IAS 33 | Earnings per Share

1

Objective

The objective is to prescribe principles for determining and presenting earnings per share to improve performance comparisons between entities and over time. Even though earnings data have limitations due to accounting policies, a consistently determined denominator enhances financial reporting.

2

Scope

This Standard applies to the separate and consolidated financial statements of entities whose ordinary shares or potential ordinary shares are traded in a public market, or that are filing financial statements with a regulatory organisation for the purpose of issuing ordinary shares in a public market.

3

Disclosure Requirement

An entity that discloses earnings per share shall calculate and disclose it in accordance with this Standard.

4

Consolidated vs Separate

When an entity presents both consolidated and separate financial statements, the disclosures required by this Standard need be presented only on the basis of the consolidated information. If an entity chooses to disclose EPS based on separate statements, it presents this only in its statement of comprehensive income (not the consolidated one).

4A

Presentation Location

If an entity presents profit or loss in a separate statement, it presents earnings per share only in that separate statement.

5

Definitions

The following terms are used in this Standard with the meanings specified:

• Antidilution is an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
• A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions.
• 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.
• Dilution is a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
• Options, warrants and their equivalents are financial instruments that give the holder the right to purchase ordinary shares.
• An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.
• A potential ordinary share is a financial instrument or other contract that may entitle its holder to 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.

6

Ordinary Shares

Ordinary shares participate in profit for the period only after other types of shares such as preference shares have participated. Ordinary shares of the same class have the same rights to receive dividends.

7

Potential Shares Examples

Examples include: financial liabilities or equity instruments (including preference shares) convertible into ordinary shares; options and warrants; and shares that would be issued upon satisfaction of contractual conditions (e.g., purchase of a business).

8

Defined Terms

Terms defined in IAS 32 (financial instrument, financial asset, financial liability, equity instrument) and IFRS 13 (fair value) are used with the meanings specified in those standards.

9

Basic EPS Measurement

An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

10

Basic EPS Calculation

Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.

11

Basic EPS Objective

The objective is to provide a measure of the interests of each ordinary share of a parent entity in the performance of the entity over the reporting period.

12

Earnings

For calculating basic EPS, the amounts attributable to ordinary equity holders (for continuing operations and total profit/loss) are adjusted for the after-tax amounts of preference dividends, differences arising on settlement of preference shares, and other similar effects of preference shares classified as equity.

13

Income and Expense

All items of income and expense attributable to ordinary equity holders recognised in a period, including tax expense and dividends on preference shares classified as liabilities, are included in the determination of profit or loss attributable to ordinary equity holders.

14

Preference Dividends

The after-tax amount of preference dividends deducted from profit or loss includes: (a) declared dividends on non-cumulative shares; and (b) required dividends on cumulative shares (whether declared or not). Dividends paid in respect of previous periods are excluded.

15

Increasing Rate Shares

For increasing rate preference shares (low initial dividend, high later dividend), any original issue discount or premium is amortised to retained earnings using the effective interest method and treated as a preference dividend for EPS calculation.

16

Repurchase of Preference Shares

If preference shares are repurchased, any excess of the fair value of consideration paid over the carrying amount represents a return to holders and a charge to retained earnings. This amount is deducted in calculating profit or loss attributable to ordinary equity holders.

17

Induced Conversion

If early conversion of convertible preference shares is induced by favourable terms, the excess of the fair value of consideration over the fair value of shares issuable under original terms is a return to preference shareholders and is deducted in calculating profit or loss attributable to ordinary equity holders.

18

Excess Carrying Amount

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

19

Shares

For calculating basic EPS, the number of ordinary shares shall be the weighted average number of ordinary shares outstanding during the period.

20

Weighted Average

This reflects the possibility that the amount of shareholders' capital varied during the period. It is the number of shares at the beginning of the period, adjusted by shares bought back or issued during the period multiplied by a time-weighting factor (days outstanding/total days).

21

Inclusion Date

Shares are usually included from the date consideration is receivable (generally the issue date). Examples: cash issue (when cash receivable); dividend reinvestment (when dividends reinvested); conversion of debt (when interest ceases to accrue); settlement of liability (settlement date); acquisition of asset (acquisition date); services rendered (when services rendered).

22

Business Combinations

Shares issued as consideration in a business combination are included from the acquisition date, as the acquirer incorporates the acquiree's profits and losses from that date.

