(IFRS) Implementation Committee

The Institute of Chartered Accountants of India, New Delhi

IND AS 33

EARNINGS PER SHARE

By

CA. S. B. Zaware

Central Council Member, ICAI New Delhi

Member, Accounting Standards Board

Chairman, Ind As(IFRS) Implementation Committee

Ind AS (IFRS) Implementation Committee 1


Objective

To prescribe the principles required for the determination of Earnings per share(EPS) as well as its presentation to improve comparability.

The Objective of EPS calculation is to provide a measure performance of the entity with reference to each class of ordinary share in the performance of the entity over the reporting period.

Ind AS (IFRS) Implementation Committee 2


Scope

This Ind AS shall apply to all the companies that have issued ordinary shares to which Indian Accounting

Standards apply.

Where an entity prepares both consolidated financial statements and separate financial statements then the

EPS based on consolidated statements shall be disclosed in consolidated statements and EPS calculated on separate financial statements shall be disclosed in separate financial statements.



Computation of Basic EPS

The basic EPS shall be calculated by dividing the profit(loss) attributable to the ordinary equity shareholders by the weighted average of ordinary shares outstanding during the period.

For calculating the Basic earnings per share, the amounts attributable to ordinary share holders in respect of profit or loss from continuing and discontinuing operations shall be the amount of earnings.

Weighted average number of ordinary shares shall be the outstanding number of ordinary shares at the beginning of the period adjusted by the number of ordinary shares that has been issued or bought back during the period and multiplied by time factor.



Computation of Basic EPS (continued.)

The Basic EPS for the current period and for all the periods presented shall be adjusted for events that will result in a change in number of ordinary shares outstanding without a corresponding change in resources as if the event had occurred at the beginning of the earliest period presented. E.g. In a bonus issue the number of ordinary shares outstanding is increased without any increase in earnings.



Calculation of Basic EPS

=

Basic Earning Per Share

Net profit or loss for the period attributable to the ordinary equity shareholders

Weighted Average Number of Ordinary Shares outstanding during the period



Determination of Preference dividend

Non-cumulative preference shares: Preference dividend already declared / provided is to be considered.

Cumulative preference shares: Preference dividend payable for the period should be considered, irrespective of whether it is provided or not.

In case of Cumulative preference shares, arrears of preference dividend declared and paid should not be deducted, as they are already considered in the respective year of accrual.



Ordinary Shares with Different

Dividend rights

If an Enterprise has more than one class of Ordinary shares , Net Profit is apportioned over different classes of

Ordinary shares according to dividend rights.

EPS is reported separately for every class.

E.g. A Ltd. has 1,00,000 Class A shares and 2,00,000

Class B Shares. Class B Share is entitled to twice the dividend of every Class A share. Net profit for the year is

Rs. 3000 Lakhs.

Profit attributable to Class A shares is Rs. 600 lakhs and

Class B Shares is Rs. 2,400 lakhs. (Use Concept of

Equivalent Shares)



Example – Shares of Different Class

X Ltd. has following different classes of Ordinary shares of

Rs. 10 each, outstanding as on 31 st March 2015.

Class No. of Shares

A

Dividend Rights

1,00,000 Proportionate to Capital

B

C

D

30,000 In proportion of 3:2 with respect to Class A Shares



Profit for the year ended 31st March 2015 was

Rs. 8,00,000. Calculate Basic EPS.



Answer

Net profit attributable to each class of shares is calculated by converting shares into Equivalent Shares. Here all shares are converted into Equivalent Class A Shares.

Class Number of shares

(A)

Ratio of

Rights

(B)

Equivalent

Class A shares

(C)

C

D

A

B

1,00,000

30,000

30,000

40,000

1:1

3:2

5:2

6:2

Total

1,00,000

45,000

75,000

1,20,000

3,40,000

* 1,00,000/3,40,000 X 8,00,000

Apportioned

Net Profits

(Rs.)

(D)

2,35,294 *

1,05,882

1,76,471

2,82,353

8,00,000

Basic EPS

Rs.

