Ias 33 Eps F7

Financial Reporting (F7/FR)
Earning per share (IAS 33)

DEFINITIONS OF KEY TERMS
 Ordinary share.
An equity instrument that is subordinate to all other classes of equity instrument. Potential
ordinary share. A financial instrument or other contract that may entitle its holder to ordinary
shares. Examples are options, warrants, and financial liabilities, or equity instruments that are
convertible into ordinary shares.
 Basic earnings per share.
Calculated by dividing the profit or loss attributable to the ordinary shareholders by the
weighted-average number of ordinary shares outstanding during the accounting period.
 Dilution.
The reduction in earnings per share or increase in the loss per share resulting from the
assumption that potential ordinary shares will materialize.
 Antidilution.
An increase in earnings per share or a reduction in loss per share resulting from the assumption
that potential ordinary shares will materialize.
 Share options and warrants.
Options and warrants are financial instruments that give the holder the right (but not the
obligation) to purchase new ordinary shares at some time in the future, at a fixed price
ORDINARY SHARES
An “ordinary share” participates in profit for the period only after other types of shares, such as
preferred shares, have participated.
An entity may have more than one class of ordinary shares. For example, Entity A has two
classes of “common” shares, Class X and Class Y. If Class X is entitled to a fixed dividend of $10
per share plus a dividend of 5%, and Class Y is entitled to a dividend of 5% only, then Class X
Masters’ Academy of professional studies +923215040978 Page 1

shares are not ordinary shares, as the fixed dividend per share ($10) creates a preference over
Class Y shares, and hence Class Y shares are subordinate to Class X shares.
PRESENTATION OF EARNINGS PER SHARE

An entity should present on the face of the statement of comprehensive income both basic and
diluted earnings per share for profit or loss from continuing operations attributable to the
ordinary equity holders of the parent and for profit or loss attributable to the ordinary equity
holders of the parent for each class of ordinary shares with different rights.
Basic and diluted earnings per share must be presented with equal prominence for all periods
presented, even if the amounts are negative. If a discontinued operation is reported, then basic
and diluted amounts per share for the discontinued operation must be disclosed on the face of
the statement of comprehensive income or in the notes.
𝑇𝑜𝑡𝑎𝑙 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑓𝑡𝑒𝑟 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑

𝐸𝑟𝑎𝑛𝑖𝑛𝑔 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠
Total earnings are calculated as:
 the profit or loss from continuing operations

 after deducting tax and preference dividends (and in the case of consolidated financial
statements, after excluding the earnings attributable to non-controlling interests or
minority interests).
Total earnings include any income from associates (i.e. any share of profits or losses of
associates).
Where preference dividends are cumulative, they should be deducted from total earnings
whether the dividend has actually been paid or not.
When there is a net loss, total earnings and the EPS are negative.
Earnings from discontinued operations are dealt with separately. An EPS from any discontinued
operations must also be disclosed, but this does not have to be disclosed on the face of the
statement of profit or loss. Instead, it may be shown in a note to the financial statements.

Impact on earnings per share
New shares issued at market price

It is assumed that earnings will increase proportionately and current year earning per share will
remain comparable to previous year earning per share. However when shares are issued mid of
year, weighted average number of shares should be used to calculate earning per share
Example
Entity H has a financial year ending 31 December. On 1 January Year 1 there were 6,000,000
ordinary shares in issue. On 1 April, it issued 1,000,000 new shares at full market price. Total
earnings in Year 1 were $2,700,000.
Required
What was the EPS in Year 1?
Example
Entity J has a financial year ending 31 December. On 1 January Year 3, there were 9,000,000
ordinary shares in issue. On 1 May, Entity J issued 1,200,000 new shares at full market price. On
1 October, it issued a further 1,800,000 shares, also at full market price. Total earnings in Year 3
were $3,690,000.
Required
Calculate the EPS for the year to 31 December Year 3.