23

Mandatory Conversion

Shares that will be issued upon conversion of a mandatorily convertible instrument are included in the calculation from the date the contract is entered into.

24

Contingently Issuable Shares

These are treated as outstanding and included in basic EPS only from the date when all necessary conditions are satisfied. Shares subject to recall are excluded until they are no longer subject to recall.

26

Adjustments for Capital Changes

The weighted average number of shares is adjusted for events that change the number of shares without a corresponding change in resources (e.g., bonus issue, share split), other than the conversion of potential ordinary shares.

27

Examples of No-Resource Changes

Examples include: capitalisation or bonus issue; bonus element in any other issue (e.g., rights issue); share split; and reverse share split.

28

Bonus Issue Treatment

In a bonus issue or share split, shares are issued for no consideration. The number of shares before the event is adjusted as if the event had occurred at the beginning of the earliest period presented.

29

Consolidation of Shares

A share consolidation generally reduces the number of shares without reducing resources. However, if the effect is a repurchase at fair value, the reduction is the result of a reduction in resources, and the weighted average is adjusted from the date the special dividend is recognised.

30

Diluted EPS Measurement

An entity shall calculate diluted EPS amounts for profit or loss attributable to ordinary equity holders and, if presented, profit or loss from continuing operations attributable to those holders.

31

Diluted EPS Calculation

For diluted EPS, the entity adjusts profit or loss attributable to ordinary equity holders and the weighted average number of shares for the effects of all dilutive potential ordinary shares.

32

Diluted EPS Objective

The objective is to provide a measure of the interest of each ordinary share in the performance of an entity while giving effect to all dilutive potential ordinary shares outstanding.

33

Earnings Adjustment

For diluted EPS, profit or loss is adjusted by the after-tax effect of: (a) any dividends/items related to dilutive potential shares deducted in arriving at profit or loss; (b) any interest recognised related to dilutive potential shares; and (c) any other changes in income/expense resulting from conversion.

34

Conversion Effect

After potential shares are converted, items like interest and dividends on them no longer arise. Instead, new shares participate in profit. Therefore, profit is adjusted for these items.

35

Consequential Changes

Conversion may lead to consequential changes, such as an increase in non-discretionary employee profit-sharing due to increased profit (from reduced interest). Profit is adjusted for such changes.

36

Shares Adjustment

For diluted EPS, the number of shares is the weighted average for basic EPS plus the weighted average number of shares that would be issued on conversion of all dilutive potential ordinary shares. Potential shares are deemed converted at the beginning of the period or, if later, the date of issue.

37

Independent Determination

Dilutive potential shares are determined independently for each period presented.

38

Weighting Potential Shares

Potential shares are weighted for the period they are outstanding. If cancelled or lapsed, they are included only for the portion of the period outstanding. If converted, they are included in diluted EPS until conversion date, and in basic EPS from conversion date.

39

Conversion Rate

The number of shares issued on conversion is determined from the terms of the potential shares. The most advantageous conversion rate for the holder is assumed.

40

Subsidiary Potential Shares

Potential shares issued by a subsidiary, joint venture, or associate that are convertible into the reporting entity's shares or the subsidiary's shares are included in the calculation if they have a dilutive effect on the reporting entity's basic EPS.

41

Dilutive Potential Shares

Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.

42

Control Number

Profit or loss from continuing operations attributable to the parent entity is the control number used to establish whether potential shares are dilutive or antidilutive.

43

Antidilutive Shares

Potential shares are antidilutive when their conversion would increase earnings per share or decrease loss per share. The calculation of diluted EPS does not assume conversion of such shares.

44

Sequential Consideration

Potential shares are considered separately and in sequence from the most dilutive to the least dilutive to maximise dilution. Options and warrants are generally included first.

45

Options and Warrants

For diluted EPS, the entity assumes the exercise of dilutive options and warrants. Assumed proceeds are regarded as received from issuing shares at the average market price. The difference between shares issued and shares that would have been issued at the average price is treated as an issue for no consideration.

46

Dilutive Nature

Options/warrants are dilutive when they result in the issue of shares for less than the average market price. The amount of dilution is the average market price minus the issue price.

47

Treasury Stock Method

Potential shares are treated as consisting of: (a) a contract to issue shares at the average market price (neither dilutive nor antidilutive, ignored); and (b) a contract to issue remaining shares for no consideration (dilutive, added to denominator).

