AccountingtopichomepagesEarningspershare(IAS33)

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Accounting topic home pages Earnings per share (IAS

33)
Earnings per share (IAS 33)
Publication date: 01 Jan 2013

ThistopichomepagedealswithIAS33,Earningspershare'.ClicktoviewabriefOverview
ofthistopicoramoredetailedSummaryofthekeyaccountingrequirementsandbusiness
implicationsofthistopic.
Resources (Thisincludeslinkstothelateststandards,drafts,PwCinterpretations,toolsand
practiceaidsforthistopic)
Standards and interpretations
IAS33,'Earningspershare'
PwC guidance
IFRSManualofAccountingchapter14,Earningspershare
Tools practice aids and publications
IFRSextractsfromaccounts
Available self-study training material
Thefollowingself-studytrainingisavailableontheIFRSPractitionerSupportPortal
IFRSfoundationleveldiagnosticassessmentListedentities
IFRSgeneralpractitionerleveldiagnosticassessmentListedentities
IFRSfoundationseLearnPublicentities
Overview
Earningspershare(EPS)isaratiothatiswidelyusedbyfinancialanalysts,investorsand
otherstogaugeanentitysprofitabilityandtovalueitsshares.EPSisnormallycalculatedin
thecontextofordinarysharesoftheentity.Earningsattributabletoordinaryshareholdersare
thereforedeterminedbydeductingfromnetincometheearningsattributabletoholdersof
moreseniorequityinstruments.
Anentitywhoseordinarysharesarelistedonarecognisedstockexchangeorisotherwise
publiclytradedisrequiredtodisclosebothbasicanddilutedEPSwithequalprominencein
itsseparateorindividualfinancialstatements,orinitsconsolidatedfinancialstatementsifit
isaparent.Furthermore,entitiesthatfileorareintheprocessoffilingfinancialstatements
withasecuritiescommissionorotherregulatorybodyforthepurposesofissuingordinary
shares(thatis,notaprivateplacement)arealsorequiredtocomplywiththestandard.
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BasicEPSiscalculatedbydividingtheprofitorlossfortheperiodattributabletotheequity
holdersoftheparentbytheweightedaveragenumberofordinarysharesoutstanding
(includingadjustmentsforbonusandrightsissues).
DilutedEPSiscalculatedbyadjustingtheprofitorlossandtheweightedaveragenumberof
ordinarysharesbytakingintoaccounttheconversionofanydilutivepotentialordinary
shares.Potentialordinarysharesarethosefinancialinstrumentsandcontractsthatmay
resultinissuingordinarysharessuchasconvertiblebondsandoptions(includingemployee
shareoptions).
BasicanddilutedEPSforbothcontinuingandtotaloperationsarepresentedwithequal
prominenceinthestatementofcomprehensiveincomeorintheseparateincome
statementwhereoneispresentedforeachclassofordinaryshares.SeparateEPSfigures
fordiscontinuedoperationsaredisclosedinthesamestatementsorinthenotes.
Summary of key requirements
Objective and scope
2.1TheobjectiveofIAS33,'Earningspershare',istoprescribeprinciplesfor
determiningandpresentingEPStoimprovecomparisonbetweendifferententitiesinthe
sameperiodandbetweendifferentaccountingperiodsforthesameentity.[IAS33para1].
2.2Thestandardappliestoentitieswhoseordinarysharesarelistedonarecognised
stockexchange,orareotherwisepubliclytradedandtoentitiesthatareintheprocessof
issuingsuchsharesinpublicmarkets.Thestandardalsoappliestootherentitiesthat
giveEPSinformationvoluntarily.[IAS33paras2,3].
2.3Whenanentitypresentsbothconsolidatedandseparateentityfinancialstatements
together,theinformationonEPSonlyneedstobegivenonaconsolidatedbasis.[IAS33
para4].
EPS
2.4EPSistheprofitorlossfortheperiodattributabletoordinaryequityholders(the
numerator)dividedbythenumberofordinaryshares(thedenominator).Thestandard
focusesonthemethodsthatmustbeusedtodeterminethedenominatorforthepurposeof
calculatingbasicEPSanddilutedEPS.
Measurement basic EPS
2.5BasicEPSiscalculatedbydividingprofitorlossattributabletoordinaryequity
holdersbytheweightedaveragenumberofordinarysharesoutstandingduringthe
period.[IAS33para10].
2.6Profitorlossattributabletoordinaryequityholdersisafterdeductingpreference
dividendsandotheradjustmentsinrespectofpreferenceshares.