(E) = D/A

2.35

3.53

5.88

7.06



Transfer to reserves & Tax on Dividend

Transfer to various mandatory reserves appropriated out of earnings available to ordinary equity shareholders, are included and is a part of the Numerator, since profit for

EPS calculation is considered as profit earned before appropriation.

Logic: Though these reserves are not immediately available to ordinary equity shareholders, reserves are ultimately meant for distribution amongst the ordinary equity shareholders.

Equity Dividend Distribution Tax u/s 115-O of Income Tax

Act, is not deducted from the earnings i.e. the numerator.



Example – Mandatory Reserves

As per the agreement entered with the Debenture holders,

X Ltd. is required to transfer adequate portion of its profit to the Debenture Redemption Reserve (DRR), over the period of maturity of debentures, such that, on maturity the

DRR would constitute at least half of the amount due to debenture holders. As this amount transferred to DRR is not available for distribution among Ordinary shareholders,

CFO of X Ltd. has deducted this amount from numerator in computation of Basic EPS. Is treatment in accordance with the Ind AS-33?



Answer

The treatment given by X Ltd. is not in accordance with Ind

AS-33.

The transfer to DRR would be included and is a part of the numerator in calculating Basic EPS.

Ind AS-33 requires all amounts attributable to Ordinary shareholders, be included in determination of EPS.

The amount transferred to DRR, though not immediately available to Ordinary shareholders, is ultimately meant for distribution among the Ordinary shareholders.

Accordingly it is a part of numerator for calculation of

EPS.



Summing up Numerator

Numerator Includes Numerator Excludes

• Dividend on Ordinary

Shares (including tax

• Preference Dividend

• Tax on Preference on dividend)

• Transfer to reserves

Dividend

• Taxes on Income

• Current Tax

• Deferred taxes

• Profit brought forward from previous years a r



Weighted Average No. of Ordinary Shares -

Denominator

For the purpose of calculating Basic EPS, number of

Ordinary shares should be weighted average number of

Ordinary shares outstanding during the period.

There may be change in shareholders capital during the year due to the issue of fresh shares, buy back, bonus issue, right issue etc. These changes in the capital needs to be considered in calculation of EPS.

Logic for Weighted Average Shares: The consideration received/paid for issue/buy back of shares was available to generate the earnings only for the part of the year.

Hence the Weight of the time is assigned to number of shares to arrive at weighted average shares.



Example –Weighted Average

Calculate the Weighted Average No. of Ordinary

Shares from the following Information.

Date

01.04.14

30.06.14

01.01.15

31.03.15

Particulars

Opening bal.

Issue for Cash

Buy back

Closing bal.

Opening

Balance

10,000

10,000

15,000

14,000

Shares

Issued

Shares bought back

5,000

1,000

Closing

Balance

10,000

15,000

14,000

14,000



Answer

Alternative 1: Periodical Weightage

= 13,500

3

12 12

3

12

)

Alternative 2: Yearly Weightage

12

3

12

= 13,500

)



Timing for inclusion in Weighted Average

In most of the cases, shares are included in the weighted average from the date the consideration is receivable.

Following table summarises the various situations

Shares Issued

For cash

Conversion of debt

In lieu of interest

Settlement of liability

Acquisition of asset

For rendering services

Contingently shares issuable

Date of Inclusion

Date on which cash is receivable

Date of conversion

Date when interest ceases to accrue

Date when settlement becomes effective

Date when acquisition is recognised

As the service is rendered

Date on which conditions are met



Weighted Average in case of Partly Paid

Shares

Particulars Weighted Average

Partly paid Ordinary shares participating dividends to the extent of paid up value

Weighted Average is calculated by converting partly paid shares into equivalent fully paid shares.

Partly paid Ordinary shares not entitled to dividends to the extent of paid up value



Not considered in calculation of Basic EPS.

 Partly paid shares are treated as option (Potential

Ordinary Shares) and considered in calculation of Diluted

EPS.

 Dividend is paid on the paid up value.



Example – Partly Paid Shares

Calculate Weighted Average No. of Ordinary shares from following information

Date Particulars No.

of shares

Issued

Face value per share

Paid up value per share

1.4.14

Opening bal.

