2. • Earnings per share is a method used to review the performance of an
entity. As the term itself denotes it simply means determining the
profit attributable to each share. Such information is required to
understand the return on investment for the shareholders and
prospective investors.
Indian Accounting Standard 33 – Earnings per
Share
3. What is the objective of the standard?
• The objective of the standard is to provide a common parameter for
reviewing the performance of the entities and compare the same.
Also, the computation can be used for reviewing the performance of
the entity between different periods.
5. Earnings Per Share OF Ultra tech cement
• Basic Earnings Per Share (“EPS”) is computed by dividing the net
profit / (loss) after tax for the year attributable to the equity
shareholders by the weighted average number of equity shares
outstanding during the year. The weighted average number of equity
shares outstanding during the year is adjusted for treasury shares.
• For the purpose of calculating diluted earnings per share, net profit /
(loss) after tax for the year attributable to the equity shareholders is
divided by the weighted average number of equity shares which could
have been issued on the conversion of all dilutive potential equity
shares and is adjusted for the treasury shares held by the Company to
satisfy the exercise of the share options by the employees.
7. What is the scope of the standard?
• This standard requires that if an entity computes earnings per share
then it must calculate and disclose the same as per this standard.
Further, this standard requires that if an entity presents both
Consolidated financial statements and Separate financial statements
as per the standards then it must present the earnings per share in
both the statements separately
• The standard prescribes two methods for measurement of earnings
per share:
1. Basic earnings per share
2. Diluted earnings per share
8. definitions
An ordinary share is an equity instrument that is subordinate to all other
classes of equity instruments.
• A potential ordinary share is a financial instrument or other contract that
may entitle its holder to ordinary shares.
(a). financial liabilities or equity instruments, including preference shares,
that are convertible into ordinary shares;
(b) options and warrants;
(c) shares that would be issued upon the satisfaction of conditions resulting
from contractual arrangements, such as the purchase of a business or other
assets.
• A contingent share agreement is an agreement to issue shares that is
dependent on the satisfaction of specified conditions.
9. • Anti dilution is 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
• Dilution is 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.
• Options, warrants and their equivalents are financial instruments that
give the holder the right to purchase ordinary shares.
• Put options on ordinary shares are contracts that give the holder the
right to sell ordinary shares at a specified price for a given period.
Definitions( COND.)
10. Basic earnings per share (Basic EPS)
• will be calculated by dividing the profit or loss attributable to
ordinary equity holders of the entity by the weighted average
number of ordinary shares outstanding for the period.
• This computation enables in understanding the earnings attributable
to each ordinary share.
• For the purpose of calculating basic earnings per share, the number
of ordinary shares shall be the weighted average number of ordinary
shares outstanding during the period.
11. weighted average number of ordinary shares
• The weighted average number of ordinary shares outstanding during
the period is the number of ordinary shares outstanding at the
beginning of the period, adjusted by the number of ordinary shares
bought back or issued during the period multiplied by a time-
weighting factor
12. EX.Company P’s profit attributable to its ordinary shareholders for Year
1 is 4,600,000.
P has a simple capital structure comprising 3,000,000 ordinary shares.
ANS-Basic EPS calculation
Profit attributable for Year 1-to ordinary shareholders of P: 4,600,000.
Weighted-average number of ordinary shares outstanding during Year
1: 3,000,000.
Basic EPS for Year 1 is therefore 1.53 (4,600,000 / 3,000,000).
13. Diluted earnings per share
The diluted earnings per share are computed by adjusting the profit or
loss and ordinary shares for the effects of all dilutive potential
ordinary share.
The numerator will be the profit or loss as computed for basic earnings
per share adjusted by the after-tax effect of the dividends or any
other items that are related to dilutive potential ordinary shares that
are deducted in computing basic earnings per share.
interest in the period related to dilutive potential ordinary shares that
are recognized
changes in income or expense that would be due to the conversion of
the dilutive potential ordinary share.
14. disclosure requirements
(a) the amounts used as the numerators in calculating basic and diluted
earnings per share and a reconciliation to the profit or loss.