Bonus issue
Bonus shares are issued to existing shareholders free of cost. Number of shares increase but
there is no change in earning. To keep EPS comparable, previous year EPS has to be adjusted.
 Adjustments
1. Number of shares till bonus issue × Bonus factor × Time factor
2. Number of shares after bonus issue × Time factor
3. Previous year earning per share × reverse of bonus factor
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑓𝑡𝑒𝑟 𝑏𝑜𝑛𝑢𝑠 𝑖𝑠𝑠𝑢𝑒

Bonus factor =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑟𝑎𝑒𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑏𝑜𝑛𝑢𝑠 𝑖𝑠𝑠𝑢𝑒
Example
Entity J had 2,000,000 ordinary shares in issue on 1 January Year 2. On 1 April Year 2, it issued
500,000 ordinary shares, at full market price.
On 1 July Year 2, there was a 1 for 2 bonus issue (= one new bonus share for every two shares
held).
The financial year ends on 31 December. In Year 1, the EPS had been calculated as 0.25c. In Year
2, total earnings were $855,000.
Required
Calculate the EPS for the year to 31 December Year 2, and the comparative EPS figure for Year 1.

EPS in Year 2 = $855,000/3,562,500 = $0.24.
The Year 1 EPS is therefore re-stated as:
$0.25 × 2/3 = $0.1667.
Right issue
Right shares are also issued to existing shareholders at more than face value but less than
market value. There is a bonus factor in right issue. Again previous year EPS has to be adjusted.
 Adjustments
4. Number of shares till right issue × Right factor × Time factor
5. Number of shares after Right issue × Time factor
6. Previous year earning per share × reverse of Right factor
𝐴𝑐𝑡𝑢𝑎𝑙 𝑐𝑢𝑚 𝑟𝑖𝑔ℎ𝑡 𝑝𝑟𝑖𝑐𝑒

Right factor =
𝑇ℎ𝑒𝑜𝑟𝑎𝑡𝑖𝑐𝑎𝑙 𝑒𝑥 𝑟𝑖𝑔ℎ𝑡 𝑝𝑟𝑖𝑐𝑒
Theratical ex right price

𝑇𝑜𝑡𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑛𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑟𝑖𝑔ℎ𝑡 𝑠ℎ𝑎𝑟𝑒𝑠
=
𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑛𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑟𝑖𝑔ℎ𝑡 𝑠ℎ𝑎𝑟𝑒

Example
Entity L had 36,000,000 shares in issue on 1 January Year 2. It made a 1 for 4 rights issue on 1
June Year 2, at a price of $4 per share. The share price just before the rights issue was $5.
Total earnings in the financial year to 31 December Year 2 were $25,125,000. The reported EPS
in Year 1 was $0.64.
Required
Calculate the EPS for the year to 31 December Year 2, and the adjusted EPS for Year 1 for
comparative purposes
After the rights issue, there will be 1 new share for every 4 shares previously in issue
4 existing shares have a ‘cum rights’ value of (4 × $5) 20.00
1 new share is issued for 4.00
–––––
5 shares after the issue have a theoretical value of 24.00
–––––
Theoretical ex-rights price = $24.00/5 = $4.80.
EPS Year 2 = $25,125,000/41,875,000 = $0.60, or 60c
Comparative EPS in Year 1 = $0.64 × ($4.80/$5.00) = $0.6144 or 61.44c.

Example
Entity M had 3 million ordinary shares in issue on 1 January Year 7. On 1 April Year 7, it made a
1 for 2 rights issue of 1,500,000 ordinary shares at $2 per share. The market price of the shares
prior to the rights issue was $5.
An issue of 400,000 shares at full market price was then made on 1 August Year 7.
In the year to 31 December Year 7, total earnings were $1,746,875. In Year 6 EPS had been
reported as $0.35.
Required
Calculate the EPS for the year to 31 December Year 7, and the adjusted EPS for Year 6 for
comparative purposes.
Answer
After the rights issue, there will be 1 new share for every 2 shares previously in issue
2 existing shares have a ‘cum rights’ value of (2 × $5) 10.00
1 new share is issued for 2.00
–––––
3 shares after the issue have a theoretical value of 12.00
–––––
Theoretical ex-rights price = $12/3 = $4.

