Basic EPS
EPS Numerator
The numerator for Basic EPS is profit or loss attributable to your company's ordinary shareholders. To find the numerator, adjust profit or loss after tax and non-controlling interest for:
- After-tax returns on equity-classified preference shares
- After-tax returns on participating equity instruments and other classes of ordinary shares
- Obligations to cover NCI losses
Which figure should you enter for `Profit / (Loss)*` ?
Extract 1: Simple Entity Structure
Profit (loss) before taxation
a
Taxation
(b)
Profit (loss) for the year
c
Profit (loss) for the period attributable to equity holders:
c
Enter the "Profit (loss) for the year" [Figure c] into the `Profit / (Loss)*` input box. We will adjust the figure through our workings to arrive at profit or loss attributable to ordinary shareholders. For simple entity structures, the "Profit (loss) for the period attributable to equity holders:" [Figure c] will be the same as "Profit (loss) for the year" [Figure c]. So, for simple entity structures, the starting point for the earnings numerator (for results both from continuing operations and for your company as a whole) is the profit or loss after tax attributable to the equity holders "Profit (loss) for the year" [Figure c].
Extract 2: Complex Entity Structure
Earnings before taxation
a
Income tax income / expense
b
Earnings after tax
c
Attributable to:
Non-controlling interests
d
Hybrid capital investors
e
Entity shareholders
f
Enter the "Earnings after tax" [Figure c] less "Non-controlling interests" [Figure d] into the `Profit / (Loss)*` input box. We will adjust this figure through our workings to arrive at profit or loss attributable to ordinary shareholders. Note that "Earnings after tax" [Figure c] = "Non-controlling interests" [Figure d] + "Hybrid capital investors" [Figure e] + "Entity shareholders" [Figure f]. As a consequence, for complex entity structures, we should always start with earnings after tax and then deduct non-controlling interest (minority interest).
Extract 3: Profit / (Loss) from Continuing Operations
Profit before tax
a
Tax expense
b
Profit for the year from continuing operations
c
Loss for the year from discontinued operations
(d)
Profit for the year
e
Profit for the year attributable to:
Non-controlling interest
f
Owners of the parent
g
Enter the "Profit for the year from continuing operations" [Figure c] less "Non-controlling interest" [Figure f] into the `Profit / (Loss) from Continuing Operations*` input box. We will adjust this figure through our workings to arrive at profit or loss attributable to ordinary shareholders.
Adjusting for Participating Equity Instruments
When your company's equity include instruments that participate in dividends with ordinary shares according to a predetermined formula (e.g. two for one) with, at times, an upper limit on the extent of participation (e.g. up to, but not beyond, a specified amount per share), these equity instruments are described as participating equity instruments. If no dividend is paid to the holders of ordinary shares, then the participating equity instruments are not paid dividends either.
According to IAS 32, these instruments are classified as equity -- any dividends from the instruments are paid out of equity. For tax purposes, the participating equity instruments are classified as liabilities. Consequently, dividends paid to the holders of participating equity instruments are recognized as an expense in profit or loss in the tax accounts. The expense reduces taxable income and reduces income taxes to be paid to the local tax authorities (i.e. a tax benefit).
Returns on participating equity instruments are not deducted when arriving at `Profit / (Loss)*.` So the numerator for Basic EPS needs to be adjusted for these returns so that the numerator only reflects the profit or loss attributable to ordinary shareholders.
If an equity instrument is described as a participating equity instrument, they are not ordinary shares because they are not subordinate to all your company's other classes of equity. We are only interested in the undistributed profits for ordinary shares. So, as we illustrate in the following examples, we will only need to calculate the undistributed profits attributable to holders of the class of ordinary shares under consideration.
Example 1: Undistributed Profits - Straightforward example with tax
Fact pattern:
Profit attributable to equity holders of the parent entity
CU330,000
The participating equity participate 10 to 1 to dividends. The tax rate is 30%.
Allocation to participating equity instruments
CU300,000
Residual amount allocated to ordinary shares
CU30,000
Tax benefit (CU300,000 x 30%)
CU90,000
Allocation of profit to ordinary shares (CU30,000 + CU90,000)
CU120,000
The allocation of undistributed profits attributable to the ordinary shares under consideration is CU120,000. Fill in CU120,000 in the `Profit / (Loss)*` input box.
