PAS 33 Earnings Per Share

Learning Competencies

• Explain how basic earnings per share is computed.

• Explain how diluted earnings per share is
computed.

Conceptual Framework & Acctg.

2
Standards (by: Zeus Vernon B. Millan)
Definition

• Earnings per share (EPS) is a computation made for

ordinary shares. It is a form of profitability ratio
which represents how much was earned by each ordinary
share during the period. No EPS is presented for
preference shares because these shares have a fixed
return represented by their dividend rates.

Conceptual Framework & Acctg.

3
Standards (by: Zeus Vernon B. Millan)
Types of Earnings per share

1. Basic earnings per share

2. Diluted earnings per share

Conceptual Framework & Acctg.

4
Standards (by: Zeus Vernon B. Millan)
Basic Earnings Per Share

Conceptual Framework & Acctg.

5
Standards (by: Zeus Vernon B. Millan)
Considerations in computing “Profit or loss”

a. Profit or loss should be net of income tax expense

b. Profit or loss should be adjusted for the after-tax amounts of
preference dividends, differences arising on the settlement of
preference shares, and other similar effects of preference
shares classified as equity.

Conceptual Framework & Acctg.

6
Standards (by: Zeus Vernon B. Millan)
Adjustments for preference dividends

a. If the preference shares are cumulative, one-year

dividend is deducted from profit or loss whether
declared or not.
b. If the preference shares are non-cumulative, only the
dividend declared is deducted from profit or loss.

Conceptual Framework & Acctg.

7
Standards (by: Zeus Vernon B. Millan)
Weighted average number of outstanding
ordinary shares
• Shares are usually time-weighted from the date consideration is
receivable (which is generally the date of their issue). Thus:
a. Shares issued outright are averaged from the issuance date.
b.Subscribed shares are averaged from the subscription date.
c. Treasury shares are averaged
i. as reduction to the number of outstanding shares from the
reacquisition date; or
ii. as addition to the number of outstanding shares from the
reissuance date

Conceptual Framework & Acctg.

8
Standards (by: Zeus Vernon B. Millan)
Restatement of EPS

• EPS in previous periods are adjusted retrospectively when an

entity issues any of the following:
a. A capitalization or bonus issue (e.g., share dividend);
b. A bonus element in any other issue, for example a bonus element
in a rights issue to existing shareholders (also referred to as
preemptive stock rights);
c. A share split (increase in number of shares with corresponding
decrease in par value); and
d. A reverse share split (consolidation of shares or decrease in
number of shares with corresponding increase in par value).

Conceptual Framework & Acctg.

9
Standards (by: Zeus Vernon B. Millan)
Rights issue

Conceptual Framework & Acctg.

10
Standards (by: Zeus Vernon B. Millan)
Diluted earnings per share

• Diluted earnings per share is the amount of profit for the

period per share, reflecting the maximum dilutions that would
have resulted from conversions, exercises, and other
contingent issuances that individually would have decreased
earnings per share and in the aggregate would have had a
dilutive effect.
• Only basic earnings per share is presented if an entity has no
dilutive potential ordinary shares (i.e., simple capital
structure).
Conceptual Framework & Acctg.
11
Standards (by: Zeus Vernon B. Millan)
• The computation of diluted earnings per share is based on the
assumption that the dilutive potential ordinary shares were
converted or exercised. It is:
1. “As if” the convertible preference shares or convertible bonds have
been converted; or
2. “As if” the options or warrants have been exercised.

• The conversion or exercise is assumed to have taken place on the

date the potential ordinary shares became outstanding,
regardless of the date of actual conversion or exercise.

Conceptual Framework & Acctg.

12
Standards (by: Zeus Vernon B. Millan)
 Conceptual Framework & Acctg.
13
Standards (by: Zeus Vernon B. Millan)
Options, warrants and their equivalents

• When computing for diluted earnings per share, the “treasury

share method” shall be used in computing for the incremental
shares. This method assumes that:
1. The options or warrants are exercised and
2. The proceeds received from the exercise are used to purchase
treasury shares at the average market price.
3. The difference between the treasury shares assumed to have been
purchased and the option shares represents the incremental
shares.

Conceptual Framework & Acctg.

14
Standards (by: Zeus Vernon B. Millan)
Treasury share method

Conceptual Framework & Acctg.

15
Standards (by: Zeus Vernon B. Millan)
Financial statement Presentation

• Basic and Diluted earnings per share are computed on the

following:
1. Profit or loss from continuing operations
2. Profit or loss from discontinued operations, if the entity reports
a discontinued operation.
3. Profit or loss for the year

• EPS is not computed on other comprehensive income and total

comprehensive income.

Conceptual Framework & Acctg.

16
Standards (by: Zeus Vernon B. Millan)
Financial statement Presentation (Continuation)

• EPS computed on profit or loss from continuing

operations and profit or loss for the year are presented
on the face of the statement of profit or loss and other
comprehensive income. If the entity uses a two-
statement presentation, EPS is presented only on the
separate income statement.

Conceptual Framework & Acctg.

17
Standards (by: Zeus Vernon B. Millan)
 APPLICATION OF
CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 18

 QUESTIONS????
 REACTIONS!!!!!

Conceptual Framework & Acctg.

19
Standards (by: Zeus Vernon B. Millan)
 END
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 20