unit - 2 Ind AS 33 : Earning Per Share

Q.1. (Study Material) An entity has following preference shares in issue at the end of 2014 :
 5% redeemable, non-cumulative preference shares : These shares are classified as liabilities. During the year,
a dividend was paid on the 5% preference shares - ` 100,000.
 Increasing-rate, cumulative, non-redeemable preference shares issued at a discount in 2010, with a cumu-
lative dividend rate from 2015 of 10%. The shares were issued at a discount to compensate the holders,
because dividend payments will not commerce until 2015. The accrual for the discount in the current year,
calculated using the effective interest method amounted to, say, ` 18,000. These shares are classified as equity
- ` 200,000.
 8% non-redeemable, non-cumulative preference shares : At the beginning of the year, the entity had ` 100,000
8% preference shares outstanding but, at 30 June 2014, it repurchased ` 50,000 of these at a discount of `
1,000 - ` 50,000.
 7% cumulative, convertible preference shares (converted in the year) : These shares were classified as eq-
uity, 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 con-
version, 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 ` 300 - Nil.
The Profit after tax for the year 2014 is ` 150,000.
Determine the adjustments for the purpose of calculating EPS.
Ans. :-
Statement of adjusted Profit for BEPS
Particulars `
Profit after tax 150,000
Amortisation of discount on issue of increasing-rate preference shares (18,000)
Discount on repurchase of 8% preference shares 1000
Profit attributable to ordinary equity holders for basic EPS 1,33,000

Explanation :
(i) The original discount on issue of the increasing-rate preference shares is treated as amortised to retained
earnings, and treated as preference dividends for EPS purposes and adjusted against profit attributable to the
ordinary equity holders. There is no adjutment in respect of dividend, because these do not commerce until
2015. Instead, the finance cost is represented by the amortisation of the discount in the dividend-free period.
In future years, the accrual for the dividend of ` 20,000 will be deducted from profits.
(ii) The discount on repurchase of the 8% preference shares has been credited to equity so should be added to
profit.
(iii) The dividend on the 5% preference shares has been charged to the income statement, because the prefer-
ence shares are treated as liabilities, so no adjustment is required for it from the profit.
(iv) No accural for the dividend on the 8% preference shares is required, because they are non-cumulative. If a
dividend had been declared for the year, it would have been deducted from profit for the purpose of calculat-
ing basic EPS, because the shares are treated as equity and the dividend would have been charged to eq-
uity in the financial statements.
(v) The 7% preference shares were converted at the beginning of the year, so there is no adjustment in respect
of the 7% preference shares, because no dividend accrued in respect of the year. The payment of the pre-
vious year’s cumulative dividend is ignored for EPS purposes, because it will have been adjusted for in the
prior year. Similarly, the excess of the fair value of additional ordinary shares issued on conversion of the
convertible preference shares over the fair value of the ordinary shares to which the shareholders would have
been entitled under the original conversion terms would already have been deducted from profit attributable
to the ordinary shareholders, and no further adjustment is required.

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 CA. Ranjay Mishra (FCA) 13.7

Q.2. (Study Material) ABC Ltd. issues 9% preference shares of fair value of ` 10 each on 1.4.2011. Total value of the
issue is ` 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 ` 11 each.
At the end of the year 3, i.e. on 31.3.2014, 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 the shares at ` 12 each instead of
original agreement of ` 11. Comment on the earnings for the year 2013 - 2014. Ignore the EIR impact in the solu-
tion and answer on the basis of Ind AS 33 only.
Ans. :-
 Under Ind AS 109, whenever preference shares are clarrified as liability and there is any discount on issue and
premium on redemption then entity should calculate EIR for recognition of expenses.
 Since, Question requires to ignore EIR impact, hence in the given situation, ` 1 per shre in the excess pay-
ment made by the company amounting to ` 1,00,000 in all. The amount of ` 1,00,000 will be deducted from
the earnings of the year 2013-2014 while calculating the basic EPS of year 2013-2014.

Q.3. (Study Material) Following is the data for company XYZ in respect of number of equity shares during the financial
year 2011-2012. Find out the number of shares for the purpose of calcualtion of basic EPS as per Ind AS 33.
S. No. Date Particulars No. of Shares
1 1 April, 2011 Opening balance of outstanding equity shares 100,000
2 15 June 2011 Issue of equity shares 75,000
3 8 Nov 2011 Conversion of convertible preference shares in Equity 50,000
4 22 Feb 2012 Buy back of shares (20,000)
5 31 March 2012 Closing balance of outstanding equity shares 205,000
Ans. :-
Statement of WANES (in days)
Date Working No.
1.4.2011 1,00,000 x 365/365 1,00,000
15.6.2011 75,000 x 290 /365 59,589
8.11.2011 50,000 x 144 / 365 19,726
22.8.2011 20,000 x 38 / 365 (2,082)
1,77,233
Note : Alternatively, calculation can be made in months.