2.7Theweightedaveragenumberofordinarysharesiscalculatedasthenumber
outstandingatthebeginningoftheperiod(lesstreasuryshares),adjustedbythetimeweightedeffectofincreasesanddecreasesinordinaryshares(andtreasuryshares)
issuedorboughtbackintheperiod.[IAS33paras19,20].
2.8Ordinarysharesareusuallyincludedintheweightedaveragenumberofshareswhen
considerationisreceivable,whichisgenerallythedateoftheirissue.Anexceptiontothis
isthatordinarysharesthatwillbeissuedwhenamandatorilyconvertibleinstrumentis
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convertedareincludedinthebasicEPScalculationfromthedatethatthecontractis
enteredinto.[IAS33paras21,23].
2.9Ordinarysharesissuedinabusinesscombination,accountedforusingthe
acquisitionmethod,areconsideredoutstandingfromtheacquisitiondate.[IAS33para22].
2.10Part-paidsharesareincludedintheweightedaveragenumberofordinarysharesas
fractionalsharestotheextentthattheyareentitledtoparticipateindividendsrelativeto
fully-paidshares.Fractionalsharesarecalculatedasentitlementtodividenddividedby
thedividendentitlementoffully-paidshares.[IAS33paraA15].
2.11Whereshareswillbeissuedonthesatisfactionofcertainconditionstheyarecalled
'contingentlyissuableshares'andareincludedintheweightedaveragefromthedate
whenalltheconditionsaresatisfied.Contingentlyreturnablesharesarenottreatedas
outstanding.TheyareexcludedfromthecalculationofbasicEPSuntilnolongersubject
torecall.[IAS33para24].
2.12Theweightedaveragenumberofordinarysharesfortheperiodandallpriorperiods
isadjustedforevents,otherthantheconversionofpotentialordinarysharesthathave
changedthenumberofordinarysharesoutstandingwithoutacorrespondingchangein
resources.Examplesofsucheventswouldbecapitalisation(bonus)issues,sharesplits,
shareconsolidationsandthebonuselementofarightsissue.[IAS33paras26,27].The
standardcontainsspecificguidanceonhowabonuselementinarightsissueshouldbe
calculated.
Measurement Diluted EPS
2.13DilutedEPSismeasuredinasimilarwaytobasicEPSexceptthattheprofitandthe
weightedaveragenumberofordinarysharesisadjustedfortheeffectsofalldilutive
potentialordinaryshares.Apotentialordinaryshareisafinancialinstrumentorother
contractthatmayentitleitsholdertoordinaryshares.[IAS33paras31,5].Common
examplesareconvertibledebtorpreferenceshares,warrantsandoptions.
Diluted earnings
2.14Dilutedearningsmeanstheprofitorlossadjustedfortheeffectsofchangesin
income,expenses,taxanddividendsthatwouldhaveoccurredhadthedilutivepotential
ordinarysharesbeenconvertedintoordinaryshares.Suchadjustmentsaftertaking
accountoftaxincludepreferencedividendsorotheritems(suchasdifferencesarisingon
settlement)relatedtoconvertiblepreferenceshares,interestonconvertibledebtandany
otherchangesinincomeorexpensethatwouldresultfromtheconversionofdilutive
potentialordinaryshares.[IAS33para33].
Dilutive potential ordinary shares
2.15Potentialordinarysharesaretreatedasdilutiveonlyiftheirconversionintoordinary
shareswoulddecreaseearningsorincreaselosspersharefromcontinuingoperations.
Potentialordinarysharesarenottreatedasdilutive(thatis,theyaretreatedasantidilutive)whentheirconversionwouldincreaseearningspershareordecreaselossper
sharefromcontinuingoperations.Theeffectsofanti-dilutivepotentialordinarysharesare
ignoredwhencalculatingdilutedEPS.[IAS33paras41to43].
2.16Eachissueorseriesofissuesofpotentialordinarysharesshouldbeconsidered
individuallytodetermineitspotentialfordilution.Thesequencemayaffectwhetherornot
potentialordinarysharesaredilutiveoranti-dilutive.Tomaximisethedilutionofbasic
EPS,eachissueorseriesofissuesisconsideredfromthemostdilutivetotheleast
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dilutive.[IAS33para44].