10,000 Rs. 10 Rs. 10

1.1.15

Issue for Cash 5,000 Rs. 10 Rs. 5

Answer:

Weighted Average Number of Ordinary Shares

= (10,000 X 12/12) + (5,000 X 5/10 X 3/12)

= 10,625 Shares.

for converting into equivalent units for Calculating

Weighted Average



Example – Partly Paid Shares

Y Ltd. made the Public issue of 1,00,000 Ordinary shares of Rs. 10 each, during the year ended 31st March

2015.The issue was subscribed fully and the calls were made as given below

Rs.

5 on application and allotment on 1st July 2014

Rs. 2 on first call made on September 30th 2014

Rs. 3 on Second and final call made on 1st January 2015

Partly paid shares are entitled to the dividend to the extent of paid up value. Y Ltd. had 5,00,000 shares outstanding at the beginning of the year. Net profit for the year ended

31st March 2015 was Rs. 20,00,000.

Calculate the Basic EPS.



Answer

Calculation of Weighted Average No. of Shares

No. of

Shares

5,00,000

1,00,000

1,00,000

1,00,000

Paid up

Value

10

5

Equivalent

Shares

5,00,000

50,000

No. of

Months

Weighted

Average

12 5,00,000

9 37,500

2

3

20,000

30,000

6

3

10,000

7,500

Weighted Average No. of Shares 5,55,000

Basic EPS = 20,00,000 / 5,55,000

= Rs. 3.60



Weighted Average of Shares having different Face Values

Weighted Average of shares having different face values, but the same dividend rights with reference to paid up value, is calculated by converting such shares into equivalent number of shares of same face value.

E.g. If Company has 15,000 shares of Face value of

Rs. 10 each and 50,000 shares of Face value of Rs. 1 each, then weighted average number of Ordinary shares would be 20,000 Ordinary shares (Equivalent to Rs. 10 each) or 2,00,000 Ordinary shares (Equivalent to Rs. 1 each).



Adjustment to weighted average for shares issued without consideration

This is a situation where the number of shares are increased without corresponding increase in the resources available to generate earnings.

Ind AS-33 has identified such events leading to the increase in shares without corresponding increase in resources. In such cases Ind AS-33 requires the EPS to be presented after adjusting for such events -

For the current period

All prior periods presented in financial statements i.e.

Restatement (adjustment to comparative figures.)



Cases where shares are issued without consideration

Examples:

Bonus Issue

Share split

Reverse share split (consolidation of shares)

Bonus element in right issue



Weighted Average - Bonus Shares

Bonus shares issued are deemed to have been outstanding from the beginning of the earliest reporting period.



Logic for Bonus issue adjustment

1.

2.

3.

Bonus issue does not result in change in ownership percentage of the shareholder. As such, to show the dilution in EPS reported in the year of bonus issue without changing previous periods, EPS would give misleading impression of decline in profitability.

As bonus shares are issued without consideration, there is no changes in resources generated.

Bonus shares are issued by capitalisation of reserves.

The reserves contain the profit earned in the previous periods also.



Share Split & Reverse Share Split

Share Split means sub-division of shares. The number of shares is increased after the share split.

Reverse Share Split means Consolidation of Shares. The number of shares is decreased after the consolidation of shares.

Adjustment to be made: Basic EPS for the current year and previous periods should be computed as if the split / reverse split has taken place from the beginning of earliest reported period.



Example – Bonus Shares

X Ltd. Data. Let us understand the computation

Net profit 2013-14

Net profit 2014-15

Rs. 10,00,000

Rs. 15,00,000

No. of Ordinary shares till 31.3. 2014 10,000

Bonus issue as on 1.4.2014

Restated EPS 2013-14

EPS 2014-15

1:1

10,00,000 / 20,000

= Rs. 50

15,00,000 / 20,000

= Rs. 75



Right shares

Exercise of right usually give rise to bonus element, as the exercise price of shares is often less than the fair value of the shares.

Number of Ordinary shares to be used for calculating

Basic EPS for all periods prior to right issue is given by following formula

Weighted Average

No. of Shares

=

No. of Ordinary shares outstanding prior to issue

X

Adjustment factor



Right shares

Calculation of Adjustment Factor

Adjustment Factor

Fair value per share prior to exercise of right

=

Theoretical Ex-right fair value per share



Right shares


Fair value of all outstanding shares prior to right + amount received from exercise of rights

=

No. of outstanding shares prior to right + No. of shares issued in exercise of rights.



