IAS-33: Earnings per share

Prahallad Chandra Das ACMA

Assistant Professor
Dept. of Accounting & Information Systems
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Overview of IAS 33: Earnings Per Share 
 IAS 33 Earnings Per Share sets out how to
calculate both basic earnings per share (EPS)
and diluted EPS. The calculation of Basic EPS is
based on the weighted average number of
ordinary shares outstanding during the
period, whereas diluted EPS also includes
dilutive potential ordinary shares (such as
options and convertible instruments) if they
meet certain criteria.
 IAS 33 was reissued in December 2003 and
applies to annual periods beginning on or
after 1 January 2005.
Objective of IAS 33
The objective of IAS 33 is:
 to prescribe principles for determining and

presenting earnings per share (EPS) amounts;

 to improve performance comparisons
between different entities in the same
reporting period and between different
reporting periods for the same entity. [IAS
33.1]
Scope of IAS-33
 IAS 33 applies to entities whose securities are
publicly traded or that are in the process of
issuing securities to the public. [IAS 33.2]
Other entities that choose to present EPS
information must also comply with IAS 33.
[IAS 33.3]
 If both parent and consolidated statements

are presented in a single report, EPS is

required only for the consolidated
statements. [IAS 33.4]
 Key definitions [IAS 33.5]
 Ordinary share: also known as a common share or common stock. An
equity instrument that is subordinate to all other classes of equity
instruments.
 Potential ordinary share: a financial instrument or other contract that

may entitle its holder to ordinary shares.

 Common examples of potential ordinary shares:

• convertible debt
• convertible preferred shares
• share warrants
• share options
• share rights
• employee stock purchase plans
• contractual rights to purchase shares
• contingent issuance contracts or agreements (such as those
arising in business combination)
 Share warrant: a type of security issued by a
corporation (usually together with a bond or
preferred stock) that gives the holder the
right to purchase a certain amount of
common stock at a stated price.
 Share option: the right to buy or sell property