2.17PotentialordinarysharesshouldbeincludedinthecalculationofdilutedEPSforthe
periodinwhichtheywereoutstanding.Potentialordinarysharesthatareconvertedto
ordinarysharesduringtheperiodshouldbeincludedindilutedEPSfromthebeginningof
theperiodtothedateofconversion;andinbothbasicanddilutedEPSthereafter.Any
potentialordinarysharesthatexpiredorwerecancelledduringtheperiodareincludedin
thedilutedEPScalculationfortheportionoftheperiodforwhichtheywereoutstanding.[
IAS33para38].
Calculation of diluted EPS
2.18ForthecalculationofdilutedEPS,theweightedaveragenumberofordinaryshares
isthesameasforbasicEPS,withtheadditionoftheweightedaveragenumberof
ordinarysharesthatwouldbeissuedonconversionofallthedilutivepotentialordinary
shares.Dilutivepotentialordinarysharesshouldbedeemedtohavebeenconvertedat
thestartoftheperiodoratthedateoftheirissueiflater.[IAS33para36].
2.19Thenumberofordinarysharesthatwouldbeissuedonconversionofdilutive
potentialordinarysharesisdeterminedfromtheirtermsofconversion.Wheretheterms
couldvaryitshouldbeassumedthattheywouldbeexercisedattherateorexercise
pricethatwouldbemostadvantageoustotheholder.[IAS33para39].
2.20Whereoptionsandothersharepurchasearrangementsentitletheholdertoanordinary
shareatlessthantheaveragemarketpriceduringtheperiod,thentheyaredilutive.Inorder
tocalculatethedilutiveeffectofthesepotentialordinaryshares,theyshouldbetreatedas:
acontracttoissueacertainnumberofsharesattheiraveragemarket
priceduringtheperiod.Thesesharesareneitherdilutivenorantidilutiveandare,therefore,notincludedinthecomputationofdiluted
EPS;and
acontracttoissueacertainnumberofsharesfornoconsideration.
Thesesharesaredilutiveandareincludedinthecomputationof
dilutedEPS.
[IAS33para46].
2.21Contingentlyissuablesharesareordinarysharesissuableforlittleornocashor
otherconsiderationonsatisfactionofspecifiedconditionsinacontingentshare
agreement.ThenumberofcontingentlyissuablesharesincludedinthedilutedEPS
calculationisbasedonthenumberofsharesthatwouldbeissuableiftheendofthe
periodwastheendofthecontingencyperiod.[IAS33paras5,52].
2.22Wheretheissueofsharesiscontingentonattainingaspecifiedamountofearnings
foraperiodandthatamounthasbeenachievedattheendoftheperiod,butmustbe
maintainedforafurtherperiod,theshares,ifdilutive,areincludedindilutedEPS,
becausetheendoftheperiodistakenasbeingtheendofthecontingencyperiod.
However,theyarenotincludedinbasicEPS,becausenotalltheconditionshavebeen
satisfiedandearningsmaychangeinthefuture.[IAS33para53].
2.23Employeeshareoptionsthathavefixedanddeterminabletermsandnon-vested
ordinarysharesaretreatedasoptionsforthepurposeofdilutedEPS,eventhoughtheir
exercisemaybecontingentonvesting.Theyaretreatedasoutstandingfromthegrant
date.Employeeshareoptionswithperformanceconditionsaretreatedascontingently
issuableshares,becausetheirissueiscontingentonsatisfyingperformanceconditions
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inadditiontothepassageoftime.Forshareoptionsandothershare-basedpayment
arrangementstowhichIFRS2applies,theassumedproceedsusedinthedilutedEPS
calculationincludesthefairvalueofanygoodsorservicestobesuppliedtotheentityin
thefutureunderthearrangement.[IAS33paras48,47A].
2.24Whereanentityhasenteredintoacontractthatmaybesettledinordinarysharesor
cashattheentity'soption,itshouldbeassumedthatthecontractwillbesettledinshares
andtheresultingpotentialordinarysharesshouldbeincludedinthecalculationofdiluted
EPSiftheeffectisdilutive.Whereacontractmaybesettledinordinarysharesorcashat
theholder'soptionthemoredilutiveofcashorsharesettlementshouldbeassumedfor
calculatingdilutedEPS.[IAS33paras58,60].
2.25Contractssuchaspurchasedputoptionsandpurchasedcalloptions,thatis,options
heldbyanentityoveritsownsharesarenotincludedinthecalculationofdilutedEPS,
becauseincludingthemwouldbeanti-dilutive.[IAS33para62].Theputwouldonlybe
exercisediftheexercisepricewashigherthanthemarketpriceandthecallwouldonly
beexercisediftheexercisepricewaslowerthanthemarketprice.However,writtenput
optionsorforwardpurchasecontracts,thatiscontractsthatrequiretheentitytopurchase
itsownshares,arereflectedinthecalculationofdilutedEPSiftheireffectisdilutive.[IAS33
paras62,63].