Example 2: Undistributed Profits - Participating Equity Instruments
Taken from IAS 33 Illustrative Examples: Example 11
Fact pattern:
Profit attributable to equity holders of the parent entity
CU100,000
Ordinary shares outstanding
10,000
Non-convertible preference shares
6,000
Non-cumulative annual dividend on preference shares
CU5.50 per share
(before any dividend is paid on ordinary shares)
After ordinary shares have been paid a dividend of CU2.10 per share, the preference shares participate in any additional dividends at a 20:80 ratio with ordinary shares (i.e. after preference and ordinary shares have been paid dividends of CU5.50 and CU2.10 per share, respectively, preference shares participate in any additional dividends at a rate of one-fourth of the amount paid to ordinary shares on a per-share basis).
Dividends on preference shares paid
CU33,000 (CU5.50 x 6,000 shares)
Dividends on ordinary shares paid
CU21,000 (CU2.10 x 10,000 shares)
Basic earnings per share is calculated as follows:
CU
Profit attributable to equity holders of the parent entity
100,000
Less dividends paid:
Preference
(33,000)
Ordinary
(21,000)
Undistributed earnings
46,000
Allocation of undistributed earnings:
Allocation per ordinary share = A:
Allocation per preference share = B; B = 1⁄4 A
(A x 10,000) + (1/4 x A x 6,000) = CU46,000
A = CU46,000/(10,000 + 1,500)
A = CU4.00
B = 1⁄4 A
B = CU1.00
The allocation per ordinary share is CU4.00. For 10,000 ordinary shares, fill the `Profit / (Loss)*` input box with the undistributed profits of CU40,000 (CU4.00 x 10,000 ordinary) attributable to the holders on the ordinary shares under consideration.
Adjusting for Two-Class Ordinary Shares
When your company's equity include a class of ordinary shares with a dividend rate different from that of another class of ordinary shares but without prior or senior rights, these shares are described as two-class ordinary shares.
The recommended steps to calculating undistributed profits are:
- Adjust net profit or loss for dividends declared and unpaid cumulative dividends
- Allocate remaining profit or loss to the holders of different classes of ordinary share
- Determine the profit or loss (the undistributed profits) attributable to the holders of the class of ordinary shares under consideration
- Fill the `Profit / (Loss)*` input box with the amount calculated for undistributed profits
The recommended 4-step approach is the same approach used for calculating undistributed profits for participating equity instruments.
Example: Undistributed Profits - Two-Class Ordinary Shares
Fact pattern:
Profit attributable to equity holders of the parent entity
CU100,000
Ordinary shares outstanding (Class A)
10,000
Ordinary shares outstanding (Class B)
20,000
Holders of Class A Ordinary Shares participate in dividends at a rate of 10% more than holders of Class B Ordinary Shares. Since no dividends were declared or paid for, we will continue straight to allocating the remaining profit or loss.
N represents the dividend per share to holders of Class B. You will need to calculate undistributed net profit attributable to the holders of Class A Ordinary Shares and Class B Ordinary Shares:
(N x 1.10 x 10,000) + (20,000 x N) = 100,000
N = CU3.2258
Undistributed profits attributable to holders of Class A:
CU35,484 (CU3.2258 x 1.10 x 10,000 shares)
Undistributed profits attributable to holders of Class B:
CU64,516 (CU3.2258 x 20,000 shares)
To calculate Basic EPS for Class A Ordinary Shares, fill the `Profit / (Loss)*` input box with the undistributed profits of CU35,484. Separately, when you calculate Basic EPS for Class B Ordinary Shares, fill the `Profit / (Loss)*` input box with the undistributed profits of CU64,516.
Which figure should you enter for `Profit / (Loss) from Discontinued Operations*` ?