EPS Year 7 = $1,746,875/4,479,167 = $0.39, or 39c
EPS Year 6 = $0.35 × 4.00/5.00 = $0.28 or 28c.
IAS 33 and diluted EPS

IAS 33 requires publicly-traded companies to calculate a diluted EPS in addition to their basic
EPS for the current year (with a comparative diluted EPS for the previous year), allowing for the
effects of all dilutive potential ordinary shares.
Note: potential ordinary shares are ‘dilutive’ when there might have been a reduction or
‘dilution’ in EPS if they had been actual ordinary shares during the financial period.
Potential ordinary shares might not dilute the EPS. The diluted EPS should allow only for
potential ordinary shares that would be dilutive.
Diluted EPS: convertible preference shares and convertible bonds

When there are convertible bonds or convertible preference shares, diluted EPS is calculated as
follows, by making adjustments to total earnings and the number of shares in issue.
Total earnings
Total earnings must be adjusted. This is because the entity would not have to pay the dividend
or interest on the convertible securities.

 For convertible preference shares, add back the preference dividend paid in the year. If
the preference shares are converted, this dividend will no longer be paid. Total earnings
will be increased by the preference dividend saved.
Adjusted total earnings = Actual total earnings + Convertible preference dividend
 For convertible bonds, add back the interest charge on the bonds in the year minus the
tax relief relating to that interest. If the bonds are converted, this interest will no longer
be paid. Total profits will increase by the interest saved, but total earnings will increase
only by the interest saved less tax.
Adjusted total earnings = Actual total earnings + (Convertible bond interest – Tax on the
interest).
Number of shares
The weighted average number of shares should be increased, by adding the maximum number
of new shares that would be created if all the potential ordinary shares were converted into
actual ordinary shares. The additional number of shares should normally be calculated on the
assumption that they were in issue at the beginning of the year.
Example
A company has 12,000,000 ordinary shares in issue and $4 million of 5% convertible bonds. As
at 31 December Year 2, there have been no new issues of shares or bonds for several years. The
bonds are convertible into ordinary shares in Year 3 or Year 4, at the following rates:
1. At 31 December Year 3: 30 shares for every $100 of bonds

2. At 31 December Year 4: 25 shares for every $100 of bonds.
Total earnings for the year to 31 December Year 2 were $3,600,000. Total earnings for the
previous year (Year 1) were $3,300,000. Tax is payable at a rate of 30% on profits.
Required
Calculate the basic EPS and diluted EPS for Year 2, and the comparative figures for Year 1 (for
reporting in the Year 2 financial statements).
Basic EPS:
(1) Year to 31 December Year 2: $3,600,000/12 million = $0.30
(2) Year to 31 December Year 1: $3,300,000/12 million = $0.275.

Diluted EPS:
Year 2 Year 1
$ $
Actual earnings 3,600,000 3,300,000
Add back convertible bond interest (5% × $4 million) 200,000 200,000
Minus tax at 30% (60,000) (60,000)
–––––––– ––––––––
Adjusted total earnings 3,740,000 3,440,000
–––––––– ––––––––
Number of shares
Actual 12,000,000 12,000,000
Potential ( 4 million × 30/100) 1,200,000 1,200,000
––––––––– –––––––––
13,200,000 13,200,000
––––––––– –––––––––
Diluted EPS $0.2833 $0.2606
New issue of convertibles in the year

If new convertibles are issued during the course of the year, the additional number of shares
should be calculated only from the time that the convertibles were issued and a time factor
should be applied to calculate a weighted average number of shares for the year

Example
Entity N has 10,000,000 ordinary shares in issue. There has been no new issue of shares for
several years. However, the entity issued $2,000,000 of convertible 6% bonds on 1 April Year 5.
These are convertible into ordinary shares at the following rates:
On 31 March Year 10 25 shares for every $100 of bonds
Tax is at the rate of 30%.
In the financial year to 31 December Year 6, total earnings were $4,536,000. In the previous
financial year to 31 December Year 5, total earnings were $4,087,000.
Required
Calculate the figures that should be reported in the financial statements for the year to 31
December Year 6:
(a) The EPS for Year 6 and the comparative EPS figure for Year 5
(b) The diluted EPS for Year 6 and the comparative diluted EPS figure for Year 5.
Answer
(a) Basic EPS
Year 6 = $4,536,000/10,000,000 = $0.4536
Year 5 = $4,087,000/10,000,000 = $0.4087.