(b) the weighted average number of ordinary shares used as the
denominator in calculating basic and diluted earnings per share and a
reconciliation of the denominators to each other.
(c) instruments (including contingently issuable shares) that could potentially
dilute basic earnings per share in the future, but were not included in the
calculation of diluted earnings per share because they are anti-dilutive for
the period(s) presented.
(d) description of ordinary share transaction or potential ordinary share
transactions
15. Example 1 – Weighted average number of shares
• This example shows the calculation of the weighted average number
of ordinary shares.
17. EX-3 -A’s year end is 31 December. The following transactions
in shares took place during the year ended 31 December 20X1:
18. QUESTION 4
A had four million ordinary shares in issue and ranking for dividend at 1
January 20X1. On 30 September, one million further shares were issued.
Earnings for the year ended 31 December 20X1 were 50,000,000
ANS
The number of shares would be time apportioned as follows:
1 Jan–30 Sep: 4,000,000 *9/12= 3,000,000
30 Sept–31 Dec: 5,000,000 *3/12= 1,250,000
Weighted average number of shares= 4,250,000
Earnings per share are -50,000,000/4,250,000= 11.76
19. EXAMPLE-5--B has four million ordinary shares in issue at 1 January
20X1.
On 30 September the entity made a bonus issue of 1 for 4.
Earnings for the year ended 31 December 20X1 were 50,000,000.
The EPS for 20X0 was 9 cents per share.
ANS -5-The number of shares would be: = 4,000,000X 5/ 4= 5,000,000
EPS would be =50,000,000/ 5,000,000 =10 %
The EPS for the previous year’s comparative is restated using the bonus
fraction= 20X1 EPS= 9X4/5=7.2 per share
20. EX.6-N’s reported earnings for the year ended 31 March 20X4
were 300 million.
On 1 December 20X3 the directors decided to declare a special
dividend of 1,500,000.
The 1,000,000 ,Rs1 ordinary shares would be consolidated on a
2:1 basis.
One new share would be issued for every two old shares held.
The basic earnings per share for the year ended 31 March 20X3
was Rs 200 per share.
Calculate the basic earnings per share year ended 31 March 20X4
with comparatives.
21. ANS 6-
The reduction in shares is compensated by the special dividend. There is
an outflow of resources from N and so the EPS is calculated using a
weighted average number of shares and the comparative is not affected.
1 April 20X3 to 30 November 20X3 1,000,000 X 8/12 =666,667
1 December 20X3 to 31 March 20X4 500,000 X 4/12 =166,667
Total weighted average number of shares =833,334
20X4 Basic EPS (30,00,00,000/833,334) =360
20X3 Basic EPS no change =200
22. • Example 7: Number of shares outstanding as on 01-01-2010 are
2000. Fresh issue of 600 shares for cash on 31-05-2010. Buy back of
300 shares on 01-11-2010.
• Solution: The weighted average outstanding number of shares =
(2000 x 12/12) + (600 x 7/12) – (300 x 2/12) = 2300 shares
23. Example 8: On 01-01-2010, 2 Lac equity shares of Rs. 10 each fully paid
up. On 30-06-2010, fresh issue of 2 lac equity shares of Rs. 5 each fully
paid up.
Solution: The weighted average outstanding number of shares =
(2,00,000 x 12/12) + (2,00,000 x 5/10 x 6/12) = 2,50,000 shares
24. • Example 9: Net profit for the year 2010 is Rs. 18 lacs. Net profit for the year 2011
is Rs. 60 lacs. Number of equity shares outstanding till 30-09-2010 is 20 lacs.
Bonus issue on 01-10-2011 = 2 (new): 1(old). Calculate EPS for the year 2011 and
adjusted EPS for the year 2010.
• Solution: As per AS 20, when bonus shares are issued during the year, it should
be calculated in the weighted average from the beginning of reporting period
irrespective of issue date. Therefore, the bonus issue is treated as if it had
occurred prior to the beginning of the year 2010, the earliest period reported.
Particulars Amount (in Rs.)