Q.4. (Study Material) On 31 March, 2012, the issued share capital of a company consisted of ` 100,000,000 in ordinary
shares of ` 25 each and ` 500,000 in 10% cumulative preference shares of Re 1 each. On 1 Octobr, 2012, the
company issued 1,000,000 ordinary shares fully paid by way of capitalization of reserve in the proportion 1:4 fo the
year ended 31 March, 2013.
Profit for 2011-2012 and 2012-2013 is ` 450,000 and ` 550,000 respectively.
Calculate the basic EPS for 2011-2012 and 2012-2013.
Ans. :-
(i) Statement of BEPS
2012-2013 2011-2012
Basic EPS 500 / 5000 400 / 4000 + 1000
=.10 =.08 adjusted

(ii) Calculation of earnings for equity

2012-2013 2011-12
Profit 450 550
Pref. Dividend (500 x 10%) (50) (50)
400 500

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 13.8 FR (Ind AS on Disclosure in the Financial Statements)
Q.5. (Study Material) Following information is provided by X Ltd.
1 January 1,000,000 shares in issue
28 February Issued 200,000 shares at fair value
31 August Bonus issue 1 share for 3 shares held
30 November Issued 250,000 shares at fair value
Calculate the number of shares which would be used in the basic EPS calculation. Consider reporting date as
December end.
Ans. :-
Statement of WANES
Date Working No.
1-1 10,00,000 x 12/12 10,00,000
28 - 2 2,00,000 x 10/12 1,66,667
31 - 8 Note 1 4,00,000
30 - 11 2,50,000 x 1/12 20,833
17,75,000

Note 1 : Bonus shares on 31.8 = 12,00,000 x 1 /3 = 4,00,000 shares and not requires time proportion.
Note 2 : In ICAI SM time factor has been wrongly considered in bonus shares.

Q.6. (Study Material) At 31 December, 2011, the issued share capital of a company consisted of 1.8 million ordinary
shares of ` 10 each, fully paid. The profits for the year ended 31 December 2011 and 2012 amounted to ` 630,000
and ` 875,000 respectively. On 31 March 2012, the company made a rights issue on a 1 for 4 basis at ` 30. The
market price of the shares immediately before the rights issue was ` 60.
Calculate EPS.
Ans. :-
(i) Ex-right Price = 1.8 x 60 + .45 x 30 / 1.8 + .45
= 108 + 13.5 / 2.25
= 121.25 / 2.25 = 54 (approx)
(ii) Paid part = .45 x 30 / 59 = .25 x 9/12 = .1875 million or 1,87,500
Bonus = .45 - .25 = .2 million or 2,00,000.
(iii) Statement of EPS
Particulars 2012 2013
Earning 8,75,000 6,30,000
No. of Shares 21,87,500 20,00,000
EPS 40 31.5 (adj.)

Q.7. (Study Material)

ABC Ltd. 1 January 2011 Shares in issue 1,000,000
31 March 2011 (a) Rights issue 1 for 5 at 90 paise
(b) Fair value of shares Re 1 (cum-rights price)
Calculate the number of shares for use in the EPS calculation for the calendar year.
Ans. :- Weighted no. of shares 11,54,246.

Q.8. (Study Material) An entity issues 100,000 ordinary shares of Re 1 each for a consideration of ` 2.50 per share.
Cash of ` 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.
Ans. :- 70,000 shares.

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 CA. Ranjay Mishra (FCA) 13.9

Q.9. (Study Material) Calculate EPS, when

2010 2011 2012
Profit attributable to ordinary equity holders of the parent entity ` 1,100 ` 1,500 ` 1,800

Shares outstanding before rights issue 500 shares

Rights Issue One new share for each five outstanding shares
Exercise price ` 5.00
Date of rights issue 1 January 2011
Last date to exercise rights 1 March 2011
Market price of one ordinary share immediately
before exercise on 1 March 2011 : ` 11.00
Reporting date 31 December
Ans. :- Basic EPS 2.2, 2.54.

Q.10. (Study Material) 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 2019. The entity’s management receives a bonus based
on 1% of profit before tax.
Entity A’s results for 2012 showed a profit before tax of ` 80,000 and a profit after tax of ` 64,000 (for simplicity, a
tax rate of 20% is assumed in this example).
Calculate Earnings for the purpose of diluted EPS.
Ans. :-
Profit after tax 64,000
Add : Reduction in interest cost (25,000 x 4%) 1,000
Less : Tax expense (1,000 x 20%) (200)
Less : Increase in management bonus (1,000 x 1%) (10)
Add : Tax benefit (10 x 20%) 2
Earnings for the purpose of diluted EPS 64,792
Note : For simplicity, this question does not classify the components of the convertible debenture as liabilities and
equity, as required by Ind AS 32.