Right shares

Alternatively Theoretical Ex-right fair value per share

=

MN + S

N + 1

M = Cum Right Market Price

N = No. of Ordinary shares required to get one right

S = Subscription cost of right share



Example – Right Shares

Compute Basic EPS for 2014-15 & Restated EPS for 2013-14

Net profit 2013-14 (April – March) Rs. 6,00,000

Net profit 2014-15 (April – March) Rs. 7,50,000

1,50,000 No. of Ordinary shares outstanding prior to right issue.

Right issue 1 : 3

Right issue price

Date of Right issue

Fair Value of Ordinary share immediately prior to rights issue on

31.12.2014

Rs. 25

31.12.2014

Rs. 45



Computation of Weighted Average no.

Ordinary shares

2013-14 originally reported no.

of shares

1,50,000 shares

2013-14 Restated = 1,50,000 x Adjustment Factor

= 1,50,000 x 1.125

= 1,68,750 shares

2014-15 =(1,50,000 X 1.125 X 9/12) +

(2,00,000 X 3/12)

= 1,26,563 + 50,000

= 1,76,563 shares



Basic Earning per Share

2013-14 originally reported = 600000/150000

= Rs. 4

2013-14 Restated = 600000/ 1,68,750

= Rs. 3.56

2014-15 = 750000 / 1,76,563

= Rs. 4.25



Calculation of Adjustment Factor

=

Adjustment Factor

Fair value per share prior to exercise of right


45

=

40 (Refer next slide.)

= 1.125



Theoretical Ex-right fair value per share

Fair value of all outstanding shares prior to right + amount received from exercise of rights

=

No. of outstanding shares prior to right + No. of shares issued in exercise of rights.

=

(45 x 1,50,000) + (25 x 50,000)

1,50,000 + 50,000

=

Rs.

40



Diluted Earnings per Share

Dilution is a reduction in earnings 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.

Similarly, potential ordinary shares would be treated as anti dilutive when and only when their conversion into ordinary shares would increase the EPS or decrease the loss per share.



Computation of Dilutive EPS

For calculating diluted EPS, an entity needs to adjust its earnings as well as the weighted number of ordinary shares outstanding for the effects of all potential ordinary shares.

The earnings attributable to ordinary shareholders used in calculating basic EPS is increased by the post tax dividends and interest in respect of dilutive potential ordinary shares and is adjusted for any other changes in income or expenses that would result from the conversion of the dilutive potential ordinary shares, and the weighted average number of ordinary shares outstanding will get increased by the number of additional shares that will be issued.



Computation of Dilutive EPS (continued.)

Example: 10% debenture of Rs. 1000 will be converted into

10 shares ,therefore, there will be a saving on interest cost of Rs. 70 (after income tax say @ 30%), which will be added to the earnings and the number of shares that will be issued i.e.. 10 will be added to the weighted number of shares to calculate the Dilutive EPS.

In determining whether potential ordinary shares are dilutive or ant dilutive, each issue of potential ordinary shares is considered separately and the sequence shall be from the most dilutive to the least dilutive.



Treatment of Options, Warrants and written Put Options

Options and warrants are considered dilutive when ordinary shares are issued for less than the average market price of ordinary shares. The amount of dilution is the average market price of ordinary shares during the period minus the issue price of the shares.

Where the entity repurchases its own shares, such as written put options and forward purchase contracts, are considered in the calculation of dilutive EPS if the effect is dilutive i.e. the exercise price is above the average market price.



Potential Ordinary shares –Meaning

A potential Ordinary share is a financial instrument or other contract that entitles, or may entitle, its holder to Ordinary shares.

Examples of potential Ordinary shares are:

Debt instruments or preference shares, that are convertible into

Ordinary shares;

Share warrants;

Options giving right to subscribe for Ordinary shares

Shares issuable on satisfaction of certain conditions



Classification of Potential Ordinary Shares

Dilutive: PES are said to be Dilutive when conversion of

PES leads to decrease in Basic EPS. In following circumstances PES are dilutive

Exercise price of options is less than the fair value of Ordinary shares. E.g. Market price of the share is Rs. 250 and employees who are holding ESOP can purchase shares at Rs. 125. ???