Net profit for the year 2010 18,00,000
Net profit for the year 2011 60,00,000
Number of equity shares outstanding till 30-09-2011 20,00,000
Bonus issue on 01-10-2011 20,00,000 x 2 = 40,00,000
Earnings per share for the year 2011 60,00,000 /(20,00,000 + 40,00,000) = Re. 1
Adjusted Earnings per share for the year 2010 18,00,000 / (20,00,000 + 40,00,000) = Re. 0.30
25. Example 10: Net profit for the year 2010 is Rs. 1,100,000 and for the year 2011 is Rs. 1,500,000. Number of
shares outstanding prior to right are 5,00,000 shares. Right issue of one new share for each five outstanding at
right issue price of Rs. 15. Last date to exercise rights is 01-03-2011. Fair value of one equity share
immediately prior to exercise of rights on 01-03-2011 is Rs. 21. Compute basic EPS for the year 2011 and
adjusted EPS for the year 2010.
Solution:, Theoretical ex-rights fair value per share= (Fair value of all shares prior to rights + Right issue
proceeds) / Number of shares outstanding post right issue
= {(Rs. 21 x 5,00,000 shares) + (Rs. 15 x 1,00,000 shares)} / 5,00,000 shares + 1,00,000 shares = Rs. 20
Bonus element = Fair value per share prior to exercise of rights / Theoretical ex-rights value per share
= 20 / 21 = 1.05
Computation of Earnings Per Share
Particulars 2010 2011
EPS for the year 2010 as originally reported:
Rs. 1,100,000/5,00,000 shares
Rs. 2.20
EPS for the year 2010 as restated for rights issue:
Rs. 1,100,000/(5,00,000 shares x 1.05)
Rs. 2.10
EPS for the year 2011 including effects of right issue
Rs. 1,500,000 / {(5,00,000 x 1.05 x 2/12) + (6,00,000 x 10/12)}
Rs. 2.55
26. EX.11 Particulars Amount
Net profit for the current year Rs. 1,00,00,000
Number of equity shares outstanding 50,00,000
Basic EPS 1,00,00,000/50,00,000 = 2
Number of 12% convertible debentures of Rs. 100 each
Each debenture is convertible into 10 equity shares
1,00,000
Interest expense for the current year Rs. 12,00,000
Tax relating to interest expense (30%) Rs. 3,60,000
Particulars Amount
Adjusted Net profit for the current year Rs. (1,00,00,000 + 12,00,000 – 3,60,000) =
Rs. 1,08,40,000
Number of equity shares resulting from conversion of debentures 10,00,000
Number of equity shares used to calculate diluted earnings per share 50,00,000 + 10,00,000 = 60,00,000
Diluted earnings per share 1,08,40,000/60,00,000 = Rs. 1.81
27. Q. Net profit for the year 2019 is Rs. 100,000 and for the year 2020 is
Rs. 1,50,000. Number of shares outstanding prior to right are 50,000
shares. Right issue of one new share for each ten outstanding at right
issue price of Rs. 15. . Last date to exercise rights is 01-03-2020 Fair
value of one equity share immediately prior to exercise of rights on 01-
03-2020 is Rs. 20. Compute
1. Basic EPS FOR 2019
2. Theoretical ex-rights fair value per share
3. Bonus element
4. EPS for the year 2019 as restated for rights issue:
5. EPS for the year 2020 including effects of right issue
Ans. -2, 19.54, 1.025, 1.95, 2.76
29. Rahul ltd had 75000 ordinary shares at 1 January 2018. On 30
june, 15000 further shares were issued. Earnings for the year
ended 31 December 2018 were 90000
1. No.of Weighted Shares
2. EPS For 2018
Ans 82500,1.09
30. QUIZZZ
1. which agreement to issue shares that is dependent on the satisfaction
of specified conditions
a. contingent share agreement
b. Antidilution
c. Dilution
d. Put options
2. potential ordinary share Includes
a. equity instruments convertible into ordinary shares
b. options and warrants
c. shares that would be issued under contractual arrangements
d. All of the above
31. 3. Which is an increase in earnings per share resulting from the assumption
that convertible instruments are converted.