Q.11. (Study Material) ABC Ltd. has 1,000,000 ` 1 ordinary shares and 1,000 ` 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 re-
porting period.
ABC Ltd.’s share price is ` 4.50 per share and earnings for the period are ` 500,000. The tax rate applicable to the
entity is 21%.
Calculate earnings per incremental share for the convertible bonds.
Ans. :-
 Basic EPS is ` 0.50 per share (i.e. 500,000 / 1,000,000)
 The earnings per incremental share for the convertible bonds is calculated as follows :
Earnings effect = No. of bonds x nominal value x interest cost - tax deduction @21% = 1,000 x 100 x 10% x
(1-0.21) = ` 7,900.
 Incremental shares calculation
Assume all bonds are converted to shares, even though this converts ` 100 worth of bonds into 20 shares worth
only ` 90 and is therefore not economically rational. This gives 1000 x 20 = 20,000 additional shares.
Earnings per incremental share = ` 7,900 / 20,000 = ` 0.395
Diluted EPS = ` (500,000 + 7,900) / (1,000,000 + 20,000) = ` 0.498 per share.

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13.10 FR (Ind AS on Disclosure in the Financial Statements)
Q.12. (Study Material) At 30 June 2011, the issued share capital of an entity consisted of 1,500,000 ordinary shares of
` 1 each. On 1 October, 2011, the entity issued ` 1,250,000 of 8% convertible loan stock for cash at par. Each `
100 nominal of the loan stock may be converted, at any time during the years ended 2016 to 2019, into the num-
ber of ordinary shares set out below :
30 June 2016 : 135 ordinary shares,
30 June 2017 : 130 ordinary shares,
30 June 2018 : 125 ordinary shares, and
30 June 2019 : 120 ordinary shares
If the loan stocks are not converted by 2019, they would be redeemed at par. There are two different ways of as-
sessing 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 shars 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 2012 and 2013 amounted to losses
of ` 2,500 and ` 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, 2012 and 2013 amounted
to ` 825,000 and ` 895,000 respectively and relate wholly to continuing operations. The rate of tax for both periods
is 33%.
Calculate Basic and Diluted EPS.

Q.13. (Study Material) At 31 December 2017 and 2018, the issued share capital of an entity consisted of 4,000,000
ordinary shares of ` 25 each. The entity has granted options that give holders the right to subscribe for ordinary
shares between 2016 and 2019 at ` 70 per share. Options outstanding at 31 December 2017 and 2018 were
630,000. There were no grants, exercises or lapse of options during the year. The profit after tax, attributable to
ordinary equity holders for the years ended 31 December 2017 and 2018, amounted to ` 500,000 and ` 600,000
respectively (wholly relating to continuing operations).
Average market price of share :
Year ended 31 December 2017 - ` 120
Year ended 31 December 2018 - ` 160
Calculate basic and diluted EPS.

Q.14. (Study Material)

Profit attributable to ordinary equity holders of the parent entity for year 2011 ` 1,200,000
Weighted average number of ordinary shares outstanding during year 2011 500,000 shares
Average market price of one ordinary share during year 2011 ` 20.00
Weighted average number of shares under option during year 2011 100,000 shares
Exercise price for shares under option during year 2011 ` 15.00
Calculate basic and diluted EPS.

Q.15. (Study Material)

Ordinary shares outstanding during 2011 1,000,000 (there were no option, warrants or convertible instruments
outstanding during the period)
An agreement related to a recent business combinations 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 2011.
1,000 additional ordinary shares for each ` 1,000 of consolidated profit
in excess of ` 2,000,000 for the year ended 31 December 2011.
Retail sites opened during the year One on 1 May 2011
One on 1 September 2011

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 CA. Ranjay Mishra (FCA) 13.11

Consolidated year-to-date profit

attributable to ordinary equity holdes of
the parent entity :
Rs, 2,300,000 as of 30 June, 2011.
` 1,900,000 as of 30 September 2011 (including a ` 450,000 loss
from a discontinued operation)
` 2,900,000 as of 31 December 2011
Calculate basic and diluted EPS.

