Chapter 4 Earnings per share IMAS 1 IAS

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Chapter 4 Earnings per share IMAS 1

Chapter 4 Earnings per share IMAS 1

IAS 33: Earnings per share EPS = Earnings Number of shares Earnings: Net profit

IAS 33: Earnings per share EPS = Earnings Number of shares Earnings: Net profit attributable to ordinary equity shareholders of the parent Number of shares: Weighted average number of ordinary shares on a time weighted basis. IMAS 2

Changes in EPS is affected by a number of things which are mainly changes

Changes in EPS is affected by a number of things which are mainly changes in earnings and changes in ordinary equity shares. Ordinary equity shares can change as a result of a number of things and we need to explore how ordinary shares can change and the effect it will have on the EPS New issue of shares at full market price An issue at full market price brings additional resources to the entity, but the impact on earnings is only from the date of issue. Therefore the number of shares are time apportioned IMAS 3

Bonus issue vthe bonus shares are deemed to have always been in issue and

Bonus issue vthe bonus shares are deemed to have always been in issue and therefore are reflected for the full period vthe comparative figures are also restated to include the bonus shares Rights issue Combine characteristic of a full issue and a bonus issue Adjustments the bonus element in the rights issue Actual cum rights price (CRP) Theoretical ex rights price (TERP) Calculate the weighted average capital in the issue on a time apportioned basis. ** Comparative should be restated IMAS 4

Diluted EPS Convertible bonds/ preference shares vthe interest/dividend would be saved therefore earnings would

Diluted EPS Convertible bonds/ preference shares vthe interest/dividend would be saved therefore earnings would be higher vthe number of shares would increase ***Interest on bonds is tax deductible however preference dividends do not attract tax relief. Therefore, the interest adjustment should only be re flected net of tax in the case of bonds. ***If there is an option to convert the debt into a variable number of ordinary shares depending on when conversion takes place, the maximum possible number of additional shares is used in the calculation IMAS 5

Diluted EPS Options and warrants to subscribe for shares ***An option or warrant gives

Diluted EPS Options and warrants to subscribe for shares ***An option or warrant gives the holder the right to buy shares at so me time in the future at a predetermined price The cash received by the entity when the option is exercised will be less than the market price of the shares, as the option will only be exercised if the exercise price is lower than the market price **The increase in resources does not match the increase there would be in resources if the issue of shares were at market value. IMAS 6

Diluted EPS The total number of shares issued on the exercise of the option

Diluted EPS The total number of shares issued on the exercise of the option or warrant is split into two: vthe number of shares that would have been issued if the cash received had been used to buy shares at fair value (using the average price of the shares during the period)Íž vthe remainder, which are treated like a bonus issue (i. e. as having been issued for no consideration). no of options * FV EP FV **The number of shares issued for no consideration is added to the weighted average number of shares when calculating the DEPS IMAS 7