IAS 33 Earnings per Share

IAS 33 advices the guideline for presentation and calculation of earnings per share (EPS). This standard is applicable to entities having ordinary shares or any potential ordinary shares (i.e options, warrants and convertibles,) are traded publicly. Non-public entities voluntary elect to present EPS also need to follow the Standard.

Objective

The purpose of this Accounting Standard IAS 33 is to describe the principles for presentation and calculation of earnings per share. It improves & supports comparison between different entities in the same reporting period and between different reporting periods for the same entity. However, there are limitations in earnings per share data because of the different accounting policies used to measure “earnings”, a consistent approach makes financials more accurate & reliable.

Scope

• This Standard applies to:

(a) the separate or consolidated financial statements of an entity or Group:

(i) whose ordinary shares or any potential ordinary shares are traded in market publicly or

(ii) that files, or is in the process of filing, its financial statements with a securities commission or other regulatory for the purpose of issuing ordinary shares in a public market.

• An entity that discloses EPS shall calculate and present that in accordance with this Standard.

• When an entity presents both consolidated financial statements and separate financial statements prepared in accordance with IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements respectively, the disclosures required by this Standard need to be presented only on the basis of the consolidated information. An entity that chooses to disclose earnings per share based on its separate financial statements shall present such earnings per share information only in its statement of comprehensive income. An entity shall not present such earnings per share information within the consolidated financial statements.

• If an entity presents items of profit or loss in a separate statement as described in paragraph 10A of IAS 1 Presentation of Financial Statements (as amended in 2011), it presents earnings per share only therein separate statement.

Key Definitions

Anti-dilution-

It is a rise in earnings per share or a discount in loss per share resulting from the effect that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Contingent share agreement-

Agreement to issue shares that's dependent on the satisfaction of specified conditions.

Contingently issuable ordinary shares-

Those are ordinary shares issuable for small or no cash or other consideration upon the satisfaction of specified conditions during a contingent share agreement.

Dilution-

It is a reduction in earnings per share or a rise in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.

Options, warrants and their equivalents-

Those are financial instruments that give the holder the right to purchase ordinary shares.

Ordinary share-

It is an equity instrument that's subordinate to all or any other classes of equity instruments.

Potential ordinary share-

It is a financial instrument or other contract which will entitle its holder to ordinary shares.

Put options on ordinary shares-

Those are contracts that give the holder the right to sell ordinary shares at a specified price for a given period.

Measurement

Basic earnings per share

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

Basic earnings per share will be calculated by dividing the gains or losses attributable to holders of the parent entity's ordinary shares (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.

Earnings: for the purpose of calculating basic earnings per share, the amounts attributable to holders of ordinary shares of the parent entity with respect to:

(a) profit or loss from continuing operations due to the parent entity; and

(b) the profit or loss attributable to the parent entity will be the amounts in (a) and (b) adjusted for the after-tax amounts of the preferred dividends, the differences arising in the liquidation of the preferred shares and other similar effects of the preferred shares classified as equity

Shares: To calculate basic earnings per share, the number of ordinary shares will be the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding during the period and for all periods presented will be adjusted for events, other than the conversion of potential ordinary shares, that have changed the number of ordinary shares outstanding without a corresponding change in resources.

Diluted earnings per share

An entity shall calculate diluted earnings in amounts of shares for the gain or loss attributable to the holders of the parent's ordinary equity and, if presented, the profit or loss from continuing operations due to those equity holders. In order to calculate diluted earnings per share, an entity shall adjust the profit or loss attributable to holders of the parent entity's common shares, and the weighted average number of shares outstanding, for the consequences of all dilutive potential ordinary shares.