Extract 1: Profit / (Loss) from Discontinued Operations
Profit before tax from continuing operations
a
Income tax expense
(b)
Profit for the year from continuing operations
c
Discontinued operations
Profit/(loss) after tax for the year from discontinued operations
d
Profit for the year
e
Profit for the year attributable to:
Equity holders of the parent
f
Non-controlling interests
g
Enter the "Profit/(loss) after tax for the year from discontinued operations" [Figure d] into the `Profit / (Loss) from Discontinued Operations*` input box.
For the same extract, you would have entered the "Profit for the year from continued operations" [Figure c] less "Non-controlling interests" [Figure g] into the `Profit / (Loss) from Continuing Operations*` input box. We will adjust this figure through our workings to arrive at profit attributable to ordinary shareholders.
Enter the total returns on equity-classified preference shares that you calculated manually into the `Returns on Equity-classified Preference Shares` input box.
Returns on equity-classified preference shares are not deducted when arriving at `Profit / (Loss)*.` So the numerator for Basic EPS needs to be deducted for these returns so that the numerator only reflects the profit or loss attributable to ordinary shareholders.
If you prefer, replace your single total `Returns on Equity-classified Preference Shares` calculated manually with breakdowns. Adjustments are available for:
- Non-cumulative preference dividends
- Cumulative preference dividends
- Original discounts or premiums
- Differences on settlement
Example 1: Single Preference Dividend Declared
If your called-up capital includes 400,000 7% equity-classified preference shares of CU1 each. Then your total preference dividends declared will be 400,000 x 0.07 x CU1 = CU28,000
Fill in the `Returns on Equity-classified Preference Shares` input box with the value 28,000.
Example 2: Multiple Preference Dividends Declared
If your called-up capital includes 400,000 7% equity-classified preference shares of CU1 each and 250,000 5.5% equity-classified preferences shares of CU0.90 each.
Then your total preference dividends declared will be calculated:
7% Preference Shares: (400,000 x 0.07 x CU1)
CU28,000
5.5% Preference Shares: (250,000 x 0.055 x CU0.90)
CU12,375
CU40,375
Fill in the `Returns on Equity-classified Preference Shares` input box with the value 40,375.
Dividends on equity-classified preference shares may be non-cumulative.
Non-cumulative preference dividends lapse if they are not declared or paid when scheduled. Once a dividend payment is missed, it will not be paid in future and it will not be reported as dividends in arrears.
After-taxt returns on non-cumulative preference shares are not deducted when arriving at `Profit / (Loss)*.` So the numerator for Basic EPS needs to be deducted for these returns so that the numerator only reflects the profit or loss attributable to ordinary shareholders.
Non-cumulative Preference Share Dividend Scenarios:
Scenario 1: Declared and authorized before the end of the period (before the reporting date)
Action Needed: Adjust Basic EPS Numerator for the dividend declared
Scenario 2: Declared and authorized after the end of the period (after the reporting date) but before its financial statements for the period are authorized for issue
Action Needed: No action needed - the preference dividends were not declared before the reporting date and should be ignored when calculating the Basic EPS Numerator
Scenario 3: Declared and authorized after the financial statements are authorized for issue
Action Needed: No action needed - the preference dividends were not declared before the reporting date and should be ignored when calculating the Basic EPS Numerator
Example: Non-cumulative Preference Dividend Declared
If your called-up capital includes 400,000 non-cumulative 7% equity-classified preference shares of CU1 each which have been declared and authorized for the period before the end of the period (the reporting date). Then your total non-cumulative preference dividends declared will be 400,000 x 0.07 x CU1 = CU28,000.
Fill in the `Dividends for Non-cumulative Preference Shares*` input box with the value 28,000.
Dividends on equity-classified preference shares may be cumulative.
Cumulative preference dividends that are not paid or declared are carried forward. If a dividend payment is missed, it will accumulate and get reported as dividends in arrears.
After-tax returns on cumulative preference shares are not deducted when arriving at `Profit / (Loss)*.` So the numerator for Basic EPS needs to be adjusted for these returns so that the numerator only reflects the profit or loss attributable to ordinary shareholders. Cumulative preference dividends must be deducted from the numerator for Basic EPS even if they have not been paid or declared. Any adjustment must exclude preference dividends declared or paid in respect of previous periods (to avoid double counting).