at an agreed price; the right is purchased and

if it is not exercised by a stated date the
money is forfeited.
Key definitions
 Dilution: a reduction in earnings per share or an
increase in loss per share resulting from the
assumption that convertible instruments are
converted, that options or warrants are exercised,
or that ordinary shares are issued upon the
satisfaction of specified conditions.
 Antidilution: an increase in earnings per share or a
reduction in loss per share resulting from the
assumption that convertible instruments are
converted, that options or warrants are exercised,
or that ordinary shares are issued upon the
satisfaction of specified conditions.
Requirement to present EPS
 An entity whose securities are publicly traded (or that is in
process of public issuance) must present, on the face of
the statement of comprehensive income, basic and diluted
EPS for: [IAS 33.66]
 profit or loss from continuing operations attributable
to the ordinary equity holders of the parent entity; and
 profit or loss attributable to the ordinary equity
holders of the parent entity for the period for each class of
ordinary shares that has a different right to share in profit
for the period.
 If an entity presents the components of profit or loss in a
separate income statement, it presents EPS only in that
separate statement. [IAS 33.4A]
Requirement to present EPS
 Basic and diluted EPS must be presented with
equal prominence for all periods presented. [IAS
33.66]
 Basic and diluted EPS must be presented even if
the amounts are negative (that is, a loss per
share). [IAS 33.69]
 If an entity reports a discontinued operation, basic
and diluted amounts per share must be disclosed
for the discontinued operation either on the face
of the of comprehensive income (or separate
income statement if presented) or in the notes to
the financial statements. [IAS 33.68 and 68A]
Basic EPS
 Basic EPS is calculated by dividing profit or loss attributable to ordinary
equity holders of the parent entity (the numerator) by the weighted
average number of ordinary shares outstanding (the denominator)
during the period. [IAS 33.10]
 The earnings numerators (profit or loss from continuing operations
and net profit or loss) used for the calculation should be after
deducting all expenses including taxes, minority interests, and
preference dividends. [IAS 33.12]
 The denominator (number of shares) is calculated by adjusting the
shares in issue at the beginning of the period by the number of shares
bought back or issued during the period, multiplied by a time-
weighting factor. IAS 33 includes guidance on appropriate recognition
dates for shares issued in various circumstances. [IAS 33.20-21]
 Contingently issuable shares are included in the basic EPS
denominator when the contingency has been met. [IAS 33.24]
Diluted EPS
 Diluted EPS is calculated by adjusting the
earnings and number of shares for the effects
of dilutive options and other dilutive potential
ordinary shares. [IAS 33.31] The effects of
anti-dilutive potential ordinary shares are
ignored in calculating diluted EPS. [IAS 33.41]
Guidance on calculating dilution
 Convertible securities. The numerator should
be adjusted for the after-tax effects of
dividends and interest charged in relation to
dilutive potential ordinary shares and for any
other changes in income that would result
from the conversion of the potential ordinary
shares. [IAS 33.33] The denominator should
include shares that would be issued on the
conversion. [IAS 33.36]
Guidance on calculating dilution
 Options and warrants. In calculating diluted EPS,
assume the exercise of outstanding dilutive
options and warrants. The assumed proceeds
from exercise should be regarded as having
been used to repurchase ordinary shares at the
average market price during the period. The
difference between the number of ordinary
shares assumed issued on exercise and the
number of ordinary shares assumed repurchased
shall be treated as an issue of ordinary shares
for no consideration. [IAS 33.45]
Guidance on calculating dilution
 Contingently issuable shares. Contingently issuable ordinary
shares are treated as outstanding and included in the calculation
of both basic and diluted EPS if the conditions have been met. If
the conditions have not been met, the number of contingently
issuable shares included in the diluted EPS calculation is based
on the number of shares that would be issuable if the end of the
period were the end of the contingency period. Restatement is not
permitted if the conditions are not met when the contingency
period expires. [IAS 33.52]
 Contracts that may be settled in ordinary shares or cash. Presume
that the contract will be settled in ordinary shares, and include the
resulting potential ordinary shares in diluted EPS if the effect is
dilutive. [IAS 33.58]
Retrospective adjustments****

 If the number of ordinary or potential ordinary shares outstanding

increases as a result of a capitalisation, bonus issue or share split, or
decreases as a result of a reverse share split, the calculation of basic
and diluted earnings per share for all periods presented shall be
adjusted retrospectively.
 If such changes occur after the balance sheet date but before the
financial statements are authorised for issue, the EPS calculations for
those and any prior period financial statements presented are based on
the new number of shares. Disclosure is required. [IAS 33.64]
 Basic and diluted EPS are also adjusted for the effects of errors and
adjustments resulting from changes in accounting policies, accounted
for retrospectively. [IAS 33.64]
 Diluted EPS for prior periods should not be adjusted for changes in the
assumptions used or for the conversion of potential ordinary shares into
ordinary shares outstanding. [IAS 33.65]****
Disclosure
 If EPS is presented, the following disclosures
are required: [IAS 33.70]
 the amounts used as the numerators in
calculating basic and diluted EPS, and a
reconciliation of those amounts to profit or loss
attributable to the parent entity for the period
 the weighted average number of ordinary
shares used as the denominator in calculating
basic and diluted EPS, and a reconciliation of
these denominators to each other
Disclosure
 instruments (including contingently issuable shares) that could
potentially dilute basic EPS in the future, but were not included in the
calculation of diluted EPS because they are antidilutive for the period(s)
presented
 a description of those ordinary share transactions or potential ordinary
share transactions that occur after the balance sheet date and that
would have changed significantly the number of ordinary shares or
potential ordinary shares outstanding at the end of the period if those
transactions had occurred before the end of the reporting period.
Examples include issues and redemptions of ordinary shares issued for
cash, warrants and options, conversions, and exercises [IAS 34.71]
 An entity is permitted to disclose amounts per share other than profit
or loss from continuing operations, discontinued operations, and net
profit or loss earnings per share. Guidance for calculating and
presenting such amounts is included in IAS 33.73 and 73A.