PES are converted into Ordinary shares without any exercise price. E.g. each debenture holder will get 4 Ordinary shares.

Anti dilutive : Conversion of PES for Diluted EPS calculation does not lead to decrease in Basic EPS.



Diluted EPS

EPS will be dilutive only when conversion of potential

Ordinary share would decrease the Basic EPS.

Anti- dilutive EPS (i.e. Increase in Basic EPS) is ignored and not presented.



Calculation of Diluted EPS

Diluted Earning Per Share

=

Net profit or loss for the period attributable to the

Ordinary equity shareholders duly adjusted with dividend, interest and other related expenses on dilutive potential

Ordinary shares.

Weighted Average Number of Ordinary Shares outstanding during the period Plus potential No. of

Ordinary shares.

Let’s understand the numerator and denominator in detail.



Adjusted Net Profit - Numerator

Particulars

Numerator as in Basic EPS

Add:

1. Dividend recognised on Dilutive PES (e.g.

Preference Dividend)

2. Dividend Distribution Tax on above dividend

3. Interest recognised on Dilutive PES (E.g. interest on convertible debentures)

Add/Less: Tax amount of any change in expenses or income

Adjusted Net Profit

Amount

------

------

------

------

------

------



Adjusted Net Profit

– Discontinuing operations

The Net Profit can be classified into two types

Net profit from Continuing Operations

Net profit from Discontinuing Operations

Basic EPS is calculated for both types with reference to both above referred categories.

Diluted EPS is calculated by considering Net profit from the continuing operations only .



Example – DEPS – Adjusted NP

1.

2.

3.

1.

2.

3.

4.

5.

Calculate Numerator for Diluted EPS of Bouncer Ltd.

Rs. Lakhs

Net Profit available to Ordinary Equity shareholders5,000

10% Convertible Debentures 500

8% Convertible Preference Shares

10% Non Convertible Preference Shares

Dividend distribution Tax

(Actual Rate : 20.357647%)

200

300

20%

Tax Rate applicable to Bouncer Ltd.

Ignore Surcharge and Education Cess.

30%

CEO of the company is entitled to Performance Incentive of 5% of Profit before Tax.



Answer

Particulars

Net Profit for Basic EPS

Add:

1.

Interest on 10% Convertible Debentures

2.

Preference dividend on 8% Convertible preference

Shares

3.

Dividend distribution Tax @ 20% on above

4.

Incentive to CEO 5 % of Rs. 50 lakhs

Rs. Lakhs

Amount

5,000

50

16

3.20

(2.50)

Less: Tax Increase @30 % on Rs. 47.50 Lakhs (14.25)

Adjusted Net Profit 5052.45

Note: 10% Non Convertible Preference Shares are not Potential Ordinary shares and hence not considered in adjusted Net profit calculation.



Adjusted No. of Shares - Denominator

Particulars

Denominator as in Basic EPS

Amount

------

Add:

Weighted average of additional Ordinary shares which would have been outstanding assuming conversion of PES ------

Adjusted No. of shares ------

Weighted Average of additional Ordinary shares should be calculated considering-

 Deemed date of conversion of PES

 Price at which conversion takes place



Deemed Date of conversion of PES

Particulars

When PES were outstanding at the beginning of the period

(See Note Below)

When PES are issued during the current year

Deemed Date of conversion

Beginning of the period

Date of issue of PES

Note: Even if the PES outstanding at the beginning of the year are converted into Ordinary Shares, during the period, they will be considered in Diluted EPS calculation from the beginning of the year till the date of conversion. After the conversion they will be considered in Basic EPS Calculation.



Example – Diluted EPS – Weighted

Average

Let’s understand denominator.

Capital Structure on 1.4.2014

Ordinary Equity Share Capital (FV Rs. 10)

12% Convertible Debentures (FV Rs. 100)

(Each Debenture Convertible into 3 Shares)

10,00,000

5,00,000

Changes in Capital Structure During 2014-15

On 1st October 2014, 2500 Debentures were converted into

Ordinary shares. Remaining debentures were outstanding at the year end.