(b) Diluted EPS
Adjusted total earnings
Year 6 Year 5
$$ $$
Reported earnings 4,536,000 4,087,000
Add back interest saved
($2,000,000 × 6%) (9/12 × $2,000,000 × 6%): 120,000 90,000
Minus tax at 30% (36,000) (27,000)
–––––––– ––––––––
Adjusted total earnings 4,620,000 4,150,000
Number of shares
The maximum number of new ordinary shares that might be created if the potential ordinary
shares are converted is 25 new shares for every $100 bonds. In a full year, this represents
$2,000,000 × 25/100 = 500,000.
However, the bonds were issued during Year 5; therefore a time factor should be applied to
calculate the ‘diluted’ number of shares in Year 5.
Year 6 Number of shares
1 January Brought forward 10,000,000
Dilution 500,000
–––––––––
31 December 10,500,000
–––––––––

Year 5
Number Time factor Weighted
of shares AVG number
of shares
1 Jan Brought forward 10,000,000 × 3/12 2,500,000
1 April Bond issue: dilution 500,000
–––––––––
10,500,000 × 9/12 7,875,000
––––––––– –––––––––
10,375,000
–––––––––
Diluted EPS, Year 6 = $4,620,000/10,500,000 = $0.44
Diluted EPS, Year 5 = $4,150,000/10,375,000 = $0.40.
Diluted EPS: options and warrants

A different situation applies with share options and share warrants. If these are exercised, the
holders of the options or warrants will pay cash to obtain new ordinary shares.
 If the options or warrants are exercised, the entity will receive cash that it can invest to
increase earnings. However, since the options or warrants have not yet been exercised, it
is impossible to predict how total earnings will be affected when the cash is eventually
received.
 The exercise price for the options or warrants will be less than the full market price for
the shares. This means that there will be a bonus element in the issue.

Example
Entity P had total earnings during Year 3 of $1,030,000.
It has 5,000,000 ordinary shares in issue. There are outstanding share options on 400,000
shares, which can be exercised at a future date, at an exercise price of $2.50 per share. The
average market price of shares in Entity P during Year 3 was $4.
Required
Calculate the diluted EPS for Year 3.
Answer
Cash receivable on exercise of all the options = 400,000 × $2.50 = $1,000,000.
Number of shares this would buy at full market price in Year 3 = $1,000,000/$4 = 250,000
shares.
Shares
Options 400,000
Minus number of shares at fair value (250,000)
––––––––
Net dilution 150,000
Existing shares in issue 5,000,000
––––––––
Total shares 5,150,000
––––––––
Diluted EPS = $1,030,000/5,150,000 = $0.20 or 20c.

Potential ordinary shares that are not dilutive
If potential ordinary shares are not dilutive, they should be excluded from the calculation of the
diluted EPS.
When there are several types of potential ordinary share in issue, they should be ranked in order
of dilution, with the most dilutive potential ordinary shares ranked first.
A diluted EPS should then be calculated in stages, taking in one potential ordinary share at a
time, to establish whether any of them are not dilutive. An example might help to illustrate the
technique to use.\
Example
The following information relates to Entity Q for the year ended 31 December Year 5.
Number of ordinary shares in issue 10,000,000
Reported earnings in the year $1,500,000
Average market price of shares during the year $8
Potential ordinary shares:
 600,000 options, with an exercise price of $6

 4% convertible bond: $5,000,000. Each bond is convertible in Year 10 into ordinary
shares at the rate of 40 new shares for every $100 of bonds
 1,000,000 7% convertible preference shares of $1. Each preference share is convertible in
Year 9 into ordinary shares at the rate of 1 ordinary share for every 2 preference shares
Tax rate = 30%
Required
Calculate the diluted EPS for the year to 31 December Year 5