Example: Cumulative Preference Dividend Declared
Your called-up capital includes 400,000 cumulative 7% equity-classified preference shares of CU1 each. It does not matter if the preference dividends have been declared or paid during the period. The cumulative preference dividends of 400,000 x 0.07 x CU1 = CU28,000 must be deducted in the Basic EPS Numerator.
Fill in the `Dividends for Cumulative Preference Shares*` input box with the value 28,000.
Sometimes preference shares are issued at a discount or at a premium. The issuer may then decide to pay dividends at a below-market interest rate to compensate themselves for issuing shares at a discount, or to pay dividends at a higher-than-market interest rate in later periods as a way to compensate investors for buying the shares at a premium.
The discount or premium will need to be amortized (i.e. discount or premium will need to be accreted to retained earnings). The amortization is to be treated like a preference dividend in the Basic EPS Numerator. If your tax agent has informed you that preference share dividends are tax deductible, then the amortization will also be tax deductible and have a tax benefit.
The following hand-calculated examples are for illustration only. You should always use Microsoft Excel/Google Sheets' goalseek function to build an amortization table and calculate the appropriate effective discount rate. The schedule for amortization will depend on management - it is common to have entries for amortization at six-month intervals, but once the dates are determined, try to stick to the schedule for the life of the amortization.
Example 1: Increasing Rate Preference Shares Where Dividends Have Not Been Paid for the First Three Years
You have issued 10,000 non-convertible, non-redeemable, cumulative preference shares with a par value of CU100 at Year 1. The preference shares are entitled to a cumulative annual dividend of CU7 starting in Year 4.
Discount Rate = CU7/CU100 = 7%. If you discount the nominal value of the preference shares (which is the number of shares x par value) for 3 years, you will get the starting carrying amount.
Number of Shares
10,000
Issue Price
CU100
Nominal Value: 10,000 x CU100
CU1,000,000
Discount Factor: 1⁄(1 + 0.07)3
0.8163
Carrying Amount: CU1,000,000 x 0.8163
CU816,300
Year 1:
Carrying Amount b/f: CU816,300
Imputed Dividend: CU816,300 x 7% = CU57,141
Dividend Declared: NIL
Carrying Amount c/f: CU816,300 + CU57,141 = CU873,441
Year 2:
Carrying Amount b/f: CU873,441
Imputed Dividend: CU873,441 x 7% = CU61,141
Dividend Declared: NIL
Carrying Amount c/f: CU873,441 + CU61,141 = CU934,582
Year 3:
Carrying Amount b/f: CU934,582
Imputed Dividend: CU934,582 x 7% = CU65,421
Dividend Declared: NIL
Balancing Figure: CU1,000,000 - CU934,582 = CU65,418
Carrying Amount c/f: CU934,582 + CU65,418 (Balancing Figure) = CU1,000,000
Thereafter:
Carrying Amount b/f: CU1,000,000
Imputed Dividend: NIL
Dividend Declared: CU1,000,000 x 7% = CU70,000
Carrying Amount c/f: CU1,000,000 + NIL = CU1,000,000
If you are entering information for increasing rate preference shares for Year 3, fill in the `Amortization of Discount / Premium*` input box with the imputed dividend 65,418 (balancing figure). You would not have selected the `Cumulative preference dividends` adjustment since cumulative preference dividends are not available till Year 4: the `Dividends for Cumulative Preference Shares*` input box is not needed at Year 3.
For Year 4 and afterward, fill in the `Dividends for Cumulative Preference Shares*` input box with the declared dividend 70,000. You will need to select the `Cumulative preference dividends` adjustment first so that the `Dividends for Cumulative Preference Shares*` input box becomes available. You would not have selected the `Discount or premium` adjustment since there is no imputed dividend for Year 4 and afterward: the `Amortization of Discount/Premium*` input box is not needed.
Example 2: Increasing Rate Preference Shares Where Discount on the Issue is Amortized over the First Three Years
You have issued 10,000 8% non-convertible, non-redeemable, cumulative preference shares with a par value of CU100 for CU90. The market interest rate is 12%. The discount on the issue is to be amortized over three years.