On 1st Jan 2015, Additional 1,000 12% Convertible Debentures of

Rs. 100 each were issued on 3:1 Conversion basis.

Calculated Weighted Average for calculating Diluted EPS.



Answer

Particulars

1,00,000 Ordinary Shares

No of

Shares

1,00,000

No. of

Months

12

Weighted

Average

1,00,000

7500 Ordinary Shares issued on conversion of 2500 Debentures

Weighted Avg. no. of Ordinary shares for Basic EPS calculation

2,500 Convertible Debentures

Converted on 1st October 2014

7,500 6

7,500 6

2,500 Convertible Debentures

Outstanding at year end

Issue of 1000 convertible debentures on 1st Jan 2015

Adjusted No. of shares

7,500

3,000

Ind AS (IFRS) Implementation Committee

12

3

3,750

1,03,750

3,750

7,500

750

1,15,750

54


Example – DEPS

Calculation of DEPS in case of Convertible Debentures

Particulars

Net profit for 2014-15 Rs.

No.

of Ordinary shares outstanding

Basic EPS Rs.

No.

of 10% convertible debentures of Rs. 100 each

Situation 1 Situation 2

7,50,000

1,50,000

7,50,000

1,50,000

5

10,000

5

10,000


Continued…..

55



Particulars

Conversion ratio

No.

of Ordinary shares on conversion

Interest expenses Rs.

Income Tax relating to interest

@ 35% Rs.

Situation 1 Situation 2

3 Ordinary shares for every 2 debentures.

1 Ordinary shares for every 2 debentures.

15,000 5,000

1,00,000

35,000

1,00,000

35,000


Continued…..

56


Answer – DEPS

Particulars

Adjusted net profit for the year Rs.

Total No. of Ordinary Shares

Diluted EPS Rs.

Effect

Basic EPS Rs.

Diluted EPS RS.

Situation 1

7,50,000

+ 1,00,000

35,000

= 8,15,000

1,50,000

+ 15,000

= 1,65,000

4.94

Dilutive

5.00

4.94

Situation 2

7,50,000

+ 1,00,000

35,000

= 8,15,000

1,50,000

+ 5,000

= 1,55,000

5.26

Anti dilutive

5.00

5.00???



Effect of share option on diluted EPS

Options are considered in computation of Basic EPS, only after the options are exercised.

Till the time options are not exercised, they are considered only in calculation of Diluted EPS.

The options are considered Dilutive to the extent of difference between

No. of shares issuable under option contract at Exercise price &

No. of shares that would have been issued at fair value

Option exercisable at or above fair value is not dilutive, but anti dilutive.



Option Exercise price

The exercise price of the option, no. of shares issuable under option is determined from the terms of the Option contract.

When exercise price of the option is in a particular range

(e.g. Rs. 60 to 90), the computation of number of shares issuable under the option contract assumes the most advantageous conversion rate or exercise price from the standpoint of the holder of the potential Ordinary shares.

(in our example it will be Rs. 60)




Calculate Basic and Diluted EPS from the following information

Net profit 2014-15 Rs. 7,50,000

Weighted average no. of Ordinary shares outstanding during 2014-15

Average fair value of 1 Ordinary share during 2014-15

1,50,000

Rs. 40

No. of Ordinary shares under option during 2014-15 25,000

Exercise price for shares under option Rs. 25



Example on Effect of share option on diluted EPS

Particulars Earnings

Rs.

7,50,000

Shares EPS

Rs.

Net profit for 2014-15

Weighted average no. of Ordinary shares outstanding during 2014-15

1,50,000

5.00

Basic EPS

No. of Ordinary shares under option

No. of Ordinary shares that would have been issued at fair value

(25,000 x 25 ) / 40

Diluted EPS 7,50,000

25,000

(15,625)

1,59,375 4.71



Example on Effect of share option on diluted EPS

Particulars Earnings

Rs.

Shares EPS

Rs.

No. of Ordinary shares under option

No. of Ordinary shares that would have been issued at

.

fair value .