IAS 33: Presentation requirements

An entity should present in the statement of profit or loss:
 the basic EPS and

 the diluted EPS
 for the profit or loss from continuing operations.
For consolidated accounts, this is the EPS and diluted EPS attributable to the owners of the
parent company.
The basic EPS and diluted EPS should be presented with equal prominence for all the periods
presented (the current year and the previous year). These figures are presented at the end of the
statement of profit or loss.
If the entity presents a separate statement of profit or loss:
 the EPS and diluted EPS should be shown in this statement, and
 not in the statement of comprehensive income.
If there is a discontinued operation, the basic EPS and diluted EPS from discontinued operation
should be shown either on the face of the statement of profitor loss or in a note to the financial
statements.
The basic and the diluted EPS should be presented, even if it is a negative figure (= even if it is a
loss per share).
IAS 33: Disclosure requirements

IAS 33 also requires disclosure in a note to the financial statements of the following:
 The total amounts used as the numerators (= total earnings figures) to calculate the
basic EPS and diluted EPS, and a reconciliation of these numerator figures to the profit
or loss for the period
 The total amounts used in the denominators (= weighted average number of shares) to
calculate the basic EPS and diluted EPS, and a reconciliation of these two denominator
figures to each other.

Alternative measures of earnings per share

IAS 33 allows an entity to disclose an alternative measure of EPS in addition to the
EPS calculated in accordance with IAS 33. For example, EPS could be calculated after adjusting
earnings for large and unusual items.
If an alternative EPS figure is presented, IAS 33 states that:
 a reconciliation must be shown between the earnings figure used in the alternative
measure and the amounts shown in the statement of profit or loss
 the alternative EPS must use the same weighted average number of shares as the IAS 33
calculation
 basic and diluted EPS should both be disclosed with equal prominence, and
 the alternative figure must only be shown in the notes, not on the face of the statement
of profit or loss.

Chapter end exercise

Q1 A company currently has 10 million $1 shares in issue with a market value of $3 per
share.
The company wishes to raise new funds using a 1-for-4 rights issue. The theoretical ex rights
price per share is $2 80.
How much new finance was raised by the rights issue?
A $2,500,000 B $4,000,000
C $5,000,000 D $7,000,000
Q2 A company makes a 2-for-3 rights issue at an issue price of $2. The cum-rights price is
$4.
What is the theoretical ex rights price?
A $2·50 B $2·80
C $3·00 D $3·20
Q3 Chartwell has in issue $120,000 of equity share capital (shares of 50 cents each) and
10,000 6% Preference shares of $3 each.
Extracts from the financial statements for the year to 31 March 20X3 are shown below:
Profit before interest and tax 528,934
Interest paid 6,578
Preference dividend 1,800
Taxation 125,860
Ordinary dividend 10,800
In accordance with IAS 33 Earnings per Share, what is Chartwells basic earnings per share for
the year ended 31 March 20X3?
A $1.60 B $1.64 C $3.20 D $3.29

Q4 In the year to 30 September 20X3, Wexam reported a retained profit of $4·8m after
paying preference dividends of $200,000 and dividends of $800,000 to the holders of the
ordinary shares in issue at the year end. On 1 October 20X2 Wexam had three million
shares in issue. On 1 April 20X3 the company had made a bonus issue of one share for
every three held. In accordance with IAS 33 Earnings per Share, what is Wexams basic
earnings per share for the year ended 30 September 20X3?
A $1.20 B $1.40
C $1.45 D $1.60
Q5 In the year to 30 November the retained profit of Dale was $3,640,500. This was after
paying dividends as follows:
Ordinary: $0.05 per share on 1·5 million shares
Preference: $0.07 per share on 600,000 shares
In accordance with IAS 33 Earnings per Share, what is Dales basic earnings per share?
A $1.73 B $1.77
C $2.43 D $2.48
Q6 Reploy has reported a profit before interest and tax of $728,654 for the last financial
year. The companys profit or loss statement reports an interest charge of $45,860, a
tax charge of $158,740 whilst the statement of changes in equity shows that an ordinary
dividend of $50,000 was paid. The companys issued ordinary share capital is $500,000
in $1 shares. In accordance with IAS 33 Earnings per Share, what is Reploys basic
earnings per share?
A $0.95 B $1.05
C $1.37 D $1.46