Number of Shares
10,000
Par Value
CU100
Dividend Rate
8%
Issue Price
CU90
Carrying Amount: 10,000 x CU90
CU900,000
Discount Rate
12%
Year 1:
Carrying Amount b/f: CU900,000
Dividend and Amortization of Discount: CU900,000 x 12% = CU108,000
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Discount: CU108,000 - CU80,000 = CU28,000
Carrying Amount c/f: CU900,000 + CU28,000 = CU928,000
Year 2:
Carrying Amount b/f: CU928,000
Dividend and Amortization of Discount: CU928,000 x 12% = CU111,360
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Discount: CU111,360 - CU80,000 = CU31,360
Carrying Amount c/f: CU928,000 + CU31,360 = CU959,360
Year 3:
Carrying Amount b/f: CU959,360
Dividend and Amortization of Discount: CU959,360 x 12% = CU115,123
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Discount: CU115,123 - CU80,000 = CU35,123
Balancing Figure: CU1,000,000 - CU959,360 = CU40,640
Carrying Amount c/f: CU959,360 + CU40,640 Balancing Figure = CU1,000,000
Thereafter:
Carrying Amount b/f: CU1,000,000
Dividend and Amortization of Discount: CU1,000,000 x 8% = CU80,000
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Discount: CU80,000 - CU80,000 = NIL
Carrying Amount c/f: CU1,000,000 + NIL = CU1,000,000
If you are entering information for increasing rate preference shares for Year 3, fill in the `Amortization of Discount/Premium*` input box with the amortization of discount 40,640 (balancing figure). Fill in the `Dividends for Cumulative Preference Shares*` input with the dividend declared 80,000.
For Year 4 and afterward, fill in the `Dividends for Cumulative Preference Shares*` input box with the declared dividend 80,000. You would not have selected the `Original issue discount or premium` adjustment since there is no amortization for Year 4 and afterward: the `Amortization of Discount/Premium*` input box is not needed.
Since these shares have been classified as equity, the original issue discount is amortized to retained earnings using the effective interest method and treated as a preference
Example 3: Increasing Rate Preference Shares Where the Premium on the Issue is Amortized over the First Three Years
You have issued 10,000 8% non-convertible, non-redeemable, cumulative preference shares with a par value of CU100 for CU112. The market interest rate is 3.75%. The premium on the issue is to be amortized over three years.
Number of Shares
10,000
Par Value
CU100
Dividend Rate
8%
Issue Price
CU112
Carrying Amount: 10,000 x CU112
CU1,120,000
Discount Rate
3.75%
Year 1:
Carrying Amount b/f: CU1,120,000
Dividend and Amortization of Premium: CU1,120,000 x 3.75% = CU42,000
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Premium: CU42,000 - CU80,000 = -CU38,000
Carrying Amount c/f: CU1,120,000 + -CU38,000 = CU1,082,000
Year 2:
Carrying Amount b/f: CU1,082,000
Dividend and Amortization of Premium: CU1,082,000 x 3.75% = CU40,575
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Premium: CU40,575 - CU80,000 = -CU39,425
Carrying Amount c/f: CU1,082,000+ -CU39,425 = CU1,042,575
Year 3:
Carrying Amount b/f: CU1,042,575
Dividend and Amortization of Discount: CU1,042,575 x 3.75% = CU39,097
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Premium: CU39,097 - CU80,000 = -CU40,903
Balancing Figure: CU1,000,000 - CU1,042,575 = -CU42,575
Carrying Amount c/f: CU1,042,575 + -CU42,575 Balancing Figure = CU1,000,000
Thereafter:
Carrying Amount b/f: CU1,000,000
Dividend and Amortization of Premium: CU1,000,000 x 8% = CU80,000
Dividend Paid: 10,000 x CU100 x 8% = CU80,000
Amortization of Premium: CU80,000 - CU80,000 = NIL
Carrying Amount c/f: CU1,000,000 + NIL = CU1,000,000
If you are entering information for increasing rate preference shares for Year 3, fill in the `Amortization of Discount/Premium*` input box with the amortization of premium -42,575 (balancing figure). Fill in the `Dividends for Cumulative Preference Shares*` input with the dividend declared 80,000.