(25,000 x 25 ) 40

25,000

(15,625)

Diluted EPS 7,50,000 1,59,375 4.71



Sequence of potential Ordinary shares

There may be more than one issue or type of potential

Ordinary shares. E.g. Company may have Convertible

Debentures, Employee Stock Options etc.

In considering whether potential Ordinary shares are dilutive or anti-dilutive, each issue or series of potential

Ordinary shares is considered separately rather than in aggregate.

The sequence in which potential Ordinary shares are considered may affect whether or not they are dilutive.

Therefore, in order to maximize the dilution of Basic EPS, each issue or series of potential Ordinary shares is considered in sequence from most dilutive to less dilutive to least dilutive.



Example – Determination of Sequence

Net profit for 2014-15

Weighted average no. of

Ordinary shares outstanding during the year

Average fair value of

Ordinary shares during the year

Rs. 7,50,000

1,50,000

Rs. 40



Example – Determination of Sequence

Particulars Conversion Ratio

Options 25000 Ordinary at exercise price of

Rs. 25

10 % Convertible preference (FV of Rs. 6,00,000] 1 Ordinary share shares of Rs. 10 each for every 6

Preference shares held

12% convertible Debentures

[ Face Value Rs.10,00,000 ]

Tax Rate

4 Ordinary shares of

Rs. 100 each for every

Debentures held

35%

Dividend distribution tax rate 20%



Answer – Determination of Sequence

Potential

Ordinary Share

Source

Option

Increase in earnings

Rs.

0

Increase in

No. of shares

9,375

Incremental

EPS

Rs.

Sequence

0 I

72,000 10,000 7.20

III 10% Preference

Share

12% convertible

Debentures

78,000 40,000 1.95

II




Particulars

Basic EPS Calculation

Option

After option

12% convertible

Debentures

After Debentures

10 % Preference shares

After Preference shares

Net Profit attributable to Ordinary

Shareholders

7,50,000

0

7,50,000

78,000

No. of

Ordinary shares

EPS

1,50,000 5.00

Remarks

9,375

1,59,375 4.71 Dilutive

40,000

8,28,000

72,000

9,00,000

1,99,375

10,000

2,09,375

4.15 Dilutive

4.30 Anti-

Dilutive




Basic EPS

Diluted EPS

(Not Rs. 4.30)

Rs. 5.00

Rs. 4.15



Contingently Issuable Shares

Meaning: Ordinary shares which are issuable upon the satisfaction of certain conditions resulting from contractual arrangements are called as contingently issuable shares.

Timing of inclusion in computation of EPS:

EPS Conditions are met

Basic Included from the date when conditions are met

Diluted  Included up to the date of meeting the conditions .

Conditions not yet met

Not included if conditions are not met

Included from beginning of period of contractual arrangements



Presentation

An entity shall present in the statement of profit and loss basic and diluted earnings per share for each class of ordinary shares that has a different right to share in profit for the period.

An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the discontinued operation either in the statement of profit or loss or in the notes.

An entity shall present basic and diluted earnings per share, even if the amounts are negative (i.e.. loss per share)



Disclosure

The amounts used as earnings and weighted average number of ordinary shares in calculating basic and diluted earnings per share and reconciliation thereof.

A description of share transactions that occur after the reporting period and that would have changed the number of ordinary or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period.



Comparison between AS 20 and Ind AS 33

Existing AS 20 does not specifically deal with options held by the entity on its shares, e.g., purchased options, written put option etc. Ind AS 33 deals with the same.

Ind AS 33 requires presentation of basic and diluted EPS from continuing and discontinued operations separately.

However, existing AS 20 does not require any such disclosure.



Comparison between AS 20 and Ind AS 33

Existing AS 20 requires the disclosure of EPS with and without extraordinary items. Since as per Ind AS 1,

Presentation of Financial Statements , no item can be presented as an extraordinary item, Ind AS 33 does not require the aforesaid disclosure.

Certain compulsory convertible instruments may be treated as ordinary equity instruments from the beginning under Ind AS 33 and, thus, will impact the computation of

Basic EPS as well as the diluted EPS but under AS

20,these instruments will be considered for computing only the diluted EPS and not the basic EPS.


