Вы находитесь на странице: 1из 32

Chapter 17 EARNINGS PER SHARE (IAS – 33)

OBJECTIVE The objective of this IAS is to prescribe principles for the determination and presentation of earning per share. SCOPE This IAS shall apply to the entities (Individual or Group), already listed on the stock exchanges or in the process of listing. DEFINITIONS 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. A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions. Contingently issue-able ordinary shares are ordinary shares issue-able for little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement. 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. 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. Common Examples of Potential Ordinary Shares

convertible debt;

convertible preferred shares;

share warrants;

share options;

share rights;

employee stock purchase plans;

contractual rights to purchase shares; and

contingent issuance contracts or agreements (such as those arising in business combination). Put option on ordinary shares are contracts that give the holder the right to sell ordinary shares at a specified price for a given period. REQUIREMENTS TO PRESENT EPS

An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the income statement, basic and diluted earnings per share for:

profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity; and

profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period. Basic and diluted earnings per share must be presented with equal prominence for all periods presented.

Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share). If an entity reports a discontinued operation, basic and diluted amounts per share must be disclosed for the discontinued operation either on the face of the income statement or in the notes to the financial statements. MEASUREMENT 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. Earnings Earnings include all items of income and expense (including tax, extraordinary items and minority interests) less net profit attributable to preference shareholders, including preference dividends. Preference dividends, which shall be deducted from net profit consist of:

(a)

preference dividends on non-cumulative preference shares declared in respect of the period; and

(b)

the full amount of the required preference dividends for cumulative preference shares for the period, whether or not they have been declared (excluding those paid/declared during the period in respect of previous periods).

Per share

o

The number of ordinary shares used should be the weighted average number of ordinary shares outstanding during the period. This figure for all periods presented should be adjusted for events, other than the conversion of potential ordinary shares that have changed the number of shares outstanding without a corresponding change in resources. Examples include a bonus issue, bonus element in a rights issue, a share split and a consolidation of shares.

o

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.

o

Shares are usually included in the weighted average number of shares from the date their proceeds is receivable which is usually the date of issue. In certain other cases consideration should be given to the specific terms and conditions attached to the issue i.e. the substance of a contract associated in the issue. The treatment for the issue of ordinary shares in different circumstances is as follows.

In exchange for cash

the

On

voluntary

reinvestment

of

When cash is receivable

The dividend payment date

dividends

on

ordinary

or

preferred

shares

Date

interest

ceases

As a result of the conversion of a debt instrument to ordinary shares

accruing

In place of interest or principal on other

Date

interest

ceases

financial instruments

accruing

In exchange for the settlement of a liability of the enterprise

As consideration for the acquisition of an asset other than cash

of services to the

For

the

rendering

enterprise

The settlement date

The

date

on

which

the

acquisition is recognized

As services are rendered

Ordinary shares issued as purchase consideration in an acquisition should be included as of the date of acquisition because the acquired entity's results will also be included from that date onward.

If ordinary shares are partly paid, they are treated as a fraction of an ordinary share to the extent they are entitled to dividends during the financial period relative to fully paid ordinary shares.

o Contingently issue able shares including those subject to recall are included in the computation from the date when all necessary conditions for issue have been satisfied. Effect on basic EPS of changes in capital structure New issues/buy backs

When there has been an issue of new shares or a buy-back of shares, the corresponding figures for EPS for the previous year will be comparable with the current year because, as the weighted average of shares has risen or fallen, there has also been a corresponding increase or decrease in resources. Money has been received when shares were issued, and money has been paid out on the repurchased shares. It is assumed that the sale or purchase has been made at full market price.

o

o

However, there are other events, which change the number of shares outstanding, without a corresponding change in resources. In these circumstances it is necessary to make adjustments to EPS reported in prior years so that the current and prior period’s EPS figures become comparable. Bonus issue/share split/consolidation

These three types of event can be considered together as they have a similar effect. In all cases, new ordinary shares are issued to existing shareholders for no additional consideration and as such the number of ordinary shares has changed without an increase or decrease in resources.

The problem is solved by adjusting the number of ordinary shares outstanding before the event for the proportionate change in the number of shares outstanding as if the event had occurred at the beginning of the earliest period reported. Rights issue

A rights issue of shares is an issue of new shares to existing shareholders at a price below the current market value. The offer of new shares is made on the basis of x new shares for every y shares currently held; e.g. a 1 for 3 rights issue is an offer of 1 new share at the offered price for every 3 shares currently held. The offer of new share at a price below the current market value means that there is a bonus element included.

To arrive at figures for EPS when a rights issue is made, one should first calculate the theoretical ex-rights price. This is a weighted average value per share.

The procedures for calculating the EPS for the current year and a corresponding figure for the previous year are as follows.

The EPS for the corresponding previous period should be multiplied by the following fraction. (Note. The market price on the last day of quotation is taken as the fair value immediately prior to exercise of the rights, as required by the standard.)

(a)

Theoretical ex - rights price

Market price on last day of quotation (with rights)

(b)

To obtain the EPS for the current year one should:

(i) Multiply the number of shares before the rights issue by the fraction of the year before the date of issue and by the following fraction.

Market price on last day of quotation with rights

Theoretical ex - rights price

(ii)

Multiply the number of shares after the rights issue by the fraction of the year after the date of issue and add to the figure arrived at in (i). The total earnings should then be divided by the total number of shares so calculated.

DILUTED EPS

At the end of an accounting period, a company may have in issue some securities, which do not at present have any 'claim' to share equity earnings, but may give rise to such a claim in the future. These securities include:

a) A separate class of equity shares which at present is not entitled to any dividend, but will be entitled after some future date;

b) Convertible loan stock or convertible preferred shares which give their holders the right at some future date to exchange their securities for ordinary shares of the company, at a pre-determined conversion rate; and

c) Options or warrants. In such circumstances, the future number of 'shares ranking for dividend might increase, which in turn results in a fall in the EPS. In other words, a future increase in the number of equity shares will cause a dilution or 'watering down' of equity earning, and it is therefore, appropriate to calculate a diluted earnings per share i.e. the EPS that would have been obtained during the financial period if the dilution had already taken place. This will indicate to investors the possible effects of a future

dilution.