Q.16. (Study Material) 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 ` 1,000 per bond, giving total proceeds of ` 2,000,000. Interest is
payable annually in arrears at a nominal annual interest rate of 6%. 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%.
At the issue date, the market price of one ordinary share is ` 3. Income tax is ignored.
Calculate basic and diluted EPS when
Profit attributable to ordinary equity holders of the parent entity Year 1 ` 1,000,000
Ordinary shares outstanding 1,200,000
Convertible bonds outstanding 2,000

Q.17. (Study Material) An entity has two classes of shares in issue :

 5,000 non-convertible preference shares
 10,000 ordianry shares
The preference shares are entitled to a fixed dividend of ` 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 participants in any additional ordinary dividend above ` 2 at a rate of 50% of any additional dividend payable
on an ordinary share.
The entity’s profit for the year is ` 100,000, and dividends of ` 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.

Q.18. (Study Material)

1 January Shares in issue 1,000,000
5% Convertible bonds `100,000
(terms of conversion 120 ordinary shares for ` 100)
31 March Holders of ` 25,000 bonds converted to ordinary shares.
Profit for the year ended 31 December ` 200,000
Tax rate 30%.
Calculate basic and diluted EPS. Ignore the need to split the convertible bonds into liability and equity
elements.

Q.19. (Study Material)

1 January Shares in issue 1,000,000
Profit for the year ended 31 December ` 100,000
Average fair value during period `8
The company has in issue 200,000 options to purchase equal ordinary shares
Exercise Price `6
Calculate the diluted EPS for the period.

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13.12 FR (Ind AS on Disclosure in the Financial Statements)
Q.20. (Study Material) Calculate Subsidiary’s and Group’s Basic EPS and Diluted EPS, when
Parent :
Profit attributable to ordinary equity holders of the ` 12,000 (excluding any earnings of, or dividends
parent entity paid by, the subsidiary)
Ordinary shares outstanding 10,000
Instruments of subsidiary owned by the parent 800 ordinary shares
30 warrants exercisable to purchase ordinary
shares of subsidiary
300 convertible preference shares

Subsidiary :
Profit ` 5,400
Ordinary shares outstanding 1,000
Warrants 150, exercisable to purchase ordinary shares of the
subsidiary
Exercise price ` 10
Average market price of one ordinary share ` 20
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.

Q.21. (Study Material) IAS 33 sets out requirements for the calculation and presentation of earnings per share in financial
statements of listed entities. The requirements include the disclosure of basic earnings per share and, where
an entity has potential ordinary shares in issue, the additional disclosure of diluted earnings per share in certain
circumstances.
Kappa is a listed entity with a number of subsidiaries. Extracts from the consolidated statement of profit or loss
and other comprehensive income of Kappa for the year ended 30 September 2018 appear below :
Attributable Non-controlling Total
to Kappa interest
Profit for the year 39,000 3,000 42,000
Other comprehensive income 5,000 Nil 5,000
Total comprehensive income 44,000 3,000 47,000
The long-term finance of Kappa comprises :
(i) 200 million ordinary shares in issue at the start of the year. On 1 January 2018, Kappa issued 50 million new
ordinary shares at full market value.
(ii) 80 million irredeemable preference shares. These shares were in issue for the whole of the year ended 30
September 2018. The dividend on these preference shares is discretionary.
(iii) $180 million 6% convertible loan stock issued on 1 October 2016 and repayable on 30 September 2021 at
par. Interest is payable annually in arrears. As an alternative to repayment at par, the lenders on maturity can
elect to exchange their loan stock for 100 million ordinary shares in Kappa. On 1 October 2016, the prevailing
market interest rate for five-year loan stock which had no right of conversion was 8%. Using an annual
discount rate of 8%, the present value of $1 payable in five years is $0·68 and the cumulative present value
of $1 payable at the end of years one to five is $3·99.
In the year ended 30 September 2018, Kappa declared an ordinary dividend of 10 cents per share and a dividend
of 5 cents per share on the irredeemable preference shares.
The annual rate of income tax applicable to Kappa and its subsidiaries is 20%.
All transactions have been correctly accounted for in the financial statements of Kappa for the year ended 30
September 2018.

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 CA. Ranjay Mishra (FCA) 13.13

Required :
(a) Explain the meaning of the term ‘potential ordinary shares’ and provide TWO examples of potential
ordinary shares OTHER THAN convertible loans.
(b) Explain how the diluted earnings per share is calculated and when it needs to be disclosed.
(c) Compute the finance cost of the convertible loan stock which will be shown in the consolidated statement of
profit or loss of Kappa for the year ended 30 September 2018 and the related loan liability which will be
shown in the consolidated statement of financial position of Kappa at 30 September 2018.
(d) Compute the basic and diluted earnings per share amounts for Kappa for the year ended 30 September
2018 which will be presented in its consolidated financial statements for that year.
(Dip. IFR Dec. 2018 - 20 marks)

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