Q7 The financial statements of Epic showed that retained earnings had increased in the year
by $689,424. The following items were presented by Epic in either the statement of profit
or loss for the year or in the statement of changes in equity:
Interest 84,441
Taxation 227,553
Non-controlling interest 47,338
Ordinary dividend ($0.10 per share) 65,000
In accordance with IAS 33 Earnings per Share, what is Epics basic earnings per share?
A $0.10 B $1.13
C $1.16 D $1.23
Q8 The most recent statement of profit or loss of Waylor reported a profit before tax of
$1,258,000 and a tax expense of $224,000. Half way through the year the company had
issued 40,000 bonus shares which brought the total number of shares in issue to
440,000. In accordance with IAS 33 Earnings per Share, what is Waylors basic earnings
per share?
A $2.35 B $2.47
C $2.86 D $2.99
Q9 Jubilee reported profit after tax for the period of $1,600,000 and it had 1,000,000
ordinary shares in issue for the whole year. Jubilee had a number of exercisable share
options outstanding at the year end. Holders of the options were entitled to buy 50,000
new shares for $1.60. The average market price of Jubilee’s shares for the previous 12
months was $2. In accordance with IAS 33 Earnings per Share, what is Jubilees diluted
earnings per share?
A $1.52 B $1.54
C $1.58 D $1.60

Q10 Mork has disclosed basic EPS figure for the year of $0.32, this is based on 500,000
ordinary shares being in issue for the whole year.
Mork also has $100,000 8% convertible debt in issue at the year end. The conversion rights
allow the holders to convert their debt into equity on a basis of 5 shares for every $4 of debt.
Mork pays income tax at a rate of 30%.
In accordance with IAS 33 Earnings per Share, what is Morks diluted earnings per share?
A $0.265 B $0.269
C $0.285 D $0.289
Q11 Aqua has correctly calculated its basic earnings per share (EPS) for the current
year.
Which of the following items need to be additionally considered when calculating Aqsa’s diluted
EPS for the year?
(1) A 1 for 5 rights issue of equity shares during the year at $1·20 when the market price of the
equity shares was $2·00
(2) The issue during the year of a convertible (to equity shares) loan note
(3) The granting during the year of directors’ share options exercisable in three years’ time
(4) Equity shares issued during the year as the purchase consideration for the acquisition of a
new subsidiary company
A 1, 2, 3 and 4 B 1 and 2 only
C 2 and 3 only D 3 and 4 only

Q12 The following scenario relates to questions 15.
The issued share capital of Savoir, a publicly listed company, at 31 March 2014 was $10 million
(shares of 25 cents each). Savoirs earnings attributable to its ordinary shareholders for the year
ended 31 March 2014 were also $10 million.
Year ended 31 March 2015
On 1 July 2014 Savoir issued eight million ordinary shares at full market value. Earnings
attributable to ordinary shareholders for the year ended 31 March 2015 were $13,800,000.
On 1 October 2015 Savoir made a rights issue of two new ordinary shares at a price of $1·00
each for every five ordinary shares held. The offer was fully subscribed. The market price of
Savior’s ordinary shares immediately prior to the offer was $2·40 each. Earnings attributable to
ordinary shareholders for the year ended 31 March 2016 were $19,500,000.
On 1 April 2016 Savoir issued $20 million 8% convertible loan notes at par. The terms of
conversion (on 1 April 2019) are that for every $100 of loan note, 50 ordinary shares will be
issued at the option of loan holders. Alternatively, the loan notes will be redeemed at par for
cash. The income tax rate is 25%. Earnings attributable to ordinary shareholders for the year
ended 31 March 2017 were $25,200,000.
1 What is the number of shares to be used in the basic earnings per share calculation for the
year ended 31 March 2015?
A 46 million B 16 million C 48 million D 18 million
2 Which of the following is the bonus factor to be used in the calculation of the comparable
earnings per share for the year ended 31 March 2016?
A 2.4/2.0
B 1.4/2.0
C 2.0/2.4
D 2.0/1.4