For Year 4 and afterward, fill in the `Dividends for Cumulative Preference Shares*` input box with the declared dividend 80,000. You would not have selected the `Original issue discount or premium` adjustment since there is no amortization for Year 4 and afterward: the `Amortization of Discount/Premium*` input box is not needed.
Equity-classified preference shares may be bought back at a repurchase price that is more than their carrying amount. The `Differences on Settlement,` which is the excess consideration paid above the carrying amount, is considered a return to preference shareholders.
The `Differences on Settlement` are not deducted when arriving at `Profit / (Loss)*.` So the numerator for Basic EPS needs to be deducted for these returns so that the numerator only reflects the profit or loss attributable to ordinary shareholders.
`Other Similar Effects` are situations where payments that are made to preference shareholders are not recognized in profit or loss. These payments represent a return to preference shareholders for which the Basic EPS Numerator must be adjusted.
An example of `Other Similar Effects` occurs during the conversion of convertible preference shares when the fair value of the ordinary shares or other consideration is more that the original conversion terms. The extra payment is considered a return to preference shareholders and must be deducted from the numerator for Basic EPS.
Example 1: Differences on Settlement - Redemption of Preference Shares
On 1 January X1, you issued 100,000 equity-classified, cumulative preference shares with a par value of CU50 each. Each share is entitled to a cumulative discretionary dividend of CU3 annually.
On 1 January X5, the market yield on instruments with similar terms is 10%. You agree with your preference shareholders to redeem the shares for CU70 each on that date.
Fair Value of Consideration: (100,000 shares x CU70)
CU7,000,000
Less Carrying Amount: (100,000 shares x CU50)
CU5,000,000
Additional payment to preference shareholders
CU2,000,000
Fill in the `Differences on Settlement (or Other Similar Effects)*` input box with the additional payment of 2,000,000.
Since the redemption occurred at the beginning of the year, there is no requirement to pay preference dividends for Year X5.
Example 2: Other Similar Effects - Inducement for Early Conversion
On 1 January X1, you issued 100,000 equity-classified, convertible preference shares with a par value of CU100 each. The shares include a discretionary dividend of CU7 each year and are convertible at a ratio of 2 preference shares for 1 ordinary shares.
On 1 January X5, the market yield on instruments with similar terms was 3%. You want to encourage early conversion of the preference shares, so you agree with preference shareholders to modify the conversion terms such that preference shares are convertible at a ratio of 1.2 ordinary shares for every 2 preference shares. 10,000 additional ordinary shares will be issued on full conversion.
On 31 March X5, all the preference shares were converted into ordinary shares. The market price of ordinary shares was CU65. With the conversion, no preference dividends were declared for the year.
The excess of the fair value of consideration over the fair value of the ordinary shares issuable under the terms of the original conversion terms: CU650,000 (10,000 shares x CU65)
Fill in the `Differences on Settlement (or Other Similar Effects)*` input box with the additional payment of 650,000.
When you are calculating the numerator for Basic EPS using your company's consolidated financial statements, you will start with your company's profit or loss, and adjust that figure for non-controlling interests and your selected EPS-33 adjustments (i.e. returns on equity-classified preference shares, returns on participating equity instruments, or obligation to cover non-controlling interest losses).
Consequently, if your company has entered into an arrangement to absorb losses attributable to non-controlling interests (and you have selected the obligation to cover non-controlling interests losses as an adjustment), you will need to adjust the Basic EPS numerator to take into account any obligations to cover losses that are attributable to these non-controlling interests.
Example: Calculating the Numerator when there is NO Obligation to Cover NCI Losses versus when there IS an Obligation to Cover NCI Losses
Fact pattern:
Company N has a consolidated net profit of CU100,000. Its Subsidiary R, in which N has an 60% interest, has a loss of CU10,000.
When Company N is not obligated to cover losses attributable to NCI
N's Consolidated Net Profit, excluding its share in R
CU100,000
N's share of R's losses: (CU10,000 x 60%)
(CU6,000)
Profit attributable to ordinary shareholders
CU94,000
Fill the `Profit / (Loss)*` input box with the profit attributable to ordinary shareholders of CU94,000.