Earnings

The earnings calculated for basic EPS should be adjusted by the post-tax including deferred tax effect of:

a) any dividends on dilutive potential ordinary shares that were deducted to arrive at earnings for basic EPS;

b) interest recognized in the period for the dilutive potential ordinary shares; and

c) any other changes in income or expenses, fees and discount, premium

accounted for as yield adjustments that would result from the conversion of the dilutive potential ordinary shares. The conversion of some potential ordinary shares may lead to changes in other income or expenses. For example, the reduction of interest expense related to potential ordinary shares and the resulting increase in net profit for the period may lead to an increase in the expense relating to a non-discretionary employee profit- sharing plan. When calculating diluted EPS, the net profit or loss for the period is also adjusted for any such consequential changes in income or expense. Per share The number of ordinary shares is the weighted average number of ordinary shares calculated for basic EPS plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into

ordinary shares. It should be assumed that dilutive ordinary shares were converted into ordinary shares at the beginning of the period or, if later, at the actual date of their issue. There are following other points, which also need to be considered in connection with diluted EPS.

a) The computation assumes the most advantageous conversion rate or exercise rate from the standpoint of the holder of the potential ordinary shares.

b) Contingently issue able (potential) ordinary shares are treated as for basic EPS; if the conditions have not been met, the number of contingently issue able shares included in the computation is based on the number of shares

that would be issue able if the end of the reporting period was the end of the contingency period. However, restatement is not allowed if the conditions are not met when the contingency period expires.

c) A subsidiary, joint venture or associate may issue potential ordinary shares.

that are convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary shares of the reporting entity. If these potential ordinary shares have a dilutive effect on the consolidated basic EPS of the reporting entity, they are included in the calculation of diluted EPS. Treatment of options

It should be assumed that options are exercised and that the assumed proceeds would have been received from the issue of shares at fair value. Fair value for this purpose is calculated on the basis of the average price of the ordinary shares during the period.

Options and other share purchase arrangements are dilutive when they would result in the issue of ordinary shares for less than fair value. The amount of the

dilution is fair value less the issue price. In order to calculate diluted EPS, each transaction of this type is treated as consisting of two parts.

a) A contract to issue a certain number of ordinary shares at their average fair value during the period. These shares are fairly priced and are assumed to be neither dilutive nor anti-dilutive. They are, as such, ignored in the computation of diluted earnings per share.

b) A contract to issue the remaining ordinary shares for no consideration. Such

ordinary shares generate no proceeds and have no effect on the net profit attributable to ordinary shares outstanding. Therefore such shares are dilutive and they are added to the number of ordinary shares outstanding in the computation of diluted EPS. To the extent that partly paid shares are not entitled to participate in dividends during the period, they are considered the equivalent of warrants or options. Dilutive potential ordinary shares

According to IAS 33, potential ordinary shares should be treated as dilutive when, and only when, their conversion to ordinary shares would decrease net profit per share from continuing ordinary operations. How is this determined?

The net profit from continuing ordinary activities is 'the control number', used to establish whether potential ordinary shares are dilutive or anti-dilutive. The net profit from continuing ordinary activities is the net profit from ordinary activities after deducting preference dividends and after excluding items relating to discontinued operations; it also excludes extraordinary items and the effects of changes in accounting policies and of corrections of fundamental errors.

Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would increase earnings per share from continuing ordinary operations or decrease loss per share from continuing ordinary operations. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.

In considering whether potential ordinary shares are dilutive or anti-dilutive, each issue or series of potential ordinary shares is considered separately, not in aggregate. The sequence in which potential ordinary shares are considered may affect whether or not they are dilutive. Therefore, in order to maximize the dilution of basic EPS, each issue or series of potential ordinary shares is considered in sequence from the most dilutive to the least dilutive. This may sound very confusing, but the following example may help.

Potential ordinary shares are weighted for the period they were outstanding. If any that were cancelled or allowed to lapse during the reporting period are included in

the computation of diluted EPS only for the portion of the period during which they were outstanding. Potential ordinary shares that have been converted into ordinary shares during the reporting period are included in the calculation of diluted EPS from the beginning of the period to the date of conversion; from the date of conversion, the resulting ordinary shares are included in both basic and diluted EPS. Restatement

If the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalization, bonus issue or share split, or decreases as a result of a reverse share split i.e. consolidation of shares, the calculation of basic and diluted EPS for all periods presented should be adjusted retrospectively.

If these changes occur after the balance sheet date but before issue of the financial statements, the calculations per share for the financial statements and those of any prior period should be based on the new number of shares and this should be disclosed.

In addition, basic and diluted EPS of all periods presented should be adjusted for

a) the effects of fundamental errors, and adjustments resulting from changes in accounting policies, dealt with in accordance with IAS 8; and

b) the effects of a business combination that is a uniting of interests

An enterprise does not restate diluted EPS of any prior period for changes in the assumptions used or for the conversion of potential ordinary shares into ordinary shares outstanding. PRESENTATION Basic and diluted EPS should be presented by an enterprise on the face of the income statement for each class of ordinary share that has a different right to share in the net profit for the period. The basic and diluted EPS should be presented with equal prominence for all periods presented. Disclosure must be made even where the EPS figures (basic and/or diluted) are negative ie a loss per share. DISCLOSURE An enterprise should disclose the following.

(a)

The amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of those amounts to the reported net profit or loss for the period

(b)

The weighted average number of ordinary shares used as the denominator in calculating basic and diluted EPS, and a reconciliation of these denominators to each other.

Example # 1-Bonus Issue

Net Profit 20X0

200

Net Profit 20X1 Ordinary shares outstanding until

400

30

200

September 20X 1 Bonus issue 1 October 20X1

2 ordinary shares for each ordinary share Outstanding at 30 September 20X1 200 X 2 = 400

Example #2-Right issue M Ltd. has produced the following net profit figures.

 

Rs.m

19X6

2.1

19X7

2.5

19X8

2.8

On 1 January 19X7 the number of shares outstanding was 1,000,000. During 19X7 the company announced a rights issue with the following details.

Rights:

1 new share for each 5 outstanding

Exercise price:

Rs.5.00

Last date to exercise rights: 1 March 19X7 The market (fair) value of one share in M Ltd. immediately prior to exercise on 1 March 19X7 = Rs.11.00. Required Calculate the EPS for 19X6, 19X7 and 19X8. Example # 3-Dilutive EPS In 19X7 Faraz Ltd. had a basic EPS of 1.05 based on earnings of Rs.105,000 and 100,000 ordinary Rs.1 shares. It also had in issue Rs.40,000 15% Convertible Loan Stock which is convertible in two years' time at the rate of 4 ordinary shares for every Rs. 5 of loan stock. The rate of tax is 30%. Required Calculate the diluted EPS. Example# 4- Options

Beta Ltd has the following results for the year ended 31 December

19X7.

Rs.2,200,000

Net profit for year Weighted average number of ordinary shares outstanding during

500,000 shares

year Average fair value of one ordinary share during year Rs. 20.00 Weighted average number of shares under option during year 100,000 shares

Exercise price for shares under option during year Required Calculate both basic and diluted earnings per share. Example# 5-Dilutive potential ordinary shares

Imran Ltd. has the following results for the year ended 31 December 19X7.

Rs.15.00

Earnings:

net

profit

attributable

to

ordinary

Rs. 10,000,000

shareholders Ordinary shares outstanding

 

2,000,000

Average fair value of one ordinary share during the

Rs. 75.00

year Tax rate Potential ordinary shares are as follows.

40%

(a)

The profit for the year is net off 20% profit attributable to employees’s profit sharing schemes.

(b)

Options: 100,000 with exercise price of Rs.60

(c)

Convertible preference shares: 800,000 shares entitled to a cumulative

dividend of Rs.8 per share; each preference share is convertible to two ordinary shares

(d)

5% Convertible bond: nominal amount Rs.100,000,000; each 1,000 bond is convertible to 20 ordinary shares; there is no amortization of premium or discount affecting the determination of interest expense.