Group reporting
2.26Anypotentialordinarysharesissuedbyasubsidiary,jointventureorassociate,that
arepotentiallyconvertibleintoordinarysharesofthesubsidiary,jointventure,associate
orintoordinarysharesoftheparent,venturerorinvestor(thereportingentity),shouldbe
includedinthedilutedearningspersharecalculationtotheextentthatthepotential
ordinaryshareshaveadilutiveeffectonthebasicEPSofthereportingentity.[IAS33para
40].
Restatement
2.27BasicanddilutedEPSforpriorperiodsshouldberestatedforbonusissues,share
splitsandothersimilarevents.Inaddition,ifsuchchangesoccurafterthereporting
period,butbeforethefinancialstatementsareissued,thebasicanddilutedEPSfigures
fortheyearandforpriorperiodsshouldbepresentedonthebasisofthenewnumberof
shares.EPScalculationsshouldalsobeadjustedfortheeffectsoferrorsandchangesin
accountingpoliciesaccountedforretrospectively.[IAS33para64].
2.28Restatementofprior-perioddilutedEPSamountsisnotallowedforachangeinthe
previousassumptionsused,forexampleassumedconversionofcontingentlyissuable
shares,orfortheconversionofpotentialordinarysharesintoordinaryshares
outstanding.[IAS33para65].
Presentation and disclosure
2.29Entitiesshouldpresentinthestatementofcomprehensiveincomebasicanddiluted
EPSforbothcontinuingandtotaloperationswithequalprominence,foreachclassof
ordinaryshares.Thisapplieseveniftheamountsarenegative,thatisalosspershare.
SeparateEPSfiguresfordiscontinuedoperationsaredisclosedinthestatementof
comprehensiveincomeorinthenotes.[IAS33paras66,68].
2.30Ifanentitypresentsaseparateincomestatement,itshouldpresentbasicand
dilutedEPSforbothcontinuingoperations,discontinuedoperationsandtotaloperations
inthatstatement.[IAS33paras67A,68A].
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2.31Entitiesshouldalsodisclose:
Theamountsusedasthenumeratorincalculatingbasicanddiluted
EPSandareconciliationofthoseamountstotheprofitorlossforthe
period.Thereconciliationshouldshowtheeffectofeachclassof
instrumentthataffectsEPS.
Theweightedaveragenumberofordinarysharesusedasthe
denominatorincalculatingbasicanddilutedEPS,andareconciliation
ofthesedenominatorstoeachother.Thereconciliationshouldshow
theeffectofeachclassofinstrumentthataffectsEPS.
Instruments,includingcontingentlyissuableshares,thatcould
potentiallydiluteEPSinthefuture,butwerenotincludedindiluted
EPSfortheperiod(s)presentedbecausetheywereanti-dilutive,
shouldbedisclosed.
[IAS33para70].
2.32Anentityisencouragedtodisclosesharetransactions,otherthanthoseforwhich
restatementofEPSismade(seeabove)thatoccurafterthebalancesheetdateandthat
wouldhavechangedsignificantlythenumberofordinaryorpotentialordinaryshares
outstandingattheendoftheperiodifthetransactionshadoccurredbeforetheendofthe
period.[IAS33paras70(d),71].
Adjusted EPS figures
2.33Anentitymaychoosetopresentpershareamountsforareportedcomponentofthe
statementofcomprehensiveincomeortheincomestatement(whereoneispresented)
thatareadditionaltothoserequiredbythestandard(forexample,EPSexcluding
restructuringcharges).Suchpershareamountsshouldbecalculatedusingtheweighted
averagenumberofordinarysharesdeterminedinaccordancewiththestandard.The
basisonwhichthenumeratorisdeterminedshouldbeindicatedandwhetheritisbefore
oraftertax.Ifthepershareamountisforacomponentofthestatementof
comprehensiveincomeortheseparateincomestatementthatisnotreportedasaline
iteminthestatementofcomprehensiveincomeorintheseparateincomestatement,a
reconciliationbetweenthecomponentusedandareportedlineitemshouldalsobe
provided.BasicanddilutedamountsfortheadditionalEPSfiguresshouldbedisclosed
withequalprominenceandpresentedinthenotes.[IAS33paras73,73A].
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