3 What amount of earnings should be used in the diluted earnings per share calculation for the
year ended 31 March 2017?
A $24,000,000
B $23,600,000
C $26,800,000
D $26,400,000
4 If a bonus issue took place during the year, what number of shares should be used in the basic
earnings per share calculation?
A The number of share in issue at the end of the year
B The number of shares in issue at the beginning of the year
C The weighted average number of shares
D The weighted average number of shares adjusted by the bonus element
5 Which of the following items must be disclosed in the notes to the financial statements in
accordance with IAS 33 Earnings per Share?
(1) Interest saved on non-convertible loan notes
(2) Number of preference shares currently in issue
(3) Instruments that could potentially dilute future EPS
(4) Ordinary shares issued after the reporting date
A 1 and 2
B 2 and 4
C 1 and 3
D 3 and 4

Q13 The profit after tax for Barstead for the year ended 30 September 2016 was $15
million. At 1 October 2015 the company had in issue 36 million equity shares and a $10
million 8% convertible loan note. The loan note will mature in 2017 and will be redeemed
at par or converted to equity shares on the basis of 25 shares for each $100 of loan note
at the loan-note holders option. On 1 January 2016 Barstead made a fully subscribed
rights issue of one new share for every four shares held at a price of $2·80 each. The
market price of the equity shares of Barstead immediately before the issue was $3·80.
The earnings per share (EPS) reported for the year ended 30 September 2015 was $0.35.
Barnstead’s income tax rate is 25%.
Required:
Calculate the (basic) EPS figure for Barstead (including comparatives) and the diluted EPS
(comparatives not required) that would be disclosed for the year ended 30 September 2016.
Q14 The following scenario relates to questions 15.
The following summarised information is available in relation to Rebound, a publicly listed

company:
Statement of profit or loss extracts years ended 31 March
2016 2015
Continuing Discontinued Continuing Discontinued
$000 $000 $000 $000
Profit after tax
Existing operations 2,000 (750) 1,750 600
Operations acquired
on 1 August 2015 450 nil
Analysts expect profits from the market sector in which Rebounds existing operations are
based to increase by 6% in the year to 31 March 2017 and by 8% in the sector of its newly
acquired operations.
On 1 April 2014 Rebound had:

 $3 million of equity share capital (shares of 25 cents each);

 $5 million 8% convertible loan notes 2021; the terms of conversion are 40 equity shares
for each $100 of loan note if conversion is before 31 March 2019 and 35 equity shares
for each $100 of loan note if conversion is later. Assume an income tax rate of 30%.
1 Based on the above information what will be Rebound’s estimated profit after tax for the year
ended 31 March 2017?
A $2,450,000 B $2,849,000
C $2,606,000 D $2,675,000
2 In accordance with IAS 33 Earnings per Share, what is Rebound’s basic earning per share for
the year ended 31 March 2016?
A $0.14 B $0.57
C $0.20 D $0.82
3 When calculating the amount of earnings to be used in a diluted earnings per share
calculation what is the adjustment for interest on convertible loan notes?
A Interest after tax saved is added back to the basic earnings per share profit
B Interest after tax saved is deducted from the basic earnings per share profit
C Interest saved is added back to the basic earnings per share profit
D Interest saved is deducted from the basic earnings per share profit
4 What number of shares should be used in the 2016 calculation of Rebound’s diluted earnings
per share?
A 12,000,000
B 14,000,000
C 13,750,000
D 12,050,000

5 Which of the following transactions should be treated as a discontinued operation in

accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations?
(1) One of 20 factories used by Rebound is in the process of being closed down; the factory
generates 2% of Rebound’s total revenue
(2) Ceasing the manufacture of one of Rebound’s three main product lines which creates
employment for 40% of the entity’s workforce
(3) Subsidiary Gentry which was acquired two months ago; on acquisition it was intended to
resell the subsidiary as soon as possible
(4) A major item of machinery is to be replaced at an expected cost of $1.1 million which
represents 10% of Rebound’s total assets
A 1 and 2 B 2 and 3
C 3 and 4 D 1 and 4

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Financial Reporting (F7/FR)

Earning per share (IAS 33)

 Basic earnings per share.

