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IAS-33 Earnings per Share
• Earnings Per Share (EPS) is widely used by investors as a measure of a company’s performance and is of particular importance in:
a) Comparing the results of a company over a period of time.
b) Comparing the performance of one company’s equity against the performance of another company’s equity.
Objectives IAS 33

• The objective of IAS 33 is to improve the comparison of the performance of different entities in the same period and of the same entity in different accounting periods by prescribing methods for determining the number of shares to be included in the calculation of earnings per share and other amounts per share and by specifying theirpresentation.

Definition IAS 33

• Ordinary Share: An equity instrument that is subordinate to all other classes of equity instruments.
• Potential Ordinary Shares: A financial instrument or other contract that may entitle its holder to ordinary shares. • Warrants or Options: Financial Instruments that give the holder the right to purchase ordinary shares.

Ordinary share

• There may be more than one class of ordinary shares, but ordinary shares of the same class will have the same rights to receive dividends. Ordinary shares participate in the net profit for the period only after other types of shares, e.g. preference shares.

Potential Ordinary Shares

• Debt or equity instruments, including preference shares that are convertible in to ordinary shares. Scope IAS 33
• IAS 33 has the following scope restrictions:

a) Only companies with (potential) ordinary shares which are publicly traded need to present EPS (Including companies in the process of being listed)

b) Where companies choose to present EPS, even when they have no (potential) ordinary shares which are traded, they must do so according to IAS 33. Basic EPS
• Basic EPS should be calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

The formula is shown as:
Net profit / (loss) attributable to ordinary shareholders
Weighted Average number of ordinary shares outstanding during the period
OR
Earnings – Profit attributable to Preference Shareholders
Weighted Average number of ordinary shares outstanding during the period Earnings
• Earnings include all items of income and expenses (including tax, extraordinary items) less net profit attributable to preference shareholders, including preference dividend.
Per Share

• The number of ordinary shares used should be the weighted average number of ordinary shares during the period. This figure should be adjusted for events, other than the conversion of potential ordinary shares (Discussed later), that have changed the number of shares outstanding without a corresponding changes in resources.
• The time-weighting factor is the number of days the shares were outstanding compared with the total number of days in the period; a reasonable approximation is usually adequate.
• Shares are usually included in the weighted average number of shares from the date consideration is receivable which is usually the date of issue. In other cases consider the substance of any transaction.

Weighted Average Number of Shares
Example: 01
ABC Company, a listed company, has the following share transactions during 20X7
Date Details Shares Shares Transaction Outstanding 01 January 20X7 Balance at beginning of year 170,000 170,000 31 May 20X7 Issue of new shares for cash 80,000 250,000 01 December 20X7 Purchase of own shares 25,000 225,000 31 December 20X7 Balance at year end 275,000 225,000 Required:
Calculate the weighted average number of shares for 20X7

• Shares are usually included in the weighted average number of shares from the date consideration is receivable which is usually the date of issue. In other cases consider the substance of any transaction.

Example: 02
XYZ Company is a company with a called up and paid up capital of 100,000 ordinary shares of Rs. 10/- each and also 20,000 10% preference shares of Rs. 10/- each. The company manufactures gas appliances. The gross profit was Rs. 200,000. XYZ Company paid the required preferred share dividend and declared a dividend of Rs. 1/- per share.