Required: - Calculate both basic and dilutive EPS for all the years? Example # 6

Numerator information

$

Denominator information

Income from ordinary activities

100,000

Common shares outstanding

100,000

before extraordinary loss

at 1/1/05 Shares issued for cash 1/4/05

20,000

Net income

100,000

Shares issued in 10% stock

12,000

 

dividend declared on July 01

2005

6% cumulative preference shares

100,000

Shares of treasury stocks purchased 1/10/05 Shares issued and bought back are at market value.

10,000

Required: - Calculate both basic and dilutive EPS?

PRACTICE QUESTIONS IAS 33

Q.1 The profit after tax earned by AAZ Limited during the year ended December 31, 2007 amounted to Rs. 127.83 million. The weighted average number of shares outstanding during the year was 85.22 million. Details of potential ordinary shares as at December 31, 2007 are as follows:

The company had issued debentures which are convertible into 3 million ordinary shares. The debenture holders can exercise the option on December 31, 2009. If the debentures are not converted into ordinary shares they shall be redeemed on December 31, 2009. The interest on debentures for the year 2007 amounted to Rs. 7.5 million.

Preference shares issued in 2004 are convertible into 4 million ordinary shares at the option of the preference shareholders. The conversion option is exercisable on December 31, 2010. The dividend paid on preference shares during the year 2007 amounted to Rs. 2.45 million.

The company has issued options carrying the right to acquire 1.5 million ordinary shares of the company on or after December 31, 2007 at a strike price of Rs. 9.90 per share. During the year 2007, the average market price of the shares was Rs. 11 per share. The company is subject to income tax at the rate of 30%. Required:

(a)

Compute basic and diluted earnings per share.

(b)

Prepare a note for inclusion in the company’s financial statements for the year

ended December 31, 2007 in accordance with the requirements of International Accounting Standards. Q.2 The following information relates to Afridi Industries Limited (AIL) for the year ended

December 31, 2008:

(i)

The share capital of the company as on January 1, 2008 was Rs. 400 million of Rs. 10 each.

(ii)

On March 1, 2008, AIL entered into a financing arrangement with a local bank. Under the arrangement, all the current and long-term debts of AIL, other than trade payables, were paid by the bank. In lieu thereof, AIL issued 4 million Convertible Term Finance Certificates (TFCs) having a face value of Rs. 100, to the bank. These TFCs are redeemable in five years and carry mark up at the rate of 8% per annum. The bank has been allowed the option to convert these TFCs on the date of redemption, in the ratio of 10 TFCs to 35 ordinary shares.

(iii)

On April 1, 2008, AIL issued 30% right shares to its existing shareholders at a price which did not contain any bonus element.

(iv)

During the year, AIL earned profit before tax amounting to Rs. 120 million. This profit includes a loss before tax from a discontinued operation, amounting to Rs. 20 million.

(v)

The applicable tax rate is 35%.

Required:

Prepare extracts from the financial statements of Afridi Industries Limited for the year ended December 31, 2008 showing all necessary disclosures related to earnings per share and diluted earnings per share. (Ignore corresponding figures)

Q.3

The following information pertains to ABC Limited, in respect of year ended March 31, 2010.

 

Rs. (000)

Consolidated profit for the year (including minority interest)

15,000

Profit attributable to minority interest

2,000

Dividend paid during the year to ordinary shareholders

4,000

Dividend paid on 10% Cumulative Preference shares for the year 2009

2,000

Dividend paid on 10% Cumulative Preference shares for the year 2010

2,000

Dividend declared on 12% Non Cumulative Preference shares for the year

2,400

 

2010

(i)

The dividend declared on the non-cumulative preference shares, as referred above, was paid in April 2010.

(ii)

The cumulative preference shares were issued at the time of inception of the company.

(iii)

The company had 10 million ordinary shares at March 31, 2009.

(iv)

The 12% non-cumulative preference shares are convertible into ordinary shares, on

or before December 31, 2011 at a premium of Rs. 2 per share. 0.50 million non cumulative preference shares were converted into ordinary shares on July 1, 2009.

(v)

1.20 million right shares of Rs. 10 each were issued at a premium of Rs. 1.50 per share on October 1, 2009. The market price on the date of issue was Rs. 12.50 per share.

(vi)

20% bonus shares were issued on January 1, 2010.

(vii)

Due to insufficient profit no dividend was declared during the year ended March 31,

2009.

(viii)

The average market price for the year ended March 31, 2010 was Rs. 15 per share.

Required:

Compute basic and diluted earnings per share and prepare a note for inclusion in the consolidated financial statements for the year ended March 31, 2010. Q.4 Extracts from statement of comprehensive income of Rahat Limited (RL) for the year

ended March 31, 2011 are as under:

 

2011

2010

Rs. (000)

Profit after taxation

150,000

110,000

Exchange gain on foreign operations, net of tax

10,000

8,000

Total comprehensive income Following further information is available:

160,000

118,000

(i)

As of April 1, 2010 share capital of the company consisted of:

 5 million ordinary shares of Rs. 10 each

 0.2 million convertible 15% cumulative preference shares of Rs. 100 each

(ii)

Each preference share is convertible into 7 ordinary shares at the option of the shareholders. 10,000 preference shares were converted into ordinary shares on July 1, 2010.

(iii)

On September 10, 2010 a right issue of one million ordinary shares had been announced at an exercise price of Rs. 12 per share. By October 1, 2010 which was the last date to exercise the right, all the shares had been subscribed and paid. The

market price of an ordinary share on September 10 and October 1, 2010 was Rs. 15.50 and Rs. 15 respectively.

(iv)

On April 30, 2011 the Board of Directors had declared a final cash dividend of 20% (2010:18%) for the year ended March 31, 2011.

(v)

There was no movement in share capital during the previous year.

Required:

Prepare a note related to earnings per share, for inclusion in the company’s financial statements for the year ended March 31, 2011 in accordance with International Financial Reporting Standards. Show comparative figures.

Q.5 One of your clients has contacted you to calculate earnings per share in

accordance with the requirements of International Accounting Standards and has provided you the following information:

(i)

At the beginning of the year 2006 the company’s share capital was Rs 50 million consisting of 5,000,000 ordinary shares of Rs 10 each. Ten percent bonus shares were issued on April 1, 2006. Market price of ordinary shares at the beginning of the year was Rs 33 per share. On June 30, 2006 the price was Rs 38 per share and at the end of the year, the price was Rs 36 per share.

(ii)

Profit attributable to ordinary shareholders of the company for the year 2006 is

Rs 20 million.

(iii)

The company had issued convertible Term Finance Certificates (TFCs) of Rs 120 million carrying markup at the rate of 13 percent per annum. The certificate holders have the option to convert TFCs into ordinary shares in the ratio of 25 ordinary shares for each TFC of Rs 1,000.

(iv)

The company is subject to income tax at the rate of 35%.

Required:

Calculate the basic and diluted earnings per share for the year 2006 in each of the following situations:

(a)

if none of the TFC holders opt to convert TFCs into ordinary shares;

(b)

if a TFC holders who owns 40% of the total TFCs exercises his right of conversion on

Q.6

the first day of July 1, 2006. Market Searchers Limited (MS) had 5.0 million ordinary shares at the beginning of the

year 2002. In the month of February 2003, it announced a right issue of one new share for each five shares issued at the exercise price of Rs.5.00 per share with the last date of exercise of right being March 1, 2003. Fair value of one ordinary share prior to exercise on March 1, 2003 was Rs.11. Moreover, it issued 500,000 convertible bonds on January 1, 2004. Each block of 10 bonds is convertible into 3 ordinary shares. Interest expense for the year 2004 relating to the liability component of the convertible bond is Rs.10.0 million. Current and deferred tax relating to that interest expense is Rs.4.0 million. Interest expense includes Rs.1.0 million being the amortization of discount arising on initial recognition of the liability component as per IAS 32. Net profits for the year ended on December 31 of each year are as follows:

- 2002 – Rs.1,100 million

- 2003 – Rs.1,500 million

- 2004 – Rs.1,800 million Required:

(a)

Compute earnings per share for the years 2002, 2003 and 2004 as per IAS 33.

(b)

Discuss whether or not the financial instruments or other contracts that may be settled by payment of financial assets or issuance of ordinary shares of the reporting

enterprise, at the option of the issuer or the holder are deemed to be potential ordinary shares under IAS 33. Q.7 Durable Electronics Limited is a manufacturing concern specializing in the manufacturing and marketing of home appliances. The trading results for the year ended December 31, 2005 are as follows:

Rupees in million

Profit before taxation Income Tax Profit after taxation

60

12

48

The details of movement in the share capital of the company during the year are as follows:

- As on January 1, 2005, 10 million ordinary shares of Rs. 10 each were outstanding having a market value of Rs. 350 million.

- The board of directors of the company announced an issue of right share in the proportion of 1 for 5 at Rs. 40 per share. The entitlement date of right shares was April 30, 2005. The market price of the shares immediately before the entitlement date was Rs. 40 per share.

- The company announced 20% bonus shares for its shareholders on June 1, 2005. The shareholders were informed that the share transfer books of the company would remain closed from July 1 to July 10, both days inclusive. Transfers received up to June 30, 2005 will be considered in time for entitlement of bonus shares. However, right shares issued in the month of April 2005 will not be entitled for the bonus shares. The ex-bonus market value per share was Rs. 32.

- A further right issue was made in the proportion of 1 for 4 on October 31, 2005 at a premium of Rs. 15 per share. The market value of the shares before the right entitlement was Rs. 33 per share. Required:

Calculate the basic and diluted earnings per share for the year ended December 31, 2005 in accordance with IAS 33 (Earnings per share).

Q.8

The following financial statement extracts for the year ending 31 May 1999 relate to Mayes, a public limited company.

 

Rs.000

Rs.000

Operating profit Continuing operations Discontinued operations

26,700

(1,120)

25,580

Continuing operations Profit on disposal of tangible non- current assets

2,500

Discontinued operations (Loss) on sale of operations

(5,080)

23,000

Interest payable Profit before tax Income tax expense Profit after tax Minority interest Profit attributable to members of parent company Dividends:

Preference dividend on non-equity shares Ordinary dividend on equity shares Other appropriations - non equity shares (note iii) Net profit for the period

 

(2,100)

20,900

(7,500)

13,400

(540)

12,860

210

300

(510)

 

(80)

12,270

Capital as at 31 May 1999. Issued and fully paid ordinary shares of Re.1 each 7% convertible cumulative redeemable preference shares of Re.1

12,500

3,000

Additional Information

15,500

(i)

On 1 January 1999, 3.6 million ordinary shares were issued at Rs.2.50 in consideration of the acquisition of Junes for Rs.9 million. These shares do not rank for dividend in the current period. Additionally the company purchased and cancelled Rs.2.4 million of its own Rs.1 ordinary shares on 1 April 1999. On 1 July 1999, the company made a bonus issue of 1 for 5 ordinary shares before the financial statements were issued for the year ended 31 May 1999.

(ii)

The company has a share option scheme whereby certain directors can subscribe for company shares. The following details relate to the scheme. Options outstanding 31 May 1998:

(i)

1·2 million ordinary shares at Rs.2 each

(ii)

2 million ordinary shares at Rs.3 each

Both sets of options are exercisable before 31 May 2000.

Options granted during year 31 May 1999

(i)

One million ordinary shares at Rs.4 each exercisable before 31 May 2002 granted 1 June 1998.

(ii)

During the year to 31 May 1999, the options relating to the 1·2 million ordinary shares at Rs.2 were exercised on 1 March 1999.

(iii)

The average fair value of one ordinary share during the year was Rs.5.

(iii)

The 7% convertible cumulative redeemable preference shares are convertible at the option of the shareholder or the company on 1 July 2000, 2001, 2002 on the basis of

two ordinary shares for every three-preference share. The preference share dividends are not in arrears. The shares are redeemable at the option of the shareholder on 1 July 2000, 2001, 2002 at Rs.1.50 per share. The ‘other appropriations - non equity shares’ item charged against the profits relates to the amortization of the redemption premium and issue costs on the preference shares.

(iv)

Mayes issued Rs.6 million of 6% convertible bonds on 1 June 1998 to finance the acquisition of Space, an unlisted company. Each bond is convertible into 2 ordinary shares of Rs.1. Assume an income tax rate of 35% and that interest on the bonds receives tax relief at this rate of tax.

(v)

The interest payable relates entirely to continuing operations and the taxation charge relating to discontinued operations is assessed at Rs.100,000 despite the accounting losses. The loss on discontinued operations relating to the minority interest is Rs.600,000.

Required:

Calculate the basic and diluted earnings per share for the year ended 31 May 1999 for Mayes utilizing IAS33 ‘Earnings per share’.

Q.9

comprises 2,000,000 ordinary shares of Rs. 10 each. The company granted potions over 100,000 ordinary shares in 2006. The options can be exercised between 2009 and 2011 at Rs. 60 per share. The average market price of Classic Limited shares during the year was Rs. 75. In addition Classic Limited has 800,000 Rs. 10 convertible cumulative preference shares (treated as an equity instrument under IAS-32) and Rs. 1,000,000, 5% convertible bonds in issue throughout 2008. Each convertible bond and preference share is convertible into two ordinary shares. The company’s results for the year ended December 31, 2008 comprised operating profit from continuing operations of Rs. 300,000 and operating profit from discontinued operations of Rs. 100,000. Interest and tax at 30% amounted to Rs. 100,000 and Rs. 90,000 respectively. The profit for the year was Rs. 210,000. Required: - Calculate Basic and Diluted Earnings Per Share for Classic Limited?

The issued share capital of Classic Limited at December 31, 2007 and 2008

Q. 10

The following information relates to Que Limited (QL) for the year ended 31 December 2011:

(i)

Issued share capital on 1 January 2011 consisted of 80 million ordinary shares of Rs. 10 each.

(ii)

Profit after tax amounted to Rs. 130 million. It includes a loss after tax from a discontinued operation, amounting to Rs. 40 million.

(iii)

On 30 September 2011, QL issued 20% right shares at a price of Rs. 11 per share. The market value of the shares immediately before the right issue was Rs. 12.50 per share.

(iv)

There are 25,000 share options in existence. Each option allows the holder to acquire 120 shares at a strike price of Rs. 10 per share. The options have already vested and will expire on 30 June 2013. The average market price of ordinary shares in 2011 was Rs. 12 per share.

(v)

QL had issued debentures in 2008 which are convertible into 6 million ordinary shares. The debentures shall be redeemed on 31 December 2012. The conversion option is exercisable during the last six months prior to redemption. The interest on debentures for the year 2011 amounted to Rs. 11 million.

(vi)

Preference shares issued in 2009 are convertible (at the option of the preference shareholders) into 4 million ordinary shares on 31 December 2013. The dividend paid on preference shares during 2011 amounted to Rs. 5.75 million.

(vii)

The company is subject to income tax at the rate of 35%.

Required:

Prepare extracts from the financial statements of Que Limited for the year ended 31

December 2011 showing all necessary disclosures related to earnings per share. (Ignore

comparative figures)

(17 marks)

Q-11 The following information pertaining to Krishna Limited (KL) has been extracted from its financial statements for the year ended 31 December 2012.

(i)

Total comprehensive income for the year:

 

Rs. In

‘000

 

Profit from continuing operations - net of tax

200,000

Profit from discontinued operations - net of tax

10,000

Fair value gain on investments available for sale - net of tax

16,000

Total comprehensive income

226,000

(ii)

Share capital as on 1 January 2012:

8,000,000 Ordinary shares of Rs. 10 each.

500,000 Convertible preference shares of Rs. 100 each entitled to a cumulative dividend at 12%. Each share is convertible into two ordinary shares and the dividend is paid on 28 February, every year.

(iii)

20% bonus shares being the final dividend for the year ended 31 December 2011 were issued on 31 March 2012.

(iv)

On 30 April 2012, holders of 80% convertible preference shares converted their

shares into ordinary shares.

(v)

On 1 July 2012, KL issued 20% right shares to its ordinary shareholders at Rs. 70 per share. The market price prevailing on the exercise date was Rs. 80 per share.

(vi)

On 1 August 2011, KL granted 2,500 share options to each of its twenty technical managers. The managers would become eligible to exercise these options on completion of further five years of service with KL. By 31 December 2012, two managers had already left and it is expected that a further six managers would leave KL before five years. As of 31 December 2012 estimated fair value of each share option was Rs. 40.

Required:

Prepare a note relating to basic and diluted earnings per share for inclusion in KL’s financial statements for the year ended 31 December 2012, in accordance with International Financial Reporting Standards. Q-12 Alpha Limited (AL) a listed company acquired following 80% equity in Zee Limited on 01 July 2010. The following information has been extracted from their draft financial statements.

 

AL

ZL

 

Rs. (000)

Rs. (000)

Balance as at 01 January 2013: -

   

Share capital (Rs. 100 each)

80,000

35,000

12% Convertible bonds (Rs. 100 each)

30,000

--

Profit for the year ended 31 December 2013 (after tax)

60,000

25,000

Following information is also available: -

(i)

The bonds were issued at par on 01 January 2011 and are convertible at any time before redemption date of December 31, 2015, at the rate of five ordinary shares

 

for every four bonds.

 

(ii)

Cost and fair value information of ZPL ‘s investment property is as under: -

 
   

31 Dec 2013

31 Dec 2012

   

Rs (000)

Cost

 

65,000

60,000

   

67,000

59,000

ZL uses cost model while the group policy is to use the fair value model to account for investment property.

(iii)

AL operates a defined benefit gratuity scheme for its employees. The actuary’s report has been received after the preparation of draft financial statements and provides the following information pertaining to the year ended 31 December 2013: -

   

Rs. (000)

 

Actuarial losses

150

Current service costs

 

8,000

Net interest income

 

3,000

(iv)

On August 2013, under employees share option scheme, 60,000 shares were issued by AL to its employees at Rs. 150 per share against the average market price of Rs. 250 per share.

(v)

Dividend details are as under: -

 
   

AL

 

ZL

 

2013 (interim)

2012 (final)

2013 (interim)

2012 (final)

Cash

18%

10%

 

12%

15%

 

--

20%

 

--

16%

At the time of payment of dividend, income tax @ 10% was deducted by AL and ZL.

(vi)

Applicable tax rate for business income is 35%.

 

Required: - Extracts from the consolidated profit and loss account of Alpha Limited including earnings per share for the year ended December 31, 2013 in accordance with the IFRS?

(Note: comparative figures and information for notes to the financial statements are not

required)

Q – 13 The following information has been extracted from draft statement of financial position of Ittehad Industries Limited (IIL), as on December 31, 2014: -

(15)

 

2014

2013

 

Rs. in millions

Share capital (Rs. 10 each)

1,800

1,200

Share premium

380

230

Accumulated profit

3,756

3,556

11.5% Term Finance Certificates

250

--

The following information is also available: -

i) The profit after tax earned by IIL during the year ended December 31, 2014 amounted to Rs. 225 million.

ii) On April 01, 2014, IIL issued 25% right shares to its existing shareholders at Rs. 15 per

share. Market value of the shares prior to issue of right shares was Rs. 25 per share.

iii) 20% bonus shares for the year ended December 31, 2013 were issued on May 01, 2014. The right shares issued on April 01, 2014 were also entitled for the bonus.

iv) On December 31, 2014, 5 million shares were not yet vested under the employee share option scheme. The exercise price of the option was Rs. 12 per share and average market price per share during 2014 was Rs. 15 per share. The amount to be recognized in relation to employee share option in profit or loss account over future accounting periods up to vesting date is Rs. 10 million.

v) On July 01, 2014, IIL issued TFCs which are convertible into 20 million ordinary shares on December 31, 2018.

vi) IIL is subject to income tax at the rate of 35%.

Required: - Prepare relevant extract to be reflected in the financial statements of IIL for the year ended

December 31, 2014 showing all necessary disclosures relating to earnings per share. (Comparative figures not required)

A-1

Step # 1: Ranking in order of dilution

 

Increase in

     
 

Increase

in

earnings

 

no. of

ordinary

shares

Earnings per

incremental

shares

Rank

Rs.

     

Rs.

 

Convertible Debentures

       

Increase in earnings (Rs. 7.5m x 70%)

5,250,000

Increase in shares

 

3,000,000

 

1.75

3

Convertible Preference Shares

       

Increase in earnings Increase in shares

2,450,000

 

4,000,000

 

0.61

2

Options

       

Increase in earnings Increase in shares (1.5m x 1.1 / 11)

-

 

150,000

 

-

1

Step # 2: Testing for dilutive effect

 

Profit from

     

operations

   

attributable to

ordinary

Ordinary

Shares

EPS

 

Effect

shareholders

   
 

Rs.

 

Rs.

 

Basic Earnings per share Options (Rank 1)

*125,380,000

85,220,000

1.471

 

-

-

150,000

 
 

125,380,000

85,370,000

1.469

 

Dilutive

Convertible preference shares (Rank 2)

2,450,000

4,000,000

 

127,830,000

89,370,000

1.430

 

Dilutive

Convertible debentures (Rank 3)

5,250,000

3,000,000

 

133,080,000

92,370,000

1.44

 

Anti-

Dilutive

*Rs. 127,830,000 – Rs. 2,450,000 = Rs. 125,380,000

(b)

AAZ Limited

Notes to the financial statements For the year ended December 31, 2007

EARNINGS PER SHARE

2007

Basic alternative to ordinary share holders

Profit (Rupees)

Weighted average number of ordinary shares outstanding during the year Earnings per share - basic (Rupees)

Diluted

125,380,000

85,220,000

1.47

Profit after taxation (Rupees) Weighted average number of ordinary shares, options and convertible preference shares outstanding during the year

Earnings per share - diluted (Rupees)

127,830,000

89,370,000

1.430

Because diluted earnings per share is increased when taking the convertible preference shares into account (from Rs. 1.430 to Rs. 1.44), the convertible debentures are anti-dilutive and are ignored in the calculation of diluted earnings per share.

A-2

Afridi Industries Limited

Extracts from the Statement of Comprehensive Income For the year ended December 31, 2008

Rupees in million

Profit before tax

120.0

Tax @ 35%

42.0

 

78.0

Other comprehensive income

-

Total comprehensive income

78

Earnings per share

 

Basic

 

Continued operations (91 [W-1] - 49 [W-2])

1.86

Discontinued operations ((133) |W-1| - 49 |W-2|)

(0.27)

 

1.59

Diluted

 

Continued operations (108.33 [W-1] - 60.67 [W-2])

1.78

Discontinued operations ((13) [W-1] - 60.67 [W-2])

(0.21)

 

1.57

Afridi Industries Limited

Extracts from the Notes to the Financial Statements

For the year ended December 31, 2009

Basic earnings per share

Profit attributable to ordinary shareholders (Rs. in millions)

 

78.00

Weighted average number of ordinary shares (numbers in millions) (W-2)

 

(W-1) 49.00

Diluted earnings per share

 

Rs. in million

Profit attributable to ordinary shareholders

 

78.00

After tax effect of finance cost on convertible TFCs (4x100x8 / 65%)x10/12

 

17.33

Profit after tax attributable to ordinary shareholders (diluted)

 

95.33

 

Numbers in million

Weighted average number of ordinary shares (W-2)

 

49.00

Effect of convertible TFCs on number of shares (W-2)

 

11.67

Weighted average number of ordinary shares (diluted)

 

60.67

WORKINGS W-1: Basic and diluted earnings

   

Rs. in million

 

Profit before tax

140.00

(20.00)

120

Tax

(49.00)

7.00

(42)

Profit attributable to ordinary shareholders - basic earnings

91.00

(13.00)

78

Finance cost on convertible TFCs (4 x 100 x 8% x 65%) x 10/12

17.33

 

17.33

Profit attributable to ordinary shareholders - diluted earnings

108.33

(13.00)

95.33

W-2: No of ordinary shares outstanding for basic and diluted EPS computation

 

Numbers in million

Ordinary shares outstanding as of Jan 1, 2008

40.00

Right issued during the year (40 x 30% x 9/12)

9.00

No of ordinary shares outstanding for Basic Earnings per Share

49.00

10 TFCs convertible into 35 ordinary shares (4,000,000 x 35/10) x 10/12

11.67

No of ordinary shares outstanding for Diluted Earnings per Share

60.67

A-3

ABC Limited Notes to Consolidated Financial Statements For the year ended March 31, 2010

2010

 

Rs. in '000

Earnings per share basic Profit after tax and minority interest (15,000-2,000)

13,000

Dividend paid during the year to ordinary shareholders (Rs. 4,000)

-

10% Cumulative preference dividend for 2009 (Rs. 2,000) 10% Cumulative preference dividend for 2010 Dividend declared on 12% non cumulative preference shares for 2010 Profit available for distribution to ordinary share holders

Weighted average number of ordinary shares Earnings per share - Basic and diluted

Diluted earnings per share Profit available for distribution to ordinary share holders Effect of dividend declared on 12% non cumulative preference shares convertible into ordinary shares on or before December 31, 2011

Weighted average number of ordinary shares 12% Non cumulative preference shares convertible to ordinary shares on or before December 31, 2011

Antidiluted earning per share

W1

Rs.

W1

W2

-

(2,000)

(2,400)

8,600

No. in '000

13,146

0.65

8,600

2,400

11,000

13,146

1,771

14,917

0.74

W1: Weighted average ordinary shares outstanding for "Basic EPS"

Time lines

 

Actual

Bonus Adjustment

Period

2010

shares

factor (W3)

Adjustment

(Weighted

shares)

01-04-09 to 30-06-09

Outstanding on April 1,

10,000

1.008333X1.2

3/12

3,025

01-07-09 to 30-09-09

Outstanding on July 1, 2009

       
 

Opening Conversion of 500,000 12% Cumulative preference shares into ordinary shares at a premium of Rs. 2 per share (500/12*10)

10,000

     

417

   

10,417

1.008333X1.2

3/12

3,151

01-10-09 to 31-03-10

Outstanding on Oct.1, 2009

       
 

Opening 1,200,000 shares of Rs. 10 each were issued at Rs. 11.5 per share against the market price of 12.5

10,417

     

1,200

   

11,617

1.2

6/12

6,970

         

13,146

Weighted average ordinary shares resulting from conversion for "Diluted EPS"

Time lines

 

Actual

Period

2010

shares

Adjustment

(Weighted

shares)

01-04-09 to 30-06-09

Outstanding on April 01,

3,025

   
 

Share converted on July 1,

     

2009

417

Shares to be converted

1,667

   

2,084

3/12

521

01-07-09 to 31-03-10

Outstanding on July 1, 2009

1,667

9/12

1,250

       

1,771

W3: Calculation of bonus adjustment factor

Bonus element with right issue

Outstanding shares before the exercise of rights at fair value Rights issued at a premium of Rs. 1.5

Theoretical ex-right value per share (144,013/11,617)

Adjusting factor (Fair value 12.5 / Theoretical ex-right value 12 .3967)

Bonus issued on January 01, 2010 (20%) Adjusting factor

A-4

No. of shares @ Rs. Rs. in '000

10,417 12.50

130,213

1,200 11.50

13,800

11,617

144,013

Rs.

12.3967

1.00833

1.2

Rahat Limited Notes to and forming part of the financial statements For the year ended March 31, 2011

2011 2012 Rs./share in ‘000

1

Earnings per share:

1.1

Basic earnings per share

Profit after taxation Dividend on 15% convertible preference shares (19,000*15%)

 

150,000

110,000

(2,850)

(3,000)

/ (20,000*15%) Profit attributable to ordinary shareholders

 
 

147,150

107,000

 

Restated

 

Weighted average number of ordinary shares in issue Basic earnings per share

W1

5,638.28

5,170.36

Rs.

26.10

20.69

1.2

Diluted earnings per share

Profit after taxation Weighted average number of shares in issue Conversion of 10,000 cumulative preference shares on July 1, 2010 (10*7)/12*3

150,000

110,000

W1

5,638.28

5,170.36

17.50

-

Adjustment for potential ordinary shares on conversion of 15% cumulative preference shares (190*7)/(200*7)

1,330.00

1,400.00

 

Restated

Weighted average number of shares for diluted earnings Diluted earnings per share

6,985.78

6,570.36

21.47

16.74

During the year the company has issued 1 million right ordinary shares at Rs. 12 per share against the prevailing market price of Rs. 15 per share. This has resulted in restatement of basic and diluted earnings per share for the year ended March 31, 2010.

W-1

Weighted average ordinary shares outstanding for 'Basic EPS'

 

2011

2010 (Restated)

 

Description

Date of

Actual No.

Time

Bonus

 

Weighted

Actual No.

Bonus factor

Weighted

issue

of shares

factor

average

of shares

(W-1)

average

 

(W

: 2)

shares

shares

Balance

01-04-

10

5,000

3/12

1.034072

1,292.59

5,000

1.034072

5,170.36

Conversion of 10,000 cumulative preference shares

01-07-

10

70

 

5,070

3/12

1.034072

1,310.69

Right issue

01-10-

10

1,000

 

6,070

6/12

-

3,035.00

Weighted average shares

5,638.28

5,170.36

W-2

Calculation of theoretical ex-right value per share and bonus adjustment factor

Outstanding shares before the exercise of rights at fair value

5,070

15.0

76,050

Exercise of rights issued at Rs. 12 per share

1,000

12.0

12,000

 

6,070

 

88,050

Theoretical ex-right value per share

88,050/6,070

 

14.50576

Bonus adjustment factor

15/14.50576

 

1.034072

A-5

No TFC’s Converted to ordinary shares

   

Basic Earnings per share (B.EPS)

   

Profit attributable to ordinary shareholders

Rs. 20,000,000

 

No. of shares

   

5,000,000x3/12x11/10+5,500,000x9/12

   

1,375,000+4,125,000

5,500,000

 

(20,000,000/5,375,000)

 

3.63 Rs. /share

Dilutive Earnings per share (D.EPS)

   

Earnings used for basic EPS

20,000,000

 

Net of tax interest saved on conversion of TFC’s

   

[120,000,000x13%(1-0.35)]

10,140,000

 
 

30,140,000

 

No. of shares

   

Used for basic EPS

5,500,000

 

Assumed to be issued on conversion of TFC’s

   

[120,000,000x25/1000]

3,000,000

 
 

8,500,000

 

(30,140,000/8,500,000)

 

3.54 Rs. / Share

40% TFC’s converted into ordinary shares

   

Basic Earnings per share (B.EPS)

   

Profit attributable to ordinary shareholders

Rs. 20,000,000

 

Interest saved on conversion of TFC’s

   

(120,000,000x.40x13%(1-.35))

4,056,000

 

24,056,000

No. of shares

   

5,000,000x3/12x11/10+5,500,000x3/12+

   

6,100,000

6,700,000x6/12

 

(24,056,000/6,100,000)

 

3.94

Rs. /share

Dilutive Earnings per share (D.EPS)

   

Earnings used for basic EPS

24,056,000

 

Net of tax interest saved on conversion of TFC’s

   

[72,000,000x13%(1-0.35)]

6,084,000

 
     

30,140,000

No. of shares

   

Used for basic EPS

6,100,000

 

Assumed to be issued on conversion of TFC’s

   

[72,000,000x25/1000]

1,800,000

 
     

7,900,000

   

3.81

Rs. /share

A-6

 

2002

 

Basic Earnings per share (B.EPS)

Millions

 

Profit attributable to ordinary shareholders

Rs. 1,100

 

No. of shares

5

 
   

Rs. 220 /share

Dilutive Earnings per share (D.EPS)

 

Rs. 220 /share

 

2003

2002

Basic Earnings per share (B.EPS)

Millions

Millions

Profit attributable to ordinary shareholders

Rs. 1,500

Rs. 1,100

No. of shares

 

5x11/10

[5x2/12x11/10+6x10/12]

5.92

5.5

 

253.40 Rs./Share

200 Rs. /Share

TERP (60/6)

10

 

5 shares market value =5x11

55

 

1 share exercise price =1x 5

5

 

6

60

 

Dilutive Earnings per share (D.EPS)

253.40 Rs./Share

200 Rs. /Share

 

2004

2003

Basic Earnings per share (B.EPS)

Millions

Millions

Profit attributable to ordinary shareholders

Rs. 1,800

Rs. 1,500

No. of shares

6

5.92

 

Rs. 300 /Share

Rs. 253.40/ Share

Dilutive Earnings per share (D.EPS)

   

Earnings used for basic EPS

1,806

Rs. 1,500

No. of shares

7.5

5.92

 

Rs. 240.80/Share

Rs. 253.40/ Share

Earnings used for basic EPS

1,800

 

Interest saved net of tax (10-4)

6

 
 

1,806

 

Used for basic EPS

6

 

Assumed to be issued on Convertible

   

(0.5x3)

1.5

 
 

7.5

 

A-7

Basic EPS

=

Net profit attributable to ordinary share holders

Profit Weighted Average of shares Opening

On first right issue

Bonus issue

2 nd Right issue

Weighted average number of shares outstanding Rs. 48,000,000

10,000,000 x 4/12 x 6/5 x 33/31.4 4,203,822 A 10,000,000 x 2/12 x 6/5 x 33/31.4 2,101,911 B 2,000,000 x 2/12 x 33/31.4 350,318 C 14,000,000 x 4/12 x 33/31.4 4,904,459 D 17,500,000 x 2/12 2,916,667 E

2,101,911 B 2,000,000 x 2/12 x 33/31.4 350,318 C 14,000,000 x 4/12 x 33/31.4 4,904,459 D
2,101,911 B 2,000,000 x 2/12 x 33/31.4 350,318 C 14,000,000 x 4/12 x 33/31.4 4,904,459 D

Total shares

14,477,177

Basic EPS

=

48,000,000

 

14,477,177

3.31 per share

W-1

Calculation of theoretical ex-

5 x 40

= 200

right price first right issue

1 x 40

= 40

W-2

240/6 = 40

Calculation of theoretical ex- right price 2 nd right issue

4 x 33 = 132

1 x 25 = 25

A-8

157/5 = 31.4

Basic EPS

Continuing

Discontinuing

Total

Earnings

18,270

(5,700)

12,570

No. of shares

13,800

13,800

13,800

 

1.32

(0.41)

0.91

Dilutive EPS

     
 

18,794

(5,700)

13,094

 

29,340

29,340

29,340

 

0.64

(0.19)

0.45

 

Continuing

Discontinuing

Total

Operating profit

26,700

(1,120)

25,580

Gain /(loss ) on disposal

2,500

(5,080)

(2,580)

Operating profit

29,200

(6,200)

23,000

Finance cost

(2,100)

--

(2,100)

Profit /(loss) before tax

27,100

(6,200)

20,900

Tax expense

(7,400)

(100)

(7,500)

Profit after tax

19,700

(6,300)

13,400

NCI

(1,140)

600

(540)

Profit attributable to group

18,560

(5,700)

12,860

Preference dividend

(210)

--

(210)

Amortization

(80)

--

(80)

Profit available to ordinary shareholders

18,270

(5,700)

12,570

No. of shares

No. of

Weighted Average

 

shares

1-6-98

10,100

(10,100x7/12x6/5)+

 

1-1-99

3,600

(13,700x2/12x6/5)+

 

1-3-99

1,200

(14,900x1/12x6/5)+

 

1-4-99

2,400

(12,500x2/12x6/5)

 

31-05-1999

12,500

13,800

 

Calculation of dilutive EPS

     

a) Control No.

 

1.32

 

b) Incremental EPS

     

Potentially issuable

Effect on

Effect on No. of shares

I. EPS

shares

earnings

   

Options

     

Option # 1

--

[1,200-(1,200x2/5)]

--

x9/12=540

Option # 2

--

[2,000-(2,000x3/5)]

--

x12/12=800

Option # 3

--

[1,000-(1,000x4/5)]

--

x12/12=200

Preference shares

290

3,000x1/1.5=2,000

0.145

Convertible loan

360(1-.35)

6,000x2=12,000

0.0195

=234

c)

Ranking

     

i) Options

     

ii) Convertible

     
 

loan

iii) Convertible

     
 

preference

shares

d)

Cumulative EPS

     

By adding Options

 

18,270/(13,800+1,540)

1.19

   

18,270/15,340

 

By adding

 

(18,270+234)/(15,340+12,000)

 

Convertible

loan

   

18,504/27,340

0.68

By adding Preference shares

 

(18,504+290)/(27,340+2,000)

 
   

18,794/29,340

0.64

A-9

Basic EPS

Continuing

Discontinuing

Total

Operating profit

300,000

100,000

400,000

Interest expense

(100,000)

--

(100,000)

Profit before tax

200,000

100,000

300,000

Tax expense

(60,000)

(30,000)

(90,000)

Profit after tax

140,000

70,000

210,000

No. of shares

2,000,000

2,000,000

2,000,000

 

7 Paisa

3.5 paisa

10.5 paisa

Dilutive EPS

     

Earnings

172,500

70,000

242,500

No. of shares

4,020,000

4,020,000

4,020,000

 

4.29 paisa

1.74 paisa

6 paisa

Calculation of dilutive EPS

     

e)

Control No.

 

7 paisa

 

f)

Incremental EPS

     
 

Potentially issuable shares

Effect on

Effect on No. of shares

 

I.EPS

 

earnings

 
 

Options

--

100,000-

 

--

 

(100,000x60/75)

 

=20,000

 

8% Preference shares

640,000

800,000x2=1,600,000

40.0

paisa

 

5% Convertible loan

50,000

1,000,000x2=2,000,000

 

1.625

 

(1-0.30)=

paisa

32,500

 

g)

Ranking

     
 

iv) Options

     
 

v) Convertible loan

     
 

vi) Convertible

     

preference shares

h)

Cumulative EPS

     
 

By adding Options

 

[140,000+0]/2,020,000

6.9 paisa

 

By adding Convertible loan

 

[140,000+32,500]/

4.29

paisa

[2,020,000+2,000,000]

 
 

By adding Preference shares

 

[172,500+640,000]/

 

14.45

[4020,000+1,600,000]

paisa

A-10

Que Limited

Extract from the Statement of Comprehensive Income

 

2011

Earnings per share Basic Continued operations [(124,250,000 + 40,000,000) - 85,224,000)1

1.93

Discontinued operations [(40,000,000) - 85,224,000]

(0.47)

1.46

Diluted Continued operations [(131,400,000 + 40,000,000) - 91,724,000)1

1.87

Discontinued operations [(40,000,000) - 91,724,000]

(0.44)

1.43

Que Industries Limited Extract from notes to the Financial Statements For the year ended 31 December 2012

17- Earnings per share

Basic

2011

Diluted

Total comprehensive income attributable to ordinary shareholders

124.25

131.40

(Rs. in million)

Note 17.1,17.2

 

Weighted average number of ordinary shares outstanding during the

85,224,000

91,724,000

year

Note 17.3

 

17.1

Reconciliation of profit for the year to Basic earnings

 

2011

 

Rs. in million

 

Profit for the year

130.00

Less: Preference dividend Basic earnings

 

(5.75)

124.25

17.2

Reconciliation of basic earnings to diluted earnings Basic earnings

 

124.25

Add: Interest on convertible debentures Diluted earnings

 

7.15

131.40

17.3

Reconciliation of basic number of shares to diluted number of shares Basic number of shares Options Convertible debentures

 
 

85,224,000

500,000

6,000,000

Preference shares (Not adjusted being anti-dilutive) Diluted number of shares

 

-

91,724,000

WORKINGS W-l: Weighted average number of shares

 

Description

Date of issue

Actual no. of shares

Time

Bonus

W/Avg. shares

factor

Balance

1-Jan-ll

80,000,000

3/4

1.0204

61,224,000

Right issue

30-Sep-ll

16,000,000

-

-

-

96,000,000

1/4

1.0000

24,000,000

 

85,224,000

W-1.1 : Calculation of theoretical ex-right price

 

Shares

Market

Value

Quantity

Rate

Outstanding shares before the exercise of rights at fair value Exercise of right issued

80,000,000

12.50

1,000,000,000

16,000,000

11.00

176,000,000

 

96,000,000

1,176,000,000

Theoretical ex-right price per share (Rs. 1,176,000,000 - 96,000,000)

 

12.25

Bonus adjustment factor (12.50 - 12.25)

 

1.0204

W-2 : Ranking of dilutive instruments

Description

Convertible debentures

Options- bonus element

Increase in

earnings

7,150,000

(11,000,000 x 65%)

-

Increase in no. of ordinary shares

6,000,000

500,000

(25,0000x120x2/12)

Earnings per

incremental

share

1.19

-

Rank

2

1

Preference shares

5,750,000

4,000,000

1.44

3

W-3 : Testing for dilutive effect

 
 

Profit

Ordinary shares

EPS

Effect

attributable to

ordinary

shareholders

Basic earnings per share

124,250,000

85,224,000

1.4579

Options

-

500,000

124,250,000

85,724,000

1.4494

Dilutive

Convertible debentures

7,150,000

6,000,000

131,400,000

91,724,000

1.4326

Dilutive

Preference shares

5,750,000

4,000,000

137,150,000

95,724,000

1.4328

Anti dilutive

A-11

 

From

From

Total

continuing

discontinuing

operations

operations

Rs. (000)

Rs. (000)

1.1

Basic earnings per share

Profit after tax for the year Dividend on convertible preference shares for the year ended December 31, 2012

 

200,000

10,000

(500x100x20%x12%)

 

(1,200)

--

 

198,800

10,000

No. of shares in (000)

 

Weighted average no. of shares in issue W -1

 

11,278

11,278

Rs.

17.63

0.89

 

Rs. (000)

Rs. (000)

1.2 Diluted earnings per share Profit after taxation for the year

 

200,000

10,000

 

No. of shares in (000)

 

Weighted average used for basic earnings per share

 

11,278

11,278

 

Conversion of preference shares Employees option (20-2-6)x2x2500