47A

Share-Based Payment

For share-based payments (IFRS 2), the issue/exercise price includes the fair value of goods/services to be supplied to the entity in the future.

48

Employee Options

Employee share options with fixed terms and non-vested shares are treated as options in the calculation, even if contingent on vesting. They are treated as outstanding on the grant date. Performance-based options are treated as contingently issuable shares.

49

Convertible Instruments

The dilutive effect of convertible instruments is reflected in accordance with paragraphs 33 (earnings adjustment) and 36 (shares adjustment).

50

Antidilutive Convertibles

Convertible preference shares are antidilutive if the dividend per share obtainable on conversion exceeds basic EPS. Convertible debt is antidilutive if interest (net of tax) per share obtainable exceeds basic EPS.

51

Redemption/Induced Conversion

If only a portion of shares are redeemed/converted, any excess consideration is attributed to those shares for determining if remaining shares are dilutive. Redeemed/converted shares are considered separately.

52

Contingently Issuable Shares

These are included in diluted EPS if the conditions are satisfied (events have occurred). They are included from the beginning of the period. If conditions are not satisfied, the number included is based on the number issuable if the end of the period were the end of the contingency period.

53

Earnings Condition

If the condition is attaining a specified amount of earnings and that amount has been attained at reporting date (but must be maintained), the additional shares are treated as outstanding if dilutive.

54

Market Price Condition

If the condition depends on future market price, the calculation is based on the number of shares issuable if the market price at reporting date were the price at the end of the contingency period.

58

Settlement in Shares or Cash

When a contract can be settled in ordinary shares or cash at the entity's option, the entity presumes settlement in shares, and includes them in diluted EPS if dilutive.

59

Accounting Adjustment

If such a contract is presented as an asset/liability, the numerator is adjusted for changes in profit or loss that would have resulted if the contract had been classified wholly as equity.

60

Holder's Option

For contracts settleable in shares or cash at the holder's option, the more dilutive of cash settlement and share settlement is used in calculating diluted EPS.

61

Example of Contracts

Examples include debt instruments that give the entity the right to settle in cash or shares on maturity, or written put options giving the holder a choice.

62

Purchased Options

Purchased put and call options are not included in diluted EPS because including them would be antidilutive (put exercised only if price higher, call if lower).

63

Written Put Options

Contracts requiring the entity to repurchase its own shares (e.g., written puts) are reflected in diluted EPS if dilutive (in the money). It is assumed that shares are issued at the beginning of the period to raise proceeds to satisfy the contract, and the difference between shares issued and shares received is added to the denominator.

64

Retrospective Adjustments

If the number of shares increases/decreases due to capitalisation, bonus issue, share split, or reverse split, basic and diluted EPS for all periods presented shall be adjusted retrospectively. If these occur after the reporting period but before authorisation, per share calculations are based on the new number.

65

Errors and Policy Changes

Basic and diluted EPS are adjusted for the effects of errors and adjustments resulting from changes in accounting policies accounted for retrospectively.

66

Presentation

An entity shall present basic and diluted EPS in the statement of comprehensive income for profit or loss from continuing operations and for total profit or loss attributable to ordinary equity holders of the parent.

67

Prominence

Basic and diluted EPS are presented with equal prominence for all periods.

67A

Separate Statement

If profit or loss is presented in a separate statement, EPS is presented in that statement.

68

Discontinued Operations

An entity reports basic and diluted EPS for discontinued operations either in the statement of comprehensive income or in the notes.

69

Negative Amounts

Basic and diluted EPS are presented even if the amounts are negative (loss per share).

70

Disclosure

An entity shall disclose: (a) amounts used as numerators and a reconciliation to profit or loss; (b) weighted average number of shares used as denominators and a reconciliation; (c) antidilutive instruments not included in diluted EPS; (d) description of share transactions after the reporting period that would have changed the number of shares significantly.

71

Post-Balance Sheet Transactions

Examples of transactions occurring after the reporting period include issues of shares for cash, redemptions, and conversions. EPS amounts are not adjusted for these transactions as they do not affect the capital used to produce profit for the period.

72

Terms and Conditions

Financial instruments may have terms that affect the measurement of EPS. Disclosure of these terms is encouraged.

73B

Additional Amounts

An entity is permitted to disclose additional amounts per share using a different measure of performance (e.g., from IFRS 18 totals or subtotals) in the notes. These must be disclosed with equal prominence to basic/diluted EPS and reconciled.

74

Effective Date

An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged.