page 1061
CHAPTER
Earnings per Share
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
LO1
Understand the significance of earnings per share;
LO2
Understand the difference between basic and diluted earnings per share;
LO3
Understand how new issues affect earnings per share through the weighted average number of shares;
LO4
Understand the concept of dilution;
LO5
Understand the concept of control number in diluted earnings per share; and
LO6
Use the methods for calculating diluted earnings per share: the if-converted method and the treasury
method.
page 1062
INTRODUCTION
One of the primary concerns of investors is the profitability of entities in which they have a vested interest. There are
a number of ways to measure an entity’s profitability. For example, it can be measured in absolute terms or as a return
(in percentage terms). In practice, investors often use more than one approach to assess an entity’s profitability. For
example, investors usually compare the year-on-year change in absolute net earnings. This provides them with an
indication of the growth in absolute earnings. They also compute financial ratios that measure profitability, and
compare the ratios over time. Profitability ratios include net profit margin, return on asset, return on shareholders’
equity, and earnings per share. As each of these measures captures a different dimension of profitability, they are
useful to investors. The focus of this chapter is on earnings per share as a measure of performance.
Earnings per share (EPS) is one of the most well-known financial ratios among the investment community.
Earnings per share data serve two main functions. As a measure of profitability, it indicates the net earnings
attributable to each unit of ordinary share capital. Viewed simplistically, the higher the earnings per share, the better
the performance and profitability of the entity is deemed to be. The second, and perhaps more important, function is
that it is the denominator in the price-earnings ratio,1 a ratio that is widely used by the investment community as a
basis for valuation. When used for valuation purposes, the price-earnings ratio of a particular entity is often compared
with the average price-earnings ratios of its peers or that of the industry to provide an indication of whether the share
price of the entity is undervalued or overvalued. Some analysts combine the price-earnings ratio with the growth in
earnings per share to assess the undervaluation or overvaluation in an entity’s share price. For example, if the earnings
growth rate is 15% and the price-earnings ratio is seven times, it is a positive indication that the share price has further
upside potential as the rate of increase in future earnings per share will mean a higher share price if the price-earnings
ratio is maintained at the same level.
In practice, analysts often distinguish between the historic price-earnings ratio and the prospective price-earnings
ratio. The historic price-earnings ratio is simply the current market price divided by the most recent earnings per share
(usually the earnings per share for the financial year that has just ended). The prospective price-earnings ratio is the
current market price divided by the projected earnings per share for the current financial year that has not ended or the
next financial year. It can also be used in the context of an initial public offer (IPO). For example, the prospectus of
ABC Company indicates a prospective earnings per share of 20 cents. The prospective earnings per share in this case
is the forecasted earnings divided by the number of shares following the IPO.
Basic and Diluted Earnings per Share
IAS 33 Earnings per Share applies to financial statements of an entity whose ordinary shares or potential ordinary
shares are traded in a public market, or that is in the process of issuing these shares in a public market. page 1063
When an entity presents both consolidated and separate financial statements, EPS disclosures need be
made only in the consolidated financial statements.
In accounting terms, there are two versions of earnings per share, namely basic earnings per share and diluted
earnings per share. Entities that fall within the scope of IAS 33, which have what is termed as “a complex capital
structure,” are required to disclose diluted earnings per share in addition to the basic earnings per share. A complex
capital structure is one that includes securities qualifying as potential ordinary shares such as convertible securities
and share options (see Figure 12.1). Basic earnings per share is computed as follows:
FIGURE 12.1
Simple and complex capital structures and earnings per share
Numerator in Basic Earnings per Share
The numerator in the basic EPS ratio is the net profit attributable to ordinary shareholders of the entity or the entity’s
parent2 after deducting the amounts due to preference shareholders in respect of:
1. Preference dividends; and
2. Gains or losses arising on the repurchase or early conversion of preference shares and amortization of discount
or premium on increasing rate preference shares.
In the case of a group entity, the numerator is the earnings attributable to the shareholders of the parent company,
that is, after the deduction of non-controlling interests’ share of net profit or loss.
When an entity has exited from an industry or business, it is required to report the results attributable to the
discontinued operation separately from the continuing operations. Two basic earnings per share should be reported:3
basic earnings per share attributable to the profit or loss from the continuing operations, and the overall basic earnings
page 1064
per share for the entity.4 The profit or loss from the continuing operations serves as the control
number in the calculation of diluted earnings per share. This will be discussed later in this chapter.
Adjusting for Preference Dividends
When adjusting for preference dividends, the following points should be noted:
1. Dividends on non-cumulative preference shares are deducted only when they are declared.
2. Dividends on cumulative preference shares are deducted regardless of whether a preference dividend has been
declared or paid.
3. In the case of an increasing rate preference shares,5 the amortization of the discount or premium on the
preference shares is treated as part of the preference dividend.
4. If preference shares have been repurchased in a tender offer at a fair value, which is greater than their carrying
value, the excess is deducted when calculating the profit or loss attributable to ordinary equity holders of the
parent entity.
5. Preference shares may be converted early due to favorable changes in the original conversion terms or the
payment of additional consideration to the holder. The excess of the fair value of the ordinary shares issued, or
any other consideration paid over the fair value of the ordinary shares that are issuable under the original
conversion terms, is a return to the preference shareholders and a loss to the issuer. The loss is deducted when
calculating the profit or loss attributable to ordinary equity holders of the parent entity.
Illustration 12.1 shows the impact of preference shares on basic earnings per share.
ILLUSTRATION 12.1
Preference shares and basic earnings per share
GTO’s capital structure comprises the following:
1. 5,000,000 ordinary shares
2. 2,000,000 non-cumulative 6% preference shares
3. 1,000,000 cumulative 4.5% preference shares
Net profit for 20x3 and 20x4 were $300,000 and $5,000,000, respectively. No dividend was declared or paid in
20x3. In 20x4, dividends were declared and paid on the non-cumulative preference shares and cumulative preference
shares (for both 20x3 and 20x4). During 20x4, 500,000 cumulative preference shares were repurchased in a tender
offer at a premium of 50 cents over their carrying value. Assume that preference dividends and gains or losses on
repurchase of preference shares have no tax effects. The calculation of basic earnings per share for 20x3 and 20x4 is
shown below.
page 1065
Net profit attributable to ordinary
shareholders
20x4
20x3
$5,000,000
$ 300,000
Less preference dividends: . . . . . . . . . .
Non-cumulative . . . . . . . . . . . . . . . . .
(120,000)a
Cumulative . . . . . . . . . . . . . . . . . . . .
(45,000)b
Repurchase of preference shares . .
(250,000)c
Net profit attributable to ordinary
shareholders
Number of ordinary shares
(45,000)b
$4,585,000
$ 255,000
5,000,000
5,000,000
Basic earnings per share
a
$2,000,000 × 0.06
b
$1,000,000 × 0.045
c
500,000 × $0.50
$4,585,000/5,000,000 = 91.7 cents
$255,000/5,000,000 = 5.1 cents
The actual amount of preference dividends paid in 20x4 is $210,000 ($120,000 being the non-cumulative
preference dividend and $90,000 being the cumulative preference dividend).
COMPUTATION OF A WEIGHTED AVERAGE NUMBER OF SHARES
The computation of basic earnings per share is simple if there are no changes in the share capital during the year (as
implied in Illustration 12.1). However, when there are changes in the share capital during the year, adjustments have
to be made to the denominator (the number of shares) as the weighted number of shares outstanding during the period
has to be calculated. This is defined as “the number of ordinary shares outstanding at the beginning of the period,
adjusted by the number of ordinary shares bought back or issued during the period, multiplied by a time-weighting
factor” (IAS 33:20). For the purpose of determining the time-weightage, consideration is made of the terms and
conditions on which the shares were issued. Generally, shares are time-weighted from the date consideration is
receivable, which normally coincides with the date of the share issue. Some examples provided in IAS 336 are:
1. Shares issued to acquire net assets or an entity in a business combination are included in the weighted average
number of shares from the date of acquisition.
2. Shares that will be issued upon the conversion of a mandatorily convertible instrument, such as mandatorily
convertible preference shares, are included in the calculation of basic earnings per share from the date the
contract is entered into (and not when the actual conversion takes place).
3. Contingently issuable shares are included in the calculation of basic earnings per share only from the date
when all necessary conditions are satisfied (i.e., the contingent events have occurred).
Generally, changes in the shares issued during the year are due to one or more of the following:
1.
2.
3.
4.
5.
Issue of new shares during the year for cash or other assets.
Issue of new shares in the form of a bonus issue or share split.
Issue of new shares at a discounted price as a result of the exercise of a rights issue.
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Consolidation of existing shares through a reverse split.
Issue of new shares from the conversion of potential ordinary shares such as convertible bonds or convertible
preference shares.
6. Issue of new shares from the exercise of potential ordinary shares such as stock options issued to employees or
creditors.
7. Contingently issuable shares become actual issues when conditions have been met.
8. Purchase of treasury shares and issue of previously purchased treasury shares.
Issue of New Shares for Cash or Other Assets
The issue of new shares for cash or other assets increases the resources available to the entity. The additional
resources have a positive impact on net earnings from the date they flow into the entity. Managers are expected to
generate returns from the additional resources from the date the resources become available from the share issue.
Therefore, the number of shares has to be time-weighted. Illustration 12.2 shows how shares issued at fair value for
cash are time-weighted.
ILLUSTRATION 12.2
Issue of new shares at fair value
Company A had issued share capital of 5,000,000 ordinary shares at the beginning of the year. On 30 June, it issued
3,000,000 shares at fair market value for cash. Net profit attributable to ordinary shares was $300,000 for the first six
months and $800,000 for the full year.
Because the issue of new shares for cash increased the resources available to the entity, it had a positive effect on
net profit from the date the cash was received (30 June). Therefore, the number of shares is the weighted average of
outstanding balances during the year: 5,000,000 shares outstanding during the first six months and 8,000,000 shares
outstanding during the next six months.
page 1067
Issue of New Shares with No Inflow of Resources
One common way for an entity to reward its shareholders is to issue bonus shares or stock dividends, sometimes in
addition to cash dividends. There are a number of possible reasons for the issue of bonus shares. Bonus shares may be
issued to celebrate a special occasion such as the 50th anniversary of the founding of an entity. Some entities issue
bonus shares instead of paying cash dividends in order to conserve cash for their growing businesses. Yet another
reason for making a bonus issue is to improve the “liquidity” of the shares by increasing the number of shares
available in the market.
Bonus shares are issued out of reserves such as capital reserves or retained earnings. Total shareholders’ equity
remains unchanged; what has changed is the composition of the shareholders’ equity. There is an increase in share
capital while reserves show a corresponding decrease. There is no inflow of resources to the entity and therefore,
earnings are not affected by the issue of new shares.
Share splits are similar to bonus issues, as they also do not result in an inflow of resources. In a share split, the
existing share is split into two or more shares. For example, a two-for-one split is the splitting of one existing ordinary
share into two new ordinary shares. The fair value is halved in this case. Thus, a share split will result in an increase
in the number of shares with the total paid-up capital and other reserves remaining unchanged. In contrast, a bonus
issue results in an increase in the total paid-up capital and a reduction in other reserves. The difference is mainly of
form and not of substance.
Bonus issues and share splits are not time-weighted as there is no change in the resources of the issuing entity. In
calculating basic earnings per share, the new shares from bonus issues or share splits are deemed to be issued at the
beginning of the current period and at the beginning of the earliest comparative period reported in the current
financial statements. Thus, earnings per share calculations include the impact of bonus issues and share splits
retrospectively. For example, in a calendar reporting year, if an entity makes a one-for-two bonus issue (issuing one
new share for every two existing shares) on 1 November, the additional new shares are assumed to be in issue at 1
January. The rationale is that since the new shares are not accompanied by an inflow of resources and are issued from
reserves, which are already in existence at the beginning of the year, there is no need to time-weight the new shares.
Illustration 12.3 explains the impact of bonus issue on basic earnings per share for current and comparative periods.
ILLUSTRATION 12.3
Issue of bonus shares (or stock dividends)
Eastman Company had a paid-up share capital of $10,000,000 comprising 10,000,000 ordinary shares at the
beginning of 20x3. Net profit attributable to ordinary shareholders for the year ended 31 December 20x3 and 20x4
were $2,000,000 and $2,600,000, respectively. On 30 June 20x4, the company declared a one-for-two bonus issue, the
bonus shares being issued from capital reserves. For every one ordinary share owned, a shareholder subsequently had
1.5 ordinary shares. The total number of shares increased from 10,000,000 to 15,000,000.
Basic EPS (cents) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a
$2,600,000/15,000,000
b
$2,000,000/10,000,000
20x4
20x3
17.33a
20b
page 1068
It would appear that when compared with 20x3, the earnings per share in 20x4 had declined. However, this is not
a true reflection of the performance of the company over the two years. Net profit increased in 20x4 without any
corresponding inflow of new resources. The decline in EPS in 20x4 was due to the diluting effect of the issue of
bonus shares. To facilitate a proper comparison, the 20x4 income statement should show a comparative figure for
20x3, adjusted for the bonus issue. That is, the bonus issue should be applied retroactively to the 20x3 comparative
figure as follows:
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . .
c
20x4
20x3 (restated)
17.33 cents
13.33c cents
$2,000,000/15,000,000
Consolidation of Existing Shares through a Reverse Split
A consolidation of ordinary shares is the opposite of a stock split. Hence, it is also sometimes called a reverse split as
it reduces the number of ordinary shares outstanding without a corresponding outflow of resources. Since there are no
resources flowing from a share consolidation (unlike a share buy-back where cash is paid to the holder of shares),
time-weighting of the change in balance in shares is inappropriate. Instead, the share consolidation should be applied
retrospectively, and comparative EPS information should be restated to allow comparability. The share consolidation
is deemed to have occurred at the beginning of the earliest comparative period presented in the current financial
statements. For example, if two existing shares are consolidated into one new ordinary share (a one-for-two reverse
split), the number of ordinary shares outstanding before the consolidation is divided by two to obtain the reduced
number of ordinary shares. Comparative earnings per share is restated (multiplied by two to reflect the lower
denominator in the earnings per share calculation) to facilitate comparison with current earnings per share.
Rights Issue at a Discount to Market Price
A rights issue is an issue of new shares to existing shareholders that is often at a discount to the prevailing market
price. The entitlement of existing shareholders to a rights issue is such that after subscribing to the new shares, their
proportionate interest in the entity after the rights issue remains the same as before the rights issue.
The total number of shares issued in a rights issue at a discount to market price can be viewed as comprising the
following two components:
1. One component comprises the number of shares that would have been issued at the full market price to
achieve the same total proceeds.
2. The other component comprises the number of shares that is deemed to be issued for no consideration or the
“bonus element” as described in IAS 33 paragraph 27b.
The first component is equivalent to the number of shares that would have been issued if the issue had been made
at the full market price. Since the market price is higher than the issue price, the number of shares to be issued is less
than the entire rights issue. The residue (the second component) is deemed to be the shares issued for
page 1069
nil value, or bonus shares. Thus, a rights issue has a bonus element in it. Illustration 12.4 explains the
determination of the two components in a rights issue.
ILLUSTRATION 12.4
Rights Issue
On 30 September 20x4, Atlantis Corporation made a one-for-two rights issue at a subscription price of $1.50 per
share to existing shareholders. The market price immediately before the exercise of the rights issue was $3.00.
Atlantis Corporation’s paid-up capital consisted of 10,000,000 shares as at 1 January 20x3. The company reported net
profit attributable to ordinary shareholders of $2,500,000 for the year ended 31 December 20x4 and $2,400,000 for
the year ended 31 December 20x3.
The following points should be noted:
1. The total proceeds from the rights issue was $7,500,000 (5,000,000 new shares at $1.50 per share).
2. If the issue was made at the full market price, only 2,500,000 new shares needed to be issued ($7,500,000 ÷
$3).
3. The rights issue therefore was made up of the following:
Total new shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000,000
Comprising:
Shares deemed issued at full market price . . . . . . . . . . . . . . . . . . . . .
2,500,000
Shares deemed issued as bonus shares . . . . . . . . . . . . . . . . . . . . . .
2,500,000
5,000,000
Alternatively, using reasoning underlying the treasury method, the company needed to buy back 2,500,000
shares from the open market to issue to shareholders, with the proceeds it collected from the rights issue of
$7,500,000. An additional 2,500,000 shares are issued as bonus shares. The bonus issue factor is 1.2
(15,000,000/12,500,000) shares for every 1 existing share held. The bonus issue factor should be applied
retrospectively to outstanding shares before the rights issue.
4. A rights issue also includes a full issue of shares for consideration. There is an inflow of new resources as cash
is raised, which is used to acquire additional productive assets or to reduce debt, or both. Hence, the entity’s
earnings from 30 September onward are positively affected by the rights issue. This means that the rights issue
should be time-weighted by
for the full issue.
Thus, we can calculate the weighted average number of shares by applying the bonus issue element retroactively
and time-weighting the full issue of shares.
From 1 January 20x4 to 30 September 20x4 . . . . . . . . . . . . . . . . . . . . . . .
From 1 October 20x4 to 31 December 20x4 . . . . . . . . . . . . . . . . . . . . . . . .
10,000,000 × 1.2 ×
15,000,000a ×
Weighted average number of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a
= 9,000,000
=
3,750,000
12,750,000
The 15,000,000 shares include the bonus issue element.
page 1070
The bonus shares should also be adjusted to prior year EPS calculation.
From 1 January 20x3 to 31 December 20x3 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000,000 × 1.2 = 12,000,000
IAS 33 provides another method of determining the bonus issue factor. The calculation of the basic earnings per
share requires the determination of the bonus issue element in the rights issue. This is derived by dividing the full
market price by the theoretical ex-rights price as follows:7
The theoretical ex-rights price is the market’s adjustment to the full market price for the dilution arising from the
issue of the rights at a discounted price. The rights issue does not preserve the full market price and the theoretical exrights price is lower than the full market price before the rights are exercised. In this example, the theoretical ex-rights
price is equal to $2.50 per share.
The bonus issue factor in the rights issue is $3/$2.50, which is equal to 1.2. Thus, one share issued before the
rights issue is equal to 1.2 shares after the rights. The bonus issue factor may be determined through the treasury
method that is suggested in this text, or the ratio of the full market price to the theoretical ex-rights price.
New Issue of Shares from the Conversion of Debt
The capital structure of the issuer changes when the holders of convertible debt exercise their conversion rights. On
conversion, equity increases while debt decreases. Although there is no inflow of cash, there is a reduction of debt,
which increases net assets of the issuer. Earnings increase as interest expense on the converted debt is page 1071
saved. Therefore, the new issue of ordinary shares from the conversion of debt has to be time-weighted.
Illustration 12.5 is an example of the impact of conversion of debt on basic earnings per share.
ILLUSTRATION 12.5
Additional shares issued on the conversion of debt
Capital Ltd had the following capital structure at 1 January 20x5:
1. 10,000,000 ordinary shares
2. $10,000,000 8% convertible bond
Additional information:
(a) Conversion ratio of bond: every $1,000 nominal value of bond was convertible into 500 ordinary shares.
(b) On 1 July 20x5, 40% of the bond holders exercised their conversion rights. Thus, 2,000,000 new shares were
issued (40% × $10,000,000/$1,000 × 500).
(c) Net profit for the year ended 31 December 20x5 was $3,300,000 (which included interest expense saved
because of the partial conversion of the bonds).
Contingently Issuable Shares
Contingently issuable shares are “ordinary shares issuable for little or no cash or other consideration upon the
satisfaction of specified conditions in a contingent share agreement” (IAS 33:5). Contingently issuable shares arise
from contingent share agreements usually associated with business combinations and buyouts. The conditions can be
quite varied, but the more common ones pertain to the attainment of a certain level of earnings or sales or market
price of the entity’s shares, or the number of sales outlets opened. Such shares are treated as outstanding (although
they are yet to be issued), and are time-weighted from the date when all necessary conditions are satisfied, that is, the
contingency events have occurred.8 Illustration 12.6 is an example of how contingently issuable shares are
incorporated in basic earnings per share.
ILLUSTRATION 12.6
Contingently issuable shares
On 1 January 20x5, Alpha Company acquired Beta Corporation, a franchisor for a reputable brand of footwear. The
consideration was payable entirely in cash. The terms of the acquisition included a contingent share page 1072
agreement that required Alpha Company to issue 10,000 additional new shares to the shareholders (the
vendors) of Beta Corporation for each franchise contract secured in 20x5. One contract was secured on 1 June 20x5
and another on 1 December 20x5. Alpha’s share capital comprised solely of 100,000 ordinary shares. There had been
no issue of new ordinary shares during the year. Alpha Company’s interim financial statements were prepared halfyearly.
First half-year
Second half-year
Net profit attributable to ordinary shareholders . . . . . . . . . .
$138,000
$250,000
$388,000
Ordinary share outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
100,000
100,000
100,000
Contingently issuable shares . . . . . . . . . . . . . . . . . . . . . . . .
1,667a
11,667b
Full year
6,667c
Total shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,667
111,667
106,667
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.36
$2.24
$3.64
a
10,000 shares ×
b
10,000 shares (issuable as at 1 July 20x5) + (10,000 shares ×
c
(10,000 ×
(one month for the first half-year)
) + (10,000 ×
) (one month for the second half-year)
)
Even though the contingent shares were not issued as of 31 December 20x5, they are included in the calculation of
basic EPS when the necessary conditions (opening of stores) are satisfied.
The satisfaction of the necessary conditions are assessed at the end of each reporting period — interim periods
ended 30 June 20x5 and 31 December 20x5 and full year ended 31 December 20x5. The summation of the EPS of the
two half-periods is not equal to the EPS of the cumulative full-year period as the time-weighting differs for the halfyear and the full year.
Share repurchase and treasury shares
It is not uncommon for an entity to embark on a share repurchase exercise to buy back its own shares from the market.
Paragraph 33 of IAS 32 requires the entity that reacquires its own equity instruments to deduct those instruments
(‘‘treasury shares”) from equity. No gain or loss should be recognized in the profit or loss on the purchase, sale, issue,
or cancellation of its own equity instruments and the consideration paid or received for the shares bought back is
recognized directly in equity.9 Subsequent to the shares repurchase, these shares are no longer outstanding, that is,
they are no longer available in the market. Accordingly, they should not be included in the calculation of the weighted
average number of ordinary shares. If these shares were bought back during the year, they should be time-weighted as
these shares were outstanding for part of the year. Insofar as the prior year is concerned, no adjustment should be
made for the shares bought back during the current year as they were outstanding for the entire previous year.
Conversely, for shares that were repurchased and held in treasury since the beginning of the previous financial year,
should not be included in the calculation of the weighted average number of ordinary shares for both prior and current
period as they were no longer outstanding since the previous period. The following illustrative example demonstrates
the above principle.
page 1073
ILLUSTRATION 12.7
Impact of treasury shares on calculation of weighted average number of
ordinary shares
Company X has issued share capital of 4,000,000 ordinary shares as at 31 December 20x5. Profit for the year
attributable to ordinary shareholders amounted to $1.2 million. In 20x3, a total of 500,000 were repurchased from the
market under the company’s share repurchase mandate and held in treasury. On 31 August 20x5, the company bought
back another 800,000 shares from the market. Similarly, these shares are not cancelled and are held in treasury. The
following table shows the movement in the share capital account.
Number of shares
1 January 20x5
Balance as at beginning . . . . . . . . . . . . .
Less: Treasury shares (bought in 20x3) .
4,000,000
(500,000)
3,500,000
31 August 20x5
Shares repurchased during the year . . .
31 December 20x5 Balance as at end . . . . . . . . . . . . . . . . . .
(800,000)
2,700,000
Calculate weighted average number of ordinary shares
Time-weighting
Shares in issue
Less: Treasury shares
Number of shares
4,000,000
(500,000) x 12/12
(500,000)
3,500,000
Shares repurchased during the year
Weighted average number of shares
Calculate basic earnings per share
(800,000) x 4/12
(266,667)
3,233,333
Explanatory note:
In respect of the 800,000 shares repurchased on 31 August 20x5, the factor of
is applied to the 800,000 shares as
these shares were no longer outstanding for 4 out of the 12 months for 20x5 (i.e., from September to December 20x5).
If the EPS for 20x4 is calculated, these shares will not be time-weighted in the calculation of the weighted average
number of ordinary shares as they were outstanding for the entire year in 20x4. Conversely, the shares held in treasury
of 500,000 will be time-weighted and adjusted for the purpose of calculating the weighted average number of shares
in 20x4 as they were no longer outstanding for the full year in 20x4.
page 1074
DILUTED EARNINGS PER SHARE
In a complex capital structure, an entity issues both ordinary shares and potential ordinary shares. Potential ordinary
shares are financial instruments or contracts that give rise to ordinary shares at the exercise or conversion by the
holder or on satisfaction of specified conditions. The following situations give rise to potential ordinary shares,
requiring the computation of diluted earnings per share if the potential ordinary shares are dilutive:
1. The entity has outstanding potential ordinary shares in the form of options and warrants or convertible
instruments.
2. The entity has contingently issuable shares, and the conditions have not been met.
3. The entity has entered into contracts that may be settled in ordinary shares or cash, either at the entity’s
discretion or the holder’s discretion.
The existence of potential ordinary shares leads to possible dilution in earnings per share at some future date.
Dilution is “a reduction in earnings per share or an increase in loss per share resulting from the assumption that
convertible instruments are converted, options or warrants are exercised, or that ordinary shares are issued upon the
satisfaction of specified conditions” (IAS 33:5). Diluted earnings per share is the performance metric that shows
earnings per share under the assumption of full conversion or exercise of options of potential ordinary shares or
satisfaction of specified conditions. In this sense, diluted earnings per share is a hypothetical figure that is based on
the “worst case scenario” of issuance from potential ordinary shares. Why is there a need to report diluted earnings
per share that is based on assumptions?
Consider the following situation. On 1 January 20x0, an entity with 10,000,000 units of ordinary shares
outstanding issued a $10,000,000 bond that gave the holder the right to convert every $1,000 bond into 500 ordinary
shares. The entity used the proceeds of the bond issue to invest in a project that increased the net profit of the entity.
On 1 January 20x3, all the holders of the bond exercised their conversion rights. The following table shows the net
earnings of the entity and the earnings per share for the period 20x0 to 20x3.
a
Year
Net profit
Number of ordinary shares
Basic EPS
20x0 . . . . . . . . .
$5,000,000
10,000,000
50 cents
20x1 . . . . . . . . .
$6,000,000
10,000,000
60 cents
20x2 . . . . . . . . .
$7,000,000
10,000,000
70 cents
20x3 . . . . . . . . .
$7,500,000
15,000,000a
50 cents
Full conversion on 1 January 20x3.
For the financial years 20x0 to 20x2, earnings per share increased until 20x3 when it dropped to the level in 20x0,
even though net profit continued to increase. If basic earnings per share is the only metric disclosed, some, if not all,
of the shareholders of the entity would probably find this unexpected decrease in basic earnings per share to be a
disappointment. This surprise could be avoided if the entity had reported the dilutive effect of the convertible bond on
earnings per share from 20x0 onward. As the convertible bond had been in existence from 20x0, the diluted earnings
per share would have shown an increasing trend of profitability. While basic earnings per share shows the effects of
actual conversions, diluted earnings per share shows the assumed effects of actual conversions. In this respect, diluted
earnings per share is a more timely measure of performance as it incorporates future dilution from existing potential
ordinary shares in the earnings per share calculation.
Thus, the purpose of requiring the disclosure of diluted earnings per share 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
page 1075
ordinary shares outstanding during the period” (IAS 33:32). The disclosure of diluted earnings per
share serves to provide shareholders with a predictor of what the earnings per share would be if all potential ordinary
shares give rise to ordinary shares. It is thus considered useful and relevant information for two reasons. First, it
enhances comparability over time of earnings per share information of entities with complex capital structures. By
incorporating maximum dilution from potential ordinary shares, diluted earnings per share focuses on profitability
rather than the timing of actual conversions. Second, it provides an indication of the possible dilutive impact on share
price resulting from the future increase in the number of ordinary shares.
Diluted earnings per share includes only the dilutive effects of potential ordinary shares. If the assumed
conversion or exercise of potential ordinary shares increases rather than decreases earnings per share (or reduces loss
per share), the potential ordinary shares are said to be “anti-dilutive.” Potential ordinary shares that are anti-dilutive
are excluded from the calculation of diluted earnings per share (IAS 33:41). Diluted earnings (loss) per share should
never be higher (lower) than basic earnings per share. When anti-dilution occurs, the diluted earnings per share is
reported to be the same as the basic earnings per share.
IAS 33 requires the use of profit or loss from continuing operations attributable to the parent entity as the “control
number” to determine whether potential ordinary shares are dilutive or anti-dilutive (IAS 33:42). The number of
potential ordinary shares used to calculate diluted earnings per share from continuing operations is used to calculate
other diluted earnings per share, namely diluted earnings per share from discontinued operations and diluted earnings
per share attributable to ordinary shareholders. The significance of the control number comes into play when an entity
reports a loss from discontinued operations while reporting a profit on continuing operations. The diluted earnings per
share will be dilutive for the continuing operations but anti-dilutive for the discontinued operations. Using the profit
or loss from continuing operations as the control number means that the same number of potential ordinary shares
used in calculating the diluted earnings per share from profitable operations is also used to calculate the other reported
diluted earnings per share, notwithstanding that the latter is anti-dilutive. Illustration 12.8 shows how potential
ordinary shares can cause loss per share to be anti-dilutive.
ILLUSTRATION 12.8
Profit from continuing operations and overall loss
For the year ended 31 December 20x4, Regis Corporation reported the following:
Profit from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
$3,800,000
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
(4,200,000)
Loss attributable to ordinary shareholders . . . . . . . . . . . . . . . .
$ (400,000)
Regis Corporation had 10,000,000 ordinary shares and stock options outstanding throughout the year that
potentially give rise to 1,000,000 ordinary shares to be issued without any consideration. Under the treasury method,
the stock options have no impact on earnings when exercised. Regis Corporation had no other potential shares such as
convertible preference shares or convertible debt.
Basic earnings per share
Earnings (loss) per share from continuing operations [$3,800,000 ÷
10,000,000]
$ 0.38
Earnings (loss) per share attributable to ordinary shareholders [($400,000) ÷
10,000,000]
$(0.04)
page 1076
Diluted earnings per share
Diluted earnings (loss) per share from continuing operations [$3,800,000 ÷
11,000,000]
$ 0.345
Diluted earnings (loss) per share attributable to ordinary shareholders
[($400,000) ÷ 11,000,000]
$(0.036)
From the above calculations, the stock options are not anti-dilutive with reference to profit from ordinary
operations although they are anti-dilutive with reference to overall loss of the entity. As profit from continuing
operations is the control number, stock options is not deemed anti-dilutive. Hence, the diluted earnings per share for
continuing operations and for the entity as a whole incorporate the additional shares arising from the stock options.
Diluted loss per share is lower than basic loss per share. This anomaly arises because of the overall loss position of
the entity. Increase in the number of shares issued reduces the loss per share. However, in most other cases where the
entity is profitable, the general principle holds that diluted earnings per share should never be greater than the basic
earnings per share.
Adjustments to the Computation of Diluted Earnings per Share
The computation of diluted earnings per share requires adjustments to be made to both the numerator and
denominator; assumptions must also be made with regard to the timing of the conversion of the potential ordinary
shares.
Adjustments to the Numerator of Diluted Earnings per Share
The assumed conversion or exercise of potential ordinary shares results in avoidance or savings of expenses that
affect the earnings numerator:
1. Dividends on convertible preference shares are not deducted from net profit;
2. After-tax interest and amortization expenses on convertible bond are added back to net profit after tax; and
3. Any other expense (income) relating to potential ordinary shares are added back to (deducted from) net profit
after tax.
For example, if the potential ordinary shares are in the form of convertible preference shares, the dividends on the
convertible preference shares are added to the profit attributable to the ordinary shareholders of the parent entity. If
the potential ordinary shares are in the form of convertible bonds, the interest on the bonds (net of tax) is similarly
added to the profit attributable to the ordinary shareholders of the parent entity. The rationale is that if all convertible
preference shares or convertible bonds are converted into ordinary shares, there will be no preference dividends or
interest to be paid. The expenses associated with potential ordinary shares that are added back to net profit after tax
include transaction costs and the amortization of premiums or discounts accounted for in accordance with the
effective interest method.
page 1077
Adjustments to the Denominator of Diluted Earnings per Share
The denominator for the computation of diluted earnings per share is the sum of the weighted average number of
shares of basic earnings per share and the weighted average number of ordinary shares that is issued upon the
assumed conversion or exercise of all the dilutive potential ordinary shares at the beginning of the reporting period or
the date of issue of the potential ordinary shares, whichever is later (IAS 33:36).
Assumptions
Dilutive potential ordinary shares are assumed to have been converted into ordinary shares at the beginning of the
reporting period (if the potential ordinary shares have been issued at the beginning of the period or in a prior period),
or at the date of the issue of the potential ordinary shares (if the potential ordinary shares are issued during the current
period). If the potential ordinary shares are issued during the year, the number of ordinary shares arising from the
assumed conversion or exercise must be time-weighted from the date of issue to the end of the reporting period. For
example, Company A has 10,000 convertible preference shares issued some years ago; on 1 July 20x5, it issued a
$10,000 convertible debt. The financial year end is 31 December. To determine the weighted average number of
shares for diluted earnings per share, the convertible preference shares are assumed to be converted on 1 January
20x5, and the convertible bonds are assumed to be converted ordinary shares on 1 July 20x5. Thus, for the convertible
debt, the number of ordinary shares assumed to be issued on conversion has to be time-weighted by half for the period
from 1 July 20x5 to 31 December 20x5. However, a full year’s weighting applies to convertible preference shares as
they were in existence as at 1 January 20x5. Similarly, cancelled or lapsed potential ordinary shares are time-weighted
only for the portion of the period during which they are outstanding (IAS 33:38).
Listed entities usually report their earnings every quarter or half-yearly, in addition to the annual reporting. As a
consequence, dilutive potential ordinary shares have to be determined independently for each period presented. The
number of dilutive potential ordinary shares included in the year-to-date earnings per share calculation should not be a
summation of the weighted average dilutive potential ordinary shares included in each interim computation (IAS
33:37).
Calculation of Diluted EPS When Potential Ordinary Shares Are Options and Warrants
Options10 and warrants are instruments that give their holder the right but not the obligation to subscribe for shares in
the issuing entity at a specified price for a specified period. For the purpose of calculating diluted earnings per share,
the assumption is made that all options and warrants are exercised either at the beginning of the period or, if the
instruments are issued during the period, at the date of issue. Call options and warrants are dilutive only if they are
“in-the-money,” that is, the average market price of ordinary shares during the period exceeds the exercise price.
When the option or warrant is in-the-money, the holder gains by exercising his right to subscribe for ordinary shares
at a price that is lower than the market price.
page 1078
Treasury Method
The amount of the dilution to the net assets of the issuer is the excess of the average market price of ordinary shares
during the period over the exercise (or issue) price. The method of calculating the number of dilutive shares for
options and warrants is also known as the treasury method. Under this method, the total number of new shares that
will be issued upon the exercise of the options or warrants is deemed to be made up of two components, which is
analogous to the components in a rights issue:
1. Shares issued for full consideration. This component comprises the number of shares that would have been
issued at the average market price of ordinary shares during the period to realize the total proceeds from the
issue. This component is assumed to be fairly priced and is considered to be neither dilutive nor anti-dilutive.
The shares in this portion are ignored in the calculation of diluted earnings per share.
2. Shares issued for no consideration. This component is made up of the difference between the total number
of shares issued at the exercise price and the number of shares that would have been issued at the average
market price from total proceeds received (determined in part (1) above). As with bonus issues, shares issued
for no consideration do not result in an inflow of resources and have no effect on the earnings of the entity.
Therefore, these shares are considered to be dilutive and added to the denominator in the calculation of diluted
earnings per share, without any adjustment to the numerator.
The treasury method assumes that the issuing entity would buy back shares from the open market with the
proceeds it collects from the option holders. If the option is “in-the-money,” the number of repurchased shares would
be insufficient to issue to the option holders. Additional shares would be issued to option holders for free. The
treasury method applies to warrants as well. Arithmetically,
Note that the market price is the average for the period in which the stock options are outstanding and not the
market price at the end of the period. The assumption is that the stock options are exercisable into ordinary shares at
any time throughout the period.
Employee share options with fixed or determinable terms are deemed as potential ordinary shares, even though
they may be contingent on vesting11 (IAS 33:48). These potential ordinary shares are treated as outstanding on the
grant date.12
The number of ordinary shares to be issued on the assumed conversion of dilutive potential ordinary shares
depends on the terms on which these potential ordinary shares are issued. There may be more than one basis of
conversion, in which case the calculation applies the most advantageous conversion rate or exercise price from the
perspective of the holder of the potential ordinary shares (IAS 33:39). Illustration 12.9 shows the application of the
treasury method to a complex capital structure with warrants.
page 1079
ILLUSTRATION 12.9
Complex capital structure with options
The following information pertains to Supreme Corporation for the year ended 31 December 20x6.
Net profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,000,000
Preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
None
Ordinary shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000,000
Shares to be issued under options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,000
Date options issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 January 20x6
Exercise price of options during 20x6 . . . . . . . . . . . . . . . . . . . . . . . . . .
$6
Average market price of one ordinary share during 20x6
$8
Proceeds from the assumed exercise of 400,000 options . . . . . . . . . . .
$2,400,000
There are no other potential ordinary shares.
Calculation of diluted earnings per share
Shares to be issued on exercise of options . . . . . . . . . . . . . . . . . . . . . . . . . . .
400,000
Shares that would have been issued at fair market value ($2,400,000 ÷ $8) .
(300,000)
Shares deemed to be issued for no consideration . . . . . . . . . . . . . . . . . . . . .
100,000
Calculation of Diluted EPS When Potential Ordinary Shares Are Convertible Instruments
Convertible instruments that are potential ordinary shares include convertible preference shares and convertible debt.
The method of computing diluted earnings per share for convertible instruments is known as the if-converted method.
The following points should be noted:
All convertible instruments are assumed to be converted at the beginning of the year, or if the convertible
instruments are issued during the period, at the date of issue. This applies even if there has been partial
conversion during the period.
Preference dividends or interest (net of tax) relating to the convertible instruments are added back to the net
profit attributable to ordinary shareholders.
If the ratio of preference dividends declared (or accumulated) or interest (net of tax) divided by incremental
ordinary shares obtainable on conversion is more than the basic earnings per share, the convertible preference
shares or convertible debt is anti-dilutive.
Illustration 12.10 shows the application of the if-converted method to convertible preference shares.
page 1080
ILLUSTRATION 12.10
Potential ordinary shares that are convertible securities
Company A recorded a net profit of $2,320,000 for the year ended 30 June 20x5. The company had 50,000,000
ordinary shares outstanding at the beginning of the year. No new shares were issued during the year. Company A had
an outstanding of 5,000,000 6.4%13 cumulative preference shares that are convertible into ordinary shares at the ratio
of one preference share for one ordinary share.
Net profit for the year ended 30 June 20x5 . . . . . . . . . . . . . . . . . . . . . . . . .
Less preference dividends (5,000,000 × 0.064) . . . . . . . . . . . . . . . . . . . . . .
Net profit attributable to ordinary shareholders . . . . . . . . . . . . . . . . . . . . . .
$2,320,000
(320,000)
$2,000,000
Basic earnings per share ($2,000,000/50,000,000)
4 cents
Diluted earnings per share ($2,320,000/55,000,000) . . . . . . . . . . . . . . . . .
4.22 cents
Since the diluted earnings per share is greater than the basic earnings per share, the convertible preference shares
are anti-dilutive and excluded from the calculation of diluted earnings per share.
Another approach to test whether or not the convertible preference shares are anti-dilutive is to compare the
earnings per preference share with and without conversion. Without conversion, the preference shareholders earn 6.4
cents ($320,000/5,000,000 shares) in the form of preference dividends. With conversion, the preference shareholders
earn 4.22 cents per share (assuming a 100% dividend payout). It is very unlikely, therefore, that the preference
shareholders would wish to convert their preference shares into ordinary shares.
Therefore, the cumulative preference shares are anti-dilutive.
Contingently Issuable Shares
The general guidelines for the inclusion of contingently issuable shares in the calculation of diluted earnings per share
are as follows:
1. If the conditions are met during the period (that is, the contingent events have occurred), the contingent shares
are included in the calculation of diluted earnings per share from the beginning of the period (or from the date
of the contingent share agreement, if later).14
2. If the conditions are not met during the period, the number of contingently issuable shares assumed to be
issued is the number of shares that will be issuable if the end of the period is the end of the contingency period
(IAS 33:52). IAS 33 paragraph 52 requires an assessment of the number of ordinary shares issuable under
contingent arrangements, assuming that current conditions as at the end of the reporting period are the
conditions as at the end of the contingency period.
Consider the cases of contingently issuable shares in Illustrations 12.11 and 12.12.
page 1081
ILLUSTRATION 12.11
Contingently issuable shares when conditions have been met
Refer to Illustration 12.6. Assume that there are no other potential ordinary shares other than the contingently issuable
shares.
First half
Second half
Full year
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$138,000
$250,000
$388,000
Outstanding ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,000
100,000
100,000
Contingently issuable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
a
10,000 ×
b
10,000 + 10,000
(contingent share issue agreement starts on 1 January 20x5)
10,000a
110,000
$
1.25
20,000b
120,000
$
2.08
20,000c
120,000
$
3.23
c
10,000 + 10,000 (contingent share issue agreement starts on 1 January 20x5)
For the computation of diluted earnings per share, the condition is met and the contingently issuable shares are
included in the denominator from the beginning of the period (since the contingent share issue agreement commences
1 January 20x5).
ILLUSTRATION 12.12
Contingently issuable shares when conditions have not been met
Delta Corporation entered into a contingent share issue agreement on 1 January 20x5 as part of the compensation plan
for its chief executive officer. The terms of the agreement, which ended on 31 December 20x6, required Delta
Corporation to issue a bonus of one ordinary share for every $2 of year-to-date consolidated, after-tax net profit in
excess of $1,000,000 during the agreement period. Delta Corporation had 5,000,000 ordinary shares outstanding for
the entire year ended 31 December 20x5, and had no outstanding options, warrants or convertible securities. Delta
Corporation prepares financial statements on a quarterly basis. The consolidated year-to-date after-tax net profit of
Delta Corporation and its subsidiaries for the four quarters of 20x5 is as follows:
Quarter ended
Year-to-date consolidated
after-tax net profit
31 March 20x5 . . . . . . . . . . . . . . . . . . . . . . . . .
$
800,000
30 June 20x5 . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,200,000
30 September 20x5 . . . . . . . . . . . . . . . . . . . . .
$1,000,000
31 December 20x5 . . . . . . . . . . . . . . . . . . . . . .
$1,500,000
page 1082
In this scenario, the condition is the attainment of a specified amount of profit. The amount has been attained for
the year ended 31 December 20x5, but there is no assurance that it will be maintained beyond the end of the reporting
period for an additional period. In this case, the calculation of diluted earnings per share is based on the number of
ordinary shares that will be issued if the profit for the current reporting period is the profit for the contingency period.
The calculation is based on the assumption that the profit attained will remain unchanged until the end of the
contingency period, that is, the expiration of the agreement. However, the computation of basic earnings per share
will not include the contingently issuable shares because all necessary conditions have not been satisfied and the
profit may change in the year ending 31 December 20x6. The number of shares to be included in diluted earnings per
share for each quarter and for the full year is as follows:
a
Year-to-date profit is less than $1,000,000
b
[($1,200,000 – $1,000,000) ÷ 2] × 1
c
[($1,500,000 – $1,000,000) ÷ 2] × 1
d
[($1,500,000 – $1,000,000) ÷ 2] × 1 (Contingency shares included as of beginning of period)
Contracts That May Be Settled in Ordinary Shares or Cash
Potential ordinary shares are present when an entity enters into a contract that gives the issuer or the holder the option
for settlement of the contract in ordinary shares or cash. If the option lies with the entity, the presumption is that the
contract will be settled in ordinary shares and the resulting potential ordinary shares are to be included in diluted
earnings per share if the shares are dilutive (IAS 33:58).
If the option for settlement lies with the holder of the instrument, the more dilutive of the two options of cash
settlement and share settlement is assumed in calculating earnings per share (IAS 33:60). An example of such an
instrument is a written put option. If the written put option is “in-the-money” during the period (that is, the exercise
price is above the average market price for that period), the potential dilutive effect on earnings per share is to be
calculated under a methodology in IAS 33 paragraph 63 that is essentially the treasury method for a
page 1083
share buy-back arrangement. The methodology assumes that at the beginning of the period, sufficient
ordinary shares are issued at the average market price during the period to raise funds to finance the share buy-back.
The incremental ordinary shares is the difference between the shares issued and the shares bought back. In
arithmetical terms,
Anti-dilution Sequencing
Entities often have more than one type of potential ordinary shares outstanding at any one time. For example, an
entity may have outstanding warrants, convertible debt, and convertible preference shares. This gives rise to the issue
of whether the different series of potential ordinary shares should be tested for dilution individually or in aggregate.
As the purpose of reporting diluted earnings is to report the maximum dilution (a worst case scenario), it is necessary
to test for the dilution effect individually and sequentially. This is because while a potential ordinary share may be
dilutive on its own, it may be anti-dilutive when included with other potential ordinary shares. Hence, the inclusion of
this potential ordinary share may not result in maximizing the reported diluted earnings per share.
Thus, in order to achieve maximum dilution, the order of the inclusion of potential ordinary shares is important.
The sequence to achieve maximum dilution starts with the most dilutive potential ordinary share, followed by the next
most dilutive, and ends with the least dilutive. The process stops when the inclusion of a potential ordinary share
increases the diluted earnings per share.
As discussed earlier, both the numerator and the denominator in the earnings per share computation have to be
adjusted for the effects of the assumed conversion or exercise of potential ordinary shares. The dilutive effect is
determined by comparing the ratio of incremental earnings to the incremental number of shares or the “earnings per
incremental share” (EPIS). The potential ordinary share with the lowest impact on the numerator (earnings) and the
highest impact on the denominator (the number of shares) has the lowest earnings per incremental share and is the
most dilutive. In this respect, options and warrants are the most dilutive because their earnings per incremental share
is nil as they have no effect on the numerator (earnings), but have an effect on the denominator (increase in the
number of shares).
The approach to determining the diluted earnings per share is summarized as follows:
1. Compute the basic earnings per share.
2. Compute the EPIS for each class of potential ordinary shares and rank them from the most dilutive to the least
dilutive.
3. The potential ordinary share with the lowest EPIS is the most dilutive as the positive impact on earnings
relative to the increase in hypothetically issued shares is the lowest among the potential ordinary shares.
4. According to the ranking of the EPIS, introduce the potential ordinary shares from most dilutive page 1084
to least dilutive to determine the provisional diluted earnings per share.
5. The process stops when all the potential ordinary shares have been included or when the inclusion of the next
ranked potential ordinary share results in a higher diluted earnings per share than the previous provisional
diluted earnings per share. The reported diluted earnings per share is the lowest possible figure and must never
be higher than the basic earnings per share (“the benchmark”). If the provisional diluted earnings per share,
after incorporating a potential ordinary share, is equal to or higher than the previously determined provisional
diluted earnings per share, that potential ordinary share is anti-dilutive and is excluded from the calculation of
diluted earnings per share.
Illustration 12.13 provides a comprehensive example of the calculation of diluted earnings per share in an entity
with multiple potential ordinary shares.
ILLUSTRATION 12.13
Comprehensive example on diluted earnings per share
The following information pertains to Eastwind Enterprises Ltd for the year ended 31 December 20x4.
Net profit attributable to ordinary shareholders in 20x4 . . . . . . . . . . . . . . . .
$2,000,000
Ordinary shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,000,000
Eastwind has the following potential dilutive securities outstanding as at 31 December 20x4:
(a) In December 20x3, Eastwind granted 200,000 share options to certain executives. Each option entitles the
holder to subscribe for one ordinary share at a price of $1.50 per share. The average market price of
Eastwind’s share during 20x4 was $2. The options were exercisable one year after the grant date. None of the
options had been exercised as at 31 December 20x4.
(b) In October 20x3, Eastwind issues 600,000 8% non-cumulative convertible preference shares at $10 per share.
The conversion ratio is three preference shares for four ordinary shares of $1 each. Preference dividends
(assumed to be tax-exempt) are paid half-yearly. None of the preference shares had been converted as of 31
December 20x4.
(c) On 1 January 20x4, Eastwind issues at par $5,000,000 convertible bonds with a coupon rate of 3% per annum.
The bonds mature on 31 December 20x5. Interest on the bonds is payable semi-annually in arrears on 30 June
and 31 December. At the time of issue, a similar bond with no conversion option would have to be issued at an
interest rate of 6% per annum. Each $1,000 bond is convertible to 500 ordinary shares. None of the bonds has
been converted. Eastwind accounts for the convertible bonds in accordance with the requirements of IAS 32.
Tax rate is 20%. Amortization of the bond discount is a non-tax deductible expense. However, IAS 12 requires the
recognition of deferred tax expense on the amortization expense. The ranking of potential ordinary shares, convertible
preference shares, and convertible bonds is as follows:
page 1085
Note 1: Number of shares deemed issued for no consideration = 200,000 – ($1.5 × 200,000)/$2 = 50,000
Note 2: Dividends on convertible preference shares = 600,000 × $10 × 8% = $480,000
Note 3: The following computation of the earnings effect due to the assumed conversion of the convertible bonds
takes into account the requirements of IAS 32, which requires the debt and equity components of the bond to be
separated.
Fair value of bond (without conversion option):
Present value of interest payments [$75,000 × 3.717115] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 278,783
Present value of principal at maturity [$5,000,000 × 0.888516] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,442,500
Present value of bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,721,283
Nominal value of bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,000,000
Discount on bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 278,717
Effective interest on bond for 20x4:
1 January 20x4 to 31 December 20x4 (see schedule below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 285,276
After-tax interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 228,221
Amortization schedule of discount on bond for 20x4
Diluted earnings per share is determined progressively through the introduction of each potential ordinary share
from the most dilutive (lowest EPIS) to the least dilutive (highest EPIS):
page 1086
As the share options are dilutive, the next most dilutive security is tested for anti-dilution. The convertible bonds
are dilutive as the earnings per share decreases to $0.401. This figure becomes the new benchmark. The convertible
preference shares are next tested for anti-dilution by adding their numerator and denominator effects to the new
provisional diluted earnings per share. The convertible preference shares are anti-dilutive as their inclusion increases
the diluted earnings per share. The convertible preference shares are, therefore, excluded; the diluted earnings per
share is $0.401. Note that when compared to the basic earnings per share, the convertible preference shares are
dilutive (earnings per incremental ordinary share of $0.60 versus basic earnings per share of $0.67). The diluted
earnings per share of $0.401 maximizes the dilution from the three classes of potential ordinary shares.
Presentation and Disclosures
In the income statement, both the basic and diluted earnings per share (even if the figures are negative) should be
presented with equal prominence for all periods in respect of:
1. The profit or loss attributable to ordinary shareholders of the parent company from continuing operations; and
2. The profit or loss attributable to the ordinary shareholders of the parent entity for the period, and of each class
of ordinary shares that has a different right to share in the profit for the period.
If an entity has reported a discontinued operation during the year, the basic and diluted earnings per share from the
discontinued operation should be disclosed in either the face of the income statement or in the form of notes.
The following information should be disclosed in the notes (IAS 33:70):
1. Earnings used as the numerators in calculating the basic and diluted earnings per share, and a reconciliation of
those earnings to profit or loss attributable to the parent entity for the period. The reconciliation should include
the individual earnings effect of each class of instruments that affects earnings per share.
2. The weighted average number of ordinary shares used as the denominator in calculating basic and page 1087
diluted earnings per share, and a reconciliation between the two denominators. The reconciliation
should include the individual denominator effect of each class of instruments that affects earnings per share.
3. Potential ordinary shares that were not included in the calculation of diluted earnings per share because they
were anti-dilutive for the period(s) presented.
4. A description of ordinary share transactions or potential ordinary share transactions, other than those arising
from capitalization, a bonus issue, a share split, or a reverse share split, which occur after the reporting date
and which would have changed significantly the number of ordinary shares or potential ordinary shares
outstanding at the end of the period, had those transactions occurred before the end of the reporting period.
page 1088
CONCEPT QUESTIONS
CQ12.1
Explain the significance of earnings per share to investors in publicly traded shares of listed companies.
CQ12.2
Explain the difference between basic earnings per share and diluted earnings per share.
CQ12.3
Entity A reported the following basic earnings per share and diluted earnings per share:
20x5
20x4
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.90
$1.00
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.85
0.80
Explain the possible reason(s) for basic earnings per share to decline in 20x5 while diluted earnings per share increased.
CQ12.4
Explain the rationale for reporting diluted earnings per share.
CQ12.5
Discuss the limitations of earnings per share as an indicator of an entity’s performance.
CQ12.6
Explain why an anti-dilutive potential ordinary share is excluded from the calculation of diluted earnings per share.
PROBLEMS
P12.1
Basic and diluted earnings per share
The capital structure of ASIA Corporation as at 31 December 20x5 is as follows:
Ordinary share capital (10,000,000 shares) . . . . . . . . . . . . .
$10,000,000
4.8% convertible preference shares (300,000 shares) . . . . .
3,000,000
Additional information:
(a) ASIA Corporation reported net profit after tax of $2,800,000 for the year ended 31 December 20x5.
(b) The preference shares, which were issued several years ago, were convertible into ordinary shares in the ratio
of five ordinary shares for every two convertible preference shares. The conversion ratio was to be adjusted for
any bonus or rights issue.
(c) On 1 July 20x5, ASIA Corporation declared a bonus issue of one bonus share for every two ordinary
page 1089
shares held.
(d) Preference dividends, which were tax-exempt, were paid at the end of each quarter.
(e) On 1 October 20x5, the holders of 40% of the convertible preference shares converted their preference shares
into ordinary shares.
Required:
1. Calculate the basic and diluted earnings per share of ASIA Corporation for 20x5.
2. For the year ended 31 December 20x4, ASIA Corporation reported net profit after tax of $2,500,000. Calculate
the basic and diluted earnings per share for 20x4.
P12.2
Options, convertible bonds, and earnings per share
Excelsior Corporation reported profit after tax of $5,000,000 for the year ended 31 December 20x3. The following
information is provided for the year 20x3:
(a) The number of outstanding ordinary shares at 1 January 20x3 was 12,000,000. On 30 June 20x3, Excelsior
issued 6,000,000 new shares at fair value to acquire the business of a competitor.
(b) On 1 October 20x3, Excelsior granted 2,000,000 options to its key managers. Each option allowed the holder
to purchase one unit of ordinary share at $1. The average market price of Excelsior’s share during 20x3 was
$1.60. The options were exercisable only after two years from the date of grant.
(c) On 1 January 20x3, Excelsior issued at par value a convertible bond with a nominal value of $10,000,000 and a
coupon rate of 2% per annum. Interest on the bond was payable annually on 31 December. The bond, which
matures on 31 December 20x7, is convertible into 5,000,000 ordinary shares. As at 31 December 20x3, there
had been no conversion of the bond into ordinary shares. Excelsior accounted for this bond in accordance with
IAS 32. The market interest rate at the time of issue of the bond was 6% per annum.
(d) The tax rate was 20%.
Required:
Calculate the basic and diluted earnings per share for the year ended 31 December 20x3.
P12.3
Basic earnings per share with rights issue
The accountant of Kops Ltd has just prepared the financial statements for the financial year ended 31 December
20x4. The income statement reported a consolidated profit after tax of $14,500,000 ($12,800,000 for fiscal year
20x3). The statement of financial position as at 31 December 20x4 shows the following capital structure:
Issued and paid-up capital
70 million ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,000,000
3,000,000 6.4% convertible preference shares . . . . . . . . . . .
15,000,000
$85,000,000
Additional information:
(a) On 1 July 20x3, Kops Ltd made a one-for-two rights issue at a subscription price of $1.00. The market
page 1090
price of Kops Ltd's share just before it went ex-rights was $1.90 per share.
(b) On 1 April 20x4, there was a one-for-one bonus issue of ordinary shares.
(c) The convertible preference shares were issued on 1 October 20x3. The preference shares were convertible into
ordinary shares on the basis of two ordinary shares for each preference share after the bonus issue. On 1 July
20x4, 1,000,000 preference shares were converted into ordinary shares. Preference dividends (tax-exempt)
were paid on the shares outstanding at the end of each quarter in 20x3 and 20x4.
(d) On 1 October 20x4, the company issued 8,000,000 ordinary shares of $1 each as purchase consideration for a
commercial building. The shares were issued at full market price.
Required:
1. Show the capital structure of Kops Ltd at 1 January 20x3.
2. Calculate the earnings per share of Kops Ltd for 20x3 and for 20x4 (with comparative figures for 20x3).
P12.4
Calculation of basic and diluted earnings per share
The following information pertains to Causeway Company for the year ended 31 December 20x1:
(a) Causeway Company’s net profit attributable to ordinary shareholders for the year 20x1 was $8,000,000.
(b) As at 1 January 20x1, Causeway Company had 20,000,000 ordinary shares outstanding.
(c) The average market price of Causeway’s share during 20x1 was $6.00.
(d) Causeway Company had the following potential ordinary shares outstanding during the year:
(i) Warrants to buy 1,000,000 ordinary shares at $5.00 per share.
(ii) 1,200,000 convertible preference shares that were entitled to a cumulative tax-exempt dividend of $0.68
per share. Each preference share is convertible into two ordinary shares.
Required:
Calculate the basic and diluted earnings per share of Causeway Company for the year ended 31 December 20x1.
P12.5
Calculation of interim basic and diluted earnings per share
The following information pertains to First Corporation Ltd:
(a) The number of ordinary shares outstanding at the beginning of 20x1 was 30,000,000.
(b) On 1 April 20x0, 6,000,000 convertible preference shares were issued for assets in a purchase transaction. The
net-of-tax quarterly dividend on each convertible preference share was $0.04, payable at the end of each
quarter. Each share was convertible into one ordinary share. Holders of 5,000,000 convertible preference shares
converted their preference shares into ordinary shares on 1 July 20x1.
(c) Warrants to buy 5,000,000 ordinary shares at $4 per share for a period of five years were issued on 1 January
20x1. 50% of the outstanding warrants were exercised on 1 October 20x1.
(d) Information on net profit (loss) before dividends is as follows:
page 1091
Profit/(Loss) before
discontinued operations
Net profit/(Loss)
First half . . . . . . . . . . . . .
$7,000,000
$7,000,000
Second half . . . . . . . . . .
2,800,000
1,300,000
Full year . . . . . . . . . . . . .
$9,800,000
$8,300,000
(e) The average market prices of First Corporation’s ordinary shares for the calendar-year 20x1 were as follows:
First half . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.30
Second half . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.80
Full-year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.60
(f) The average market price from 1 July 20x1 to 1 October 20x1 was $4.70 while that for the period from 1
January 20x1 to 1 October 20x1 was $4.50.
Required:
Calculate the basic and diluted earnings per share for each interim period and for the full-year ended 31 December
20x1.
P12.6
Comprehensive problem
The capital structure of Model Company on 31 December 20x2 is as follows:
20,000,000 ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,000,000
5,000,000 4.8% convertible preference shares . . . . . . . . . . .
$ 5,000,000
The preference shares were convertible into ordinary shares in the ratio of 1,000 preference shares for 500 ordinary
shares. The conversion ratio was to be adjusted for any bonus or rights issue. Preference dividends, which were taxexempt, were payable every six months on the shares outstanding at 30 June and 31 December. No preference
dividends were paid if preference shares were converted after these two dates.
Additional information:
(a) Model Company had an outstanding agreement made in 20x2 with its chief executive officer that entitled the
chief executive officer to a bonus of 100,000 ordinary shares if the company’s net profit after tax exceeded
$3,000,000 in any of the years in the next three years. The bonus shares were adjustable for any bonus issue
made after the date of the agreement.
(b) On 1 April 20x3, Model Company declared and issued bonus shares based on one bonus share for every
existing four ordinary shares.
(c) On 1 July 20x3, Model Company issued $10,000,000 2% convertible bonds. The bonds were convertible into
ordinary shares in the ratio of $1,000 nominal value of bonds for 550 ordinary shares. Interest on the bonds was
payable semi-annually on 30 June and 31 December. The bonds matured on 30 June 20x5. A similar bond
without the conversion feature would have carried a coupon rate of 4% if issued at the same date.
(d) On 1 January 20x4, Model Company implemented an executive compensation plan that granted
page 1092
2,000,000 options to certain key executives. Each share option entitled the holder to subscribe for one
new ordinary share at the price of $1.50 per share. None of the options had been exercised.
(e) On 1 April 20x4, Model Company made a rights issue of three new ordinary shares for every five existing
ordinary shares at a subscription price of $1.20. The market price of Model Company’s share before it went exrights was $2.
(f) On 1 July 20x4, 40% of the convertible bonds were converted into ordinary shares.
(g) On 1 September 20x4, the company induced holders of the convertible preference shares to convert their
preference shares into ordinary shares by changing the conversion ratio to 750 ordinary shares for every 1,000
preference shares. All the preference shareholders accepted the improved conversion terms and converted their
preference shares. The fair value of the ordinary shares at the time of conversion was $2.50.
(h) The average market prices of Model Company’s share were $2.20 and $2.50 during 20x3 and 20x4,
respectively.
(i) The net profit after tax of Model Company for the years ended 31 December 20x3 and 20x4 is as follows:
20x3
20x4
Continuing operations . . . . . . . . . . . . . . . . . .
$2,800,000
$3,800,000
Discontinued operations . . . . . . . . . . . . . . . . .
(3,000,000)
–
Net profit (loss) . . . . . . . . . . . . . . . . . . . . . . . .
$(200,000)
$3,800,000
Profit for the year:
(j) The income tax rate was 20%.
Required:
1. Calculate the basic and diluted earnings per share for the year ended 31 December 20x3.
2. Calculate the basic and diluted earnings per share for the year ended 31 December 20x4. Show the comparative
earnings per share for 20x3 that should be reported in the 20x4’s financial statements.
P12.7
Comprehensive problem
Gold Ltd is a publicly listed company and has to provide earnings per share information in accordance with IAS 33
Earnings per Share. The following information relates to the change in ordinary shares during the current reporting
year ended 31 December 20x2.
Number of
Ordinary Shares
Date
Event
1 Jan 20x2
Balance of issued shares at start of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000,000
1 May 20x2
Repurchase of shares with cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,200,000)
1 Jul 20x2
Bonus issue (one new share for an existing share) . . . . . . . . . . . . . . . . . . . . . . . . .
3,800,000
1 Nov 20x2
Issue of new shares for cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
900,000
31 Dec 20x2 Balance of issued shares at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,500,000
page 1093
Gold reports the following information in its Statement of Changes in Equity for the year ended 31 December 20x2.
Net profit after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,200,000
Less:
Ordinary share dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(100,000)
Preference share dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(150,000)
Profit retained . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,950,000
On 1 April 20x2, Gold Ltd issued 4,000,000 convertible preference shares. There were no conversions from
preference to ordinary shares during 20x2. The issue agreement permits the preference shareholders to convert each
preference share to one ordinary share. After the bonus issue, each unit of preference share is convertible to two
ordinary shares. Under the issue agreement, Gold Ltd has to pay cumulative tax-exempt preference share dividends
at 1.5% per share per quarter.
Required
1. Determine Gold’s basic earnings per share for the year ended 31 December 20x2.
2. Determine Gold’s diluted earnings per share for the year ended 31 December 20x2.
P12.8
Comprehensive problem
Sapphire Ltd has a complex capital structure that includes both ordinary shares and potential ordinary shares.
Sapphire Ltd reported the following net profit and dividends information for the current year ended 31 December
20x2.
Net profit after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,900,000
Less preference dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(53,250)
Net profit attributable to ordinary shareholders . . . . . . . . . . . . . . . .
$6,846,750
During 20x2, Sapphire entered into the following share capital transactions:
Date
Event
Number of ordinary
shares
1 Jan 20x2 Ordinary shares at start of year . . . . . . . . . . . . . . . . . . . .
2,000,000
1 Apr 20x2 Issue of new shares for cash . . . . . . . . . . . . . . . . . . . . . .
400,000
1 Aug 20x2 Share split:1 for 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,400,000
1 Oct 20x2 Conversion of preference shares . . . . . . . . . . . . . . . . . . .
450,000
5,250,000
page 1094
The following information relates to potential ordinary shares issued by Sapphire Ltd:
(a) On 1 July 20x1, Sapphire issued 1,000,000 convertible preference shares at $1 per share. On 1 October 20x2,
450,000 preference shares were converted to ordinary shares. Under the issue agreement, the shares bear a tax-
exempt coupon rate of 6% on a non-cumulative basis. The dividends are paid on a pro-rated basis for the period
that the shares are outstanding. Prior to the share split, the conversion ratio was two preference shares to one
ordinary share. After the share split, the conversion ratio is on a one-to-one basis.
(b) On 31 December 20x2, Sapphire had 600,000 units of outstanding stock options. These options were issued on
1 April 20x2 and none were exercised during 20x2. Each stock option entitles the holder to purchase one
ordinary share at the exercise price of $2.60 per share. The average market price for the period from 1 April
20x2 to 31 December 20x2 was $3.00 per share. All prices were adjusted for share splits.
(c) On 1 July 20x2, Sapphire issued convertible bonds. Under IAS 32, the bonds were recognized separately from
the equity options. The fair value of the bonds was $6,000,000. Each dollar of bond was convertible to one
ordinary share after adjustment for share split. There were no conversions in 20x2. The effective interest rate of
the bonds was 5% per annum.
(d) Tax rate applicable to 20x2 was 20%. Preference dividends are tax-exempt.
Required
1. Determine the basic earnings per share of Sapphire Ltd for the year ended 31 December 20x2.
2. Determine the earnings per incremental share for each potential ordinary share for the year ended 31 December
20x2.
3. Determine the diluted earnings per share for the year ended 31 December 20x2.
P12.9
Comprehensive problem
Sapphire Ltd, the company in P12.8, reported the following net profit after tax for the year ended 31 December
20x1.
Net profit after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,000,000
Issued ordinary shares during 20x1 were 2,000,000 shares.
Required
1. Determine the basic earnings per share of Sapphire Ltd for the year ended 31 December 20x1, as reported in
20x1.
2. Determine the diluted earnings per share for the year ended 31 December 20x1, as reported in 20x1.
3. Show the restated comparative information for basic earnings per share and diluted earnings per share
information for 20x1, as reported in the 20x2 financial statements.
4. When comparing the 20x2 earnings per share information with the restated comparatives, what inferences can
you make about the profitability of Sapphire Ltd?
P12.10
Effects of share repurchase and treasury shares on earnings per share
Diamonds Ltd has issued share capital of 2,000,000 ordinary shares as at 31 December 20x6. Profit for the year
attributable to ordinary shareholders amounted to $6.5 million. In 20x2, a total of 500,000 were page 1095
repurchased from the market under the company’s share repurchase mandate and held in treasury. In
20x6, the company bought back another two tranches of shares from the market. 50,000 and 60,000 shares were
repurchased on 31 March 20x6 and 30 September 20x6 respectively. Similarly, these shares are not cancelled and
are held in treasury. The following table shows the movement in the share capital account.
Number of shares
1 January 20x6
Balance as at beginning . . . . . . . . . . . . . . . . . . . .
2,000,000
Less: Treasury shares
(500,000)
1,500,000
31 March 20x6
Shares repurchased during the year . . . . . . . . . . .
(50,000)
30 September 20x6 Shares repurchased during the year . . . . . . . . . . .
(60,000)
31 December 20x6 Balance as at end . . . . . . . . . . . . . . . . . . . . . . . . .
1,390,000
Calculate the weighted average number of ordinary shares and the basic earnings per share.
page 1096
1
The price-earnings ratio is the ratio of market price to earnings per share (market price/EPS). It is interpreted as a multiple (number of times) of
earnings per share.
2 This
applies if the entity is a subsidiary of another entity.
3 IAS 33
4 This
paragraph 9.
EPS figure includes the profit or loss from the discontinued operation.
5 Increasing
rate preference shares are shares that are issued at a discount and that provide a low initial dividend to compensate the issuer for selling
at a discount. Alternatively, they may be preference shares sold at a premium with above-market dividends paid in later periods to compensate
investors for the up-front premium. The discount or premium on an increasing rate preference shares is amortized to retained earnings using the
effective interest method (IAS 33:15).
6 IAS 33
paragraphs 21 to 24.
7 IAS 33
Appendix A Application Guidance, paragraph A2.
8 IAS 33
paragraph 24.
9
As the consideration paid (which may include any additional premium) for the shares repurchased is deducted against equity, the profit
attributable to the ordinary shareholders used for the purpose of calculating the earnings per share will not be affected.
10
The options and warrants discussed in this section are call options or call warrants.
11
Vesting requires conditions in a share-based compensation plan to be satisfied before the employee is entitled to the equity instruments in the
issuing entity. Very often, these conditions are time-based.
12
This is the date when the issuer and the employee arrive at a shared understanding of the terms and conditions of an approved share-based
agreement (Appendix A of IFRS 2 Share-based Payment).
13
Preference dividends are assumed to be tax-exempt.
14
Note that if the conditions are met, the contingent shares are also included in the calculation of basic earnings per share except that the shares are
included only for the portion of the period during which the conditions are met.
15
PVIFA4,3%.
16
PVF4,3%.