When Company N IS obligated to cover losses attributable to NCI
N's Consolidated Net Profit, excluding its share in R
CU100,000
N's share of R's losses according to percentage of shareholding: (CU10,000 x 60%)
(CU6,000)
Profit attributable to ordinary shareholders
CU94,000
N's additional share of R's losses from its obligation: (CU10,000 x 40%)
(CU4,000)
CU90,000
Fill the `Profit / (Loss)*` input box with the profit attributable to ordinary shareholders of CU94,000. Fill the `Additional Losses*` input box with the additional losses calculated of CU4,000.
EPS Denominator
The denominator for Basic EPS is the weighted average number of ordinary shares outstanding during the period adjusted for:
- Partly paid ordinary shares
- Treasury shares
- Own shares held by employee benefit plans
- Changes in the number of outstanding ordinary shares without corresponding changes in resources
Treasury shares are your company's own ordinary shares that have been re-acquired and held by your company. In consolidated financial statements, treasury shares will also include the parent's shares that are held by its subsidiaries.
Treasury shares are not regarded as outstanding shares and should be excluded from the denominator for period during which the company holds them. When your company re-acquires its own shares, the money they spent is no longer available to finance your operations and so it should not be included in the weighted-average number of ordinary shares denominator.
When your company has post-employment benefit plans or other long-term employment plans you will need to apply IAS 19 Employee Benefits. If your company's ordinary shares are part of the qualifying plan assets held by your employee benefit plan and netted against employee benefit obligation in accordance with IAS 19, then these ordinary shares should be considered outstanding when calculating Basic EPS. However, if your company's ordinary shares held by your employee benefit plan do not meet the definition of plan assets, then they should not be considered to be outstanding when calculating Basic EPS — they should be treated as treasury shares even if the plan is not consolidated by the employer.
Example 1: Ordinary Shares that do not meet IAS 19 Definition of Qualifying Plan Assets
Your company's employee benefit plan holds 600,000 ordinary shares that do not meet the definition of IAS 19 employee benefit plan assets. Fill in the `Own Shares Held by Employee Benefit Plan (with IAS 19 non-qualifying plan assets)*` input box with the ordinary shares of 600,000. They will be treated as though they are treasury shares.
Ordinary shares can be held by a trust for equity-settled share-based payments. In your company's consolidated financial statements, the ordinary shares held by this sort of trust will be recognized as treasury shares and should not be considered to be outstanding when calculating Basic EPS.
Example 1: Ordinary Shares Held by a Trust for Equity-settled Share-based Payments
Your company grants its employees share options that will vest after three years of employment. Your company provides money to a trust to purchase 100,000 shares of your company on the market. The shares will be used to satisfy the exercise of share options on vesting. Your company controls the trust and will need to consolidate it.
In the consolidated financial statements of your company, the 100,000 shares held by the trust will be treated as treasury shares. Fill in the `Own Shares Held in Trust for Equity-Settled Share-Based Payment*` input box with the ordinary shares of 100,000.
Ordinary shares generally become outstanding on the date that their consideration becomes receivable. You will need, though, to review the specific terms and conditions of the ordinary share issue to decide when to include shares in the earnings per share calculation.
| Type of Consideration | Date Ordinary Shares become Outstanding |
|---|---|
| Ordinary shares issued for cash | Date when cash is receivable |
| Ordinary shares issued as voluntary reinvestment of dividends | Date when dividends are renivested |
| Ordinary shares issued on conversion of a debt instrument | Date that interest ceases to accrue |
| Ordinary shares issued in place of interest or principal on other financial instruments | Date that interest ceases to accrue |
| Ordinary shares issued to settle a liability | Settlement date |
| Ordinary shares issued for an asset other than cash | Date on which the asset is recognized |
| Ordinary shares issued for providing a service | Date when the service is executed |
| Ordinary shares issued as part of the consideration transferred in a business combination | Acquisition date |
| Ordinary shares issued as part of the conversion of a mandatorily convertible instrument | Date when the contract is entered into |
| Ordinary shares issued as part of a contingent share agreement | Date when all the agreed financial or operational conditions are met |
Scenario: Ordinary Shares Issued as Voluntary Reinvestment of Dividends
Your company declares ordinary share dividends of CU0.50 per share on 15 May with an option for shareholders to reinvest their dividends for newly issued ordinary shares. Shareholders will get a CU1.00 ordinary share for each CU1.00 of dividend reinvested. One of your shareholders decides to take the new ordinary shares instead of cash on 22 May. Include their newly issued shares on 22 May when they have reinvested their dividends.