Earnings: For the purpose of calculating diluted earnings per share, an entity shall adjust the profit or loss attributable to ordinary equity holders of the parent entity, calculated in accordance with paragraph 12, for the after-tax effect of:

(a) any dividends or other items related to dilutive potential ordinary shares deducted to arrive at results attributable to holders of ordinary shares of the parent entity, calculated in accordance with paragraph 12;

(b) any interest recognized within the period associated with dilutive potential ordinary shares; and

(c) any other change in income or expenses that would result from the conversion of the dilutive potential ordinary shares

Shares: To calculate diluted earnings per share, the number of ordinary shares will be the weighted average number of ordinary shares calculated in accordance with paragraphs 19 and 26, plus the weighted average number of ordinary shares that would be issued in the conversion of all the shares. dilutive potential ordinary shares in ordinary shares. The dilutive potential ordinary shares are going to be considered converted into ordinary shares at the start of the period or, if later, on the date of issue of the potential ordinary shares.

Dilutive potential ordinary shares: Potential ordinary shares are going to be treated as dilutive when, and only , their conversion to ordinary shares decreases earnings per share or increases loss per share from continuing operations.

Options, warrants and their equivalents: In order to calculate diluted earnings per share, an entity shall assume the exercise of options and diluted warrants of the entity. The assumed proceeds from these instruments will be considered received from the issuance of ordinary shares at the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued and therefore the number of ordinary shares that might are issued at the typical market value of ordinary shares during the period will be considered an issue of ordinary shares without consideration.

Convertible instruments: The dilutive effect of convertible instruments will be reflected in diluted earnings per share.

Contingently issuable shares: As in the calculation of basic earnings per share, contingently-issued ordinary shares are considered outstanding and are included in the calculation of diluted earnings per share if the conditions are met.

Contracts that can be settled in ordinary shares or in cash: when an entity has issued a contract that can be settled in ordinary shares or in cash at the entity's option, the entity will presume that the contract are going to be settled in ordinary shares and therefore the resulting potential. ordinary will be included in diluted earnings per share if the effect is dilutive. For contracts that can be settled in ordinary shares or in cash at the option of the holder, the most cash settlement and the settlement of shares will be used to calculate diluted earnings per share.

Purchased options: Contracts such as purchased put options and purchased call options (i.e. the entity's options on its own common stock) are not included in the calculation of diluted earnings per share because including them would be anti-dilutive. The put option would be exercised only if the strike price was higher than the market price and the call option would be exercised only if the strike price was lower than the market price.

Written put options: Contracts that need the entity to repurchase its own shares, like written put options and forward purchase contracts, are reflected within the calculation of diluted earnings per share if the effect is dilutive. If these contracts are ‘in the money’ during the amount (ie the exercise or settlement price is above the typical market value for that period), the potential dilutive effect on earnings per share shall be calculated as follows:

(a) it shall be assumed that at the beginning of the period sufficient ordinary shares will be issued (at the average market price during the period) to raise proceeds to satisfy the contract;

(b) it shall be assumed that the proceeds from the issue are used to satisfy the contract (ie to buy back ordinary shares); and

(c) the incremental ordinary shares (the difference between the number of ordinary shares assumed issued and the number of ordinary shares received from satisfying the contract) shall be included in the calculation of diluted earnings per share.

Retrospective adjustments- If the amount of ordinary or potential ordinary shares outstanding increases as a results of a capitalisation, bonus issue or share split, or decreases as a results of a reverse share split, the calculation of basic and diluted earnings per share for all periods presented shall be adjusted retrospectively. If these changes occur after the reporting period but before the financial statements are authorised for issue, the per share calculations for those and any prior period financial statements presented shall be supported the new number of shares. The fact that per share calculations reflect such changes within the number of shares shall be disclosed. In addition, basic and diluted earnings per share of all periods presented shall be adjusted for the consequences of errors and adjustments resulting from changes in accounting policies accounted for retrospectively.

Presentation

An entity shall present within the statement of comprehensive income basic and diluted earnings per share for profit or loss from continuing operations due to the standard equity holders of the parent entity and for profit or loss due to the standard equity holders of the parent entity for the amount for every class of ordinary shares that features a different right to share in profit for the amount . An entity shall present basic and diluted earnings per share with equal prominence for all periods presented. An entity shall present basic and diluted earnings per share, even if the amounts are negative (ie a loss per share).