Earnings per Share Is the amount attributable to every ORDINARY share outstanding during the period.

Not necessary for preference share 2 presentations: 1. Basic Earnings per Share 2. Diluted Earnings Per Share REQUIRED for all public entities whose shares or potential ordinary shares are publicly traded, and by entities that are in the process of issuing ordinary shares or potential ordinary shares. ENCOURAGED to nonpublic entities. Presentation:

a. b.

c. d. e. f. g.

h. Basic and diluted earnings per share from continuing operations are presented in the face of the income statement. Basic and diluted earnings per share from discontinued operations are disclosed either in the notes or on the face of the income statements. If both consolidated and separate financial statements are presented, the disclosure is based on the consolidated information. If only separate financial statements are presented, present EPS in the separate income statement.

i.

Ordinary shares in exchange of cash, when cash is receivable. Ordinary shares from conversion of debt instruments or in place of interest or principal, at the time the interest ceases to accrue. Ordinary shares issued in exchange for liability settlement, at settlement date. Ordinary shares for asset acquisition, when the acquisition is recognized. Ordinary shares issued for rendering of service, as the services are rendered. Ordinary shares as part of the business combination, at the time of acquisition. Ordinary shares issued as part of the mandatorily convertible instrument, from the date the contract is entered into. For share split or stock dividend, the change in the number of shares is adjusted as if the event happened at the beginning of the period. Subscribed ordinary shares or partly paid shares are included in the EPS.

Rights Issue (stock right or preemptive right) When rights are issued, exercise price is < than market price. the number of ordinary shares to be used in calculating EPS for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the rights issue multiplied by adjustment factor Ratio of the market value of share to the theoretical market value of share ex-right Theoretical value = MV of share right on X Shares outstanding Subscription price X Incremental Shares /Outstanding and Incremental Shares

Definition of Terms: Ordinary share (common share) an equity instrument that is subordinate to all other classes of equity instruments. Equity instrument any contract that evidences a residual interest (assets liabilities). Potential ordinary share financial instrument or other contract that may entitle its holder to ordinary shares Warrants/Options financial instruments that give the holder the right to purchase ordinary shares. Basic EPS = Net Income/Ordinary Shares Outstanding Net Income = amount after deducting preference share dividends . If preference share is cumulative, the dividend for the current year is deducted from the net income whether declared or not. If preference share is not cumulative, the dividend for the current year is deducted from the net income when declared. If there is conversion of preference shares and dividend is not yet paid, do not deduct to net income because they will never be paid. Ordinary shares outstanding are the weighted average ordinary shares outstanding. If preference share is fully participating, Basic EPS = Total dividend to PS/PSO and = Total dividend to OS/OSO When to include shares in the weighted average:

Diluted Earnings per Share Major type of potential ordinary shares: 1. Convertible bond payable 2. Convertible preference shares 3. Share option and warrant Dilution arises when the inclusion of potential ordinary shares decreases basic earnings per share or increases basic loss per share. Antidilution arises when the inclusion of potential ordinary shares increases basic earnings per share or decreases basic loss per share. Ignored in computing diluted earnings per share. Convertible bond payable Assume that convertible bonds payable are converted into ordinary share. Adjust net income and number of ordinary shares outstanding Net income = net income + interest expense on the bond payable, net of tax

Ordinary shares = increased by the number of shares that would have been issued if the bonds are converted. Then make table, like this oh: Convertible preference share Assume that preference shares are converted into ordinary shares Net income is NOT reduced by the amount of preference share dividend Ordinary shares are increased by the number of shares that would have been issued if the shares are converted. Adjust ordinary shares at the beginning of the earliest period or at date of issuance, if later. IF ACTUALLY CONVERTED: Net Income + Interest/Dividend up to Conversion = Net Income Ordinary Shares + Incremental Ordinary shares = Total Ordinary Shares Options and Warrants Share options granted to employees enabling them to acquire ordinary shares of the entity at a specified price during a definite period of time. Share warrants granted to shareholders enabling them to acquire ordinary shares of the entity at a specified price during a definite period of time. Dilutive only if the exercise price is lower than market price of ordinary shares. Included in the EPS computation through the treasury share method. TREASURY SHARE METHOD a. Total Option price = Option price + Fair value of each stock option b. Option shares X Total option price(a) = Proceeds from exercise of Options/Average market price = Assumed treasury shares c. Option shares assumed treasury shares = Incremental Ordinary shares d. Ordinary shares outstanding + Incremental Ordinary shares (c) = Total Ordinary shares Net Income/Total Ordinary shares = Diluted EPS If the option/warrant is issued in the middle of the year, weight the incremental ordinary share. IF ACTUALLY EXERCISED: Option shares X exercise price = Proceeds from assumed exercise Proceeds from assumed exercise/Market Price on date of exercise = Assumed treasury shares Option shares Assumed treasury shares = Incremental ordinary shares, then weight. Multiple Potential Ordinary Shares Test for dilution then rank from most dilutive to least dilutive. To test: Current interest expense or dividend/Shares would have been issued = Incremental EPS Options and warrants are highly dilutive. If incremental EPS is lower than basic EPS, dilutive. Income Basic EPS Options Ordinary Shares Add ordinary shares would have been issued B Add ordinary shares would have been issued B EPS

Diluted EPS Convertible instruments

A Add interest or dividend, net of tax A

A/B

Diluted EPS

A/B

If convertible instruments cause the DEPS to increase, antidilutive thus ignored. Written put options Give the holder the right to sell ordinary shares at a specified price during a given period. Contingent Ordinary Shares Issuable for little or no consideration upon satisfaction of specified conditions in a contingent share agreement. Outstanding and included in the computation of basic EPS if conditions are satisfied. Included in diluted EPS from the beginning of the period or from the date of the contingent share agreement, if later. (Read more of PAS 33 for more information) Convertible bonds settled in cash Bonds payable that may be settled in cash or ordinary shares at the issuers option, entity shall presume it will be settled in equity. Included in the calculation of diluted EPS if the effect is dilutive. If accounted for as partly liability and equity, the interest expense, net of tax, on the liability component is added back to the net income. Only the amount of interest expense for the liability component is added back to the net income.