Scenario: Ordinary Shares Issued for Providing a Service
Your company agrees to issued 100,000 CU1 ordinary shares as payment for consulting services leading to a delivery of a business strategy report and presentation. The delivery was originally scheduled for 1 March but then re-scheduled to 1 April. Include the newly issued shares on 1 April when the services were executed.
Scenario: Ordinary Shares Issued in Place of Interest or Principal on Other Financial Instrument
Your company has liability-classified preference shares. You have decided not to pay dividends in H2. From 1 July to 31 December, 2 CU ordinary shares will be issued for each of these liability-classified preference shares. Include the newly issued shares on 1 July when the debt interest ceases to accrue.
What if: Opening shares or shares issued are partly paid?
The partly paid shares should be included in the Basic EPS denominator as a fraction of ordinary share to the extent that they are entitled to participate in dividends relative to a fully paid-up ordinary share (that has been issued at full market price) during the period. For example, if you have 1 million fully-paid up CU1.00 shares and 100,000 of the same class of shares partly paid to CU0.50, then you should fill the `Fully Paid Ordinary Shares Outstanding on First Day of Reporting Period*` input box with (1 million shares x CU1.00) + [100,000 shares x (CU0.50 / CU1.00)] = 1,050,000 shares. This is assuming that each partly paid share is entitled to dividends in proportion to the percentage of the issue price paid on fully paid up shares. If partly paid shares are issued during the year, then you will also need to apply a time adjustment factor.
How can options impact Basic EPS?
Options will usually impact only Diluted EPS, but if the options have vested and require little or no further consideration to be exercised, best practice is that they should be included in Basic EPS from the vesting date. If the options have vested and require more than a little consideration, then they should be included in Basic EPS from the exercise date. You will also need to understand the accounting for these options (whether they fall within the scope of IFRS 2 Share-based Payment or IAS 32 Financial Instruments: Presentation) because you will need to see whether their assumed conversion will have a consequential effect on profit or loss. However, to the extent that options are not yet taken into account in Basic EPS, options are POSs.
What are: Bonus Shares?
Bonus shares are additional shares issued to existing shareholders in proportion to their existing holdings for free. They are not weighted on a time basis and are assumed to be issued at the beginning of the reporting period. When bonus shares are issued, any comparatives will need to be re-stated.
These retrospective and comparative adjustments are still required if the bonus issue occurs after the reporting date but before the financial statements for the reporting period are authorized for issue.
What is a: Rights Issue?
A rights issue gives your shareholders the right, but not the obligation, to purchase additional shares in your company at a fixed price. When you offer your shares to shareholders in a rights issue, the price at which they are offered is often less that the fair value of the shares and so a rights issue will normally include a bonus element. When there is a bonus element in a rights issue, EPS is calculated as if the bonus element (but not the total rights issue) arose proportionately at the start of the earliest EPS period presented. If there is no bonus element in the rights issue, the new shares are treated as an issue for cash at fair value.
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What if: I have 2 classes of ordinary shares
Fill in the EPS Denominator input boxes for one class of ordinary shares. Once you have exported the workings and disclosure with Microsoft Excel, clear the EPS Denominator input boxes and fill in the input boxes for the next class of ordinary shares.
Basic EPS Workings
| CU | CU | CU | ||
|---|---|---|---|---|
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Profit / (Loss)*
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Less: Returns on Equity-classified Preference Shares
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| Numerator | Numerator | |||
| Shares | Shares | Shares | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Denominator | Denominator | ||||||||||||||
Basic EPS = Profits attributable to ordinary shareholders
Weighted average number of ordinary shares during period
Basic EPS = Numerator
Denominator
Basic EPS =
Basic EPS =
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