a. contingent share agreement
b. Anti dilution
c. Dilution
d. Put options
4. Which is a reduction in earnings per share resulting from the assumption
that convertible instruments are converted
a. contingent share agreement
b. Anti dilution
c. Dilution
d. Put options
32. 5.Which financial instruments that give the holder the right to purchase
ordinary shares
a. Dilution
b. Options, warrants
c. Anti dilution
d. Call money
6. Which is on ordinary shares are contracts that give the holder the right to
sell ordinary shares at a specified price for a given period
a. Dilution
b. Antidilution
c. Call money
d. Put Option
33. 7. IND AS 33 relates to
a) Impairment loss
b) Business combination
c) Earning per share
d) None of these
8. Earnings per share is a method used to review the performance of an
entity.
a) True
b) false
34. 9. IND AS 33-EPS ,does not provides information is required to
understand the return on investment for the shareholders and
prospective investors.
a) True
b) false
10. IND AS 33-EPS provides a common parameter for reviewing the
performance of the entities and compare the same between different
periods also
a) True
b) false
35. 11. will be calculated by dividing the profit or loss attributable to
ordinary equity holders of the entity by the weighted average number
of ordinary shares outstanding for the period.
a. Basic earning per share (Basic EPS)
b. Diluted earning per share (Diluted EPS)
12. This computation enables in understanding the earnings
attributable to each ordinary share.
a. Basic earning per share (Basic EPS)
b. Diluted earning per share (Diluted EPS)
36. 13. ……………..outstanding during the period is the number of ordinary
shares outstanding at the beginning of the period, adjusted by the
number of ordinary shares bought back or issued during the period
multiplied by a time-weighting factor
a. Basic earning per share (Basic EPS)
b. Diluted earning per share (Diluted EPS)
c. The weighted average number of ordinary shares
d. None of the above
14. ………are computed by adjusting the profit or loss and ordinary
shares for the effects of all dilutive potential ordinary share.
a. Basic earning per share (Basic EPS)
b. Diluted earning per share (Diluted EPS)
37. FILL IT……..205000 ,diluted earnings per share,
7500,Earning per share(EPS), 5, 37500
1. IND AS 33 IS RELATED TO………
2. …………………….are computed by adjusting the profit or loss and ordinary
shares for the effects of all dilutive potential ordinary share.
3. A had 20,000 shares in issue at 1 January 20X1. On 30 September, 10000
further shares were issued. Earnings for the year ended 31 December 20X1
were 1,12,500 ,so EPS is……
4. On 01-01-2010, - 20,000 share of Rs. 10 each fully paid up. On 30-10-2010,
fresh issue of 5,000 equity shares of Rs. 6 each fully paid up.
5. entity made a bonus issue of 1 for 4, and have 30,000 shares so no.of bonus
shares issued by company is……………
6. entity made a bonus issue of 1 for 4, and have 30,000 shares So total no. of
shares of company is….
38. 1. is a reduction in earnings per share a. Objective of indas 33
2. Disclosure requirement b. Dilution
3. agreement to issue shares that is dependent
on the satisfaction of specified conditions
c. amounts used as the numerators in calculating
basic and diluted earnings per share
4. for reviewing the performance of the entity
between different periods
d. Basic EPS
5. dividing the profit or loss attributable to
ordinary equity holders of the entity by the
weighted average number of ordinary shares
outstanding for the period
e. Contingent share agreement
39. a. Options, warrants and their
equivalents
1. description of ordinary share
transaction or potential ordinary share
transactions
b. ordinary shares outstanding at the
beginning , adjusted by the number of
ordinary shares bought back or issued
during the period
2. The diluted earnings per share are
computed by adjusting the profit or loss
and ordinary shares for the effects of all
dilutive potential ordinary share.
c. Disclosure requirement 3. Weighted average number of shares
d. Diluted EPS 4. financial instruments that give the
holder the right to purchase ordinary
shares
