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PAS 33 - Earnings Per Share Earnings Per Share PAS 33 Scope...

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Unformatted text preview: Earnings Per Share Earnings Per Share PAS 33 Scope Scope Entities with publicly traded (or potential) ordinary shares Entities in process of issuing publicly­ traded securities Only required on a consolidated basis If EPS disclosed, then must follow IAS 33 Presentation Presentation Income Statement – Basic EPS – Diluted EPS – Consolidated Income Statement Continuing Operations Profit or loss attributable to the parent entity Measurement – Basic EPS Measurement – Basic EPS Numerator: Net profit or loss attributable to ordinary shareholders after deducting preference share dividends and gains or losses on settlement of preference shares Denominator: Weighted average number of ordinary shares outstanding during the period Basic EPS ­ Numerator Basic EPS ­ Numerator Net income available to ordinary shareholders Deduct preference dividends: – After­tax amount on non­cumulative preference shares – After­tax amount of cumulative dividends even if not declared Increasing rate preference shares – amortise upfront discount or premium Any difference in carrying amount from fair value of consideration paid to settle preference shares is an adjustment to the numerator Basic EPS ­ Denominator Basic EPS ­ Denominator Include shares from date consideration is receivable Contingently issuable shares – include from date conditions satisfied Passage of time is not a “condition” Adjust retrospectively for events that have changed the number of ordinary shares without a change in resources (e.g. share dividend, share split) Diluted EPS ­ Numerator Diluted EPS ­ Numerator Numerator adjusted for effects of all dilutive potential ordinary shares Potential ordinary share: financial instrument or other contract that may entitle its holder to ordinary shares – E.g. warrants, options, convertible preference shares, convertible bonds Diluted EPS ­ Denominator Diluted EPS ­ Denominator Denominator as in basic EPS adjusted for effects of all dilutive potential ordinary shares: – On a weighted average basis – Assumption of conversion at beginning of period or, if later, at date of issue Dilutive only when conversion would decrease net profit from continuing operations per share Retrospective adjustments Retrospective adjustments as a result of capitalisation, bonus issue or share split After balance sheet date but before the authorization for issuance (with disclosure) For effects of errors and changes in accounting policies Diluted EPS for prior period not restated for changes in assumptions or fore the conversion of potential ordinary shares into ordinary shares Disclosures Disclosures Amounts used as numerators – Reconciliation of amounts used to profit or loss Weighted average number of shares used as denominator – Reconciliation of shares in used in calculating basic and diluted EPS Instruments that could potentially dilute basic EPS in the future that were antidilutive for the period/s presented Transactions after balance sheet date but accounted for prospectively Key points Key points Basic and diluted EPS Required only for publicly traded entities and for entities are in the process of issuing ordinary shares or potential ordinary shares in public markets Retrospective adjustment of EPS for capitalization, bonus issue or share split Illustration 1 Illustration 1 Veverly Corporation had 1,000 ordinary shares issued and outstanding at January 1. During the year, Veverly also had the ordinary share transactions listed below:April 1 Issued 300 previously unissued shares. May 1 Split the shares 2­for­1. June 30 Purchased 100 shares for the treasury. July 30 Distributed a 20 percent stock dividend. Dec. 31Split the shares 3­for­1. What is the weighted average number of shares that Veverly should use for earnings per share purposes? 1,000 x 12/12 x 2 x 120% x 3 = 7,200 300 x 9/12 x 2 x 120% x 3 = 1,620 (100) x 6/12 x 120% x 3 = ( 180) Weighted ave. number of shares 8,640 Multiple Potential Ordinary Shares Multiple Potential Ordinary Shares Each issue or series of potential ordinary shares is considered separately. To maximize dilution, each issue is considered in sequence from the most dilutive to the least dilutive. Illustration – Lilli Pharmaceuticals Illustration – Lilli Pharmaceuticals Test for Dilutive Effect Instrument ↑in Earnings ↑in # of shares Earnings/ ↑ share Options None 100,000 (20­15) Nil 20 Preference P1,250,000 x 8.5% 25,000 x 10 P0.425 = P106,250 = 250,000 7% bonds P5M x 7% x 65% 5,000 x 50 P0.91 = 227,500 = 250,000 The sequence to include in the computation is options, preference and bonds. Basic EPS = P1,500,000/ 1,000,000 = P1.50 Basic EPS = P1,500,000/ 1,000,000 = P1.50 When only the options are considered P1,500,000______ = P1.46 1,000,000+25,000 When convertible preference shares are considered: P1,500,000 + P106,250 = P1.26 1,025,000 + 250,0000 When convertible bonds are considered P1,606,250 + P227,500 = P1.20 1,275,000 + 250,000 Thus, all are dilutive securities, the diluted EPS is P1.20 KEY DISCLOSURES KEY DISCLOSURES • • • • • • • Basic and diluted EPS should be presented on the face of the income statement for each class of ordinary shares with equal prominence. If an entity reports a discontinued operation, both BEPS and DEPS should be reported for discontinued operation. An entity should report both BEPS and DEPS even if it is a loss per share. The amounts used as the numerator for BEPS and DEPS and reconciliation of these amounts with profit or loss for the period. The weighted average number of ordinary shares used as denominator and reconciliation of these denominators to each other. Potential ordinary shares that were not included in the computation of DEPS because they are anti dilutive. Description of ordinary share transactions and potential ordinary share transactions after the balance sheet date. ...
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