 Share options and warrants.

Masters’ Academy of professional studies +923215040978 Page 1

PRESENTATION OF EARNINGS PER SHARE

𝑇𝑜𝑡𝑎𝑙 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑓𝑡𝑒𝑟 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑

Total earnings are calculated as:

 the profit or loss from continuing operations

Masters’ Academy of professional studies +923215040978 Page 2

New shares issued at market price

What was the EPS in Year 1?

Calculate the EPS for the year to 31 December Year 3.

Masters’ Academy of professional studies +923215040978 Page 3

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑓𝑡𝑒𝑟 𝑏𝑜𝑛𝑢𝑠 𝑖𝑠𝑠𝑢𝑒

Masters’ Academy of professional studies +923215040978 Page 4

EPS in Year 2 = $855,000/3,562,500 = $0.24.

The Year 1 EPS is therefore re-stated as:

$0.25 × 2/3 = $0.1667.

𝐴𝑐𝑡𝑢𝑎𝑙 𝑐𝑢𝑚 𝑟𝑖𝑔ℎ𝑡 𝑝𝑟𝑖𝑐𝑒

Theratical ex right price

Masters’ Academy of professional studies +923215040978 Page 5

4 existing shares have a ‘cum rights’ value of (4 × $5) 20.00

1 new share is issued for 4.00

5 shares after the issue have a theoretical value of 24.00

Theoretical ex-rights price = $24.00/5 = $4.80.

EPS Year 2 = $25,125,000/41,875,000 = $0.60, or 60c

Comparative EPS in Year 1 = $0.64 × ($4.80/$5.00) = $0.6144 or 61.44c.

Masters’ Academy of professional studies +923215040978 Page 6

2 existing shares have a ‘cum rights’ value of (2 × $5) 10.00

1 new share is issued for 2.00

3 shares after the issue have a theoretical value of 12.00

Theoretical ex-rights price = $12/3 = $4.

Masters’ Academy of professional studies +923215040978 Page 7

EPS Year 7 = $1,746,875/4,479,167 = $0.39, or 39c

EPS Year 6 = $0.35 × 4.00/5.00 = $0.28 or 28c.

IAS 33 and diluted EPS

Diluted EPS: convertible preference shares and convertible bonds

Masters’ Academy of professional studies +923215040978 Page 8

Adjusted total earnings = Actual total earnings + Convertible preference dividend

1. At 31 December Year 3: 30 shares for every $100 of bonds

(1) Year to 31 December Year 2: $3,600,000/12 million = $0.30

(2) Year to 31 December Year 1: $3,300,000/12 million = $0.275.

Masters’ Academy of professional studies +923215040978 Page 9

Actual earnings 3,600,000 3,300,000

Add back convertible bond interest (5% × $4 million) 200,000 200,000

Minus tax at 30% (60,000) (60,000)

Adjusted total earnings 3,740,000 3,440,000

Actual 12,000,000 12,000,000

Potential ( 4 million × 30/100) 1,200,000 1,200,000

Diluted EPS $0.2833 $0.2606

New issue of convertibles in the year

Masters’ Academy of professional studies +923215040978 Page 10

On 31 March Year 10 25 shares for every $100 of bonds

On 31 March Year 11 20 shares for every $100 of bonds

On 31 March Year 12 15 shares for every $100 of bonds

On 31 March Year 13 10 shares for every $100 of bonds

Tax is at the rate of 30%.

(a) Basic EPS

Q12 The following scenario relates to questions 15.