15 - Earnings per Share IAS 33

A set of flashcards that cover key concepts related to Earnings per Share according to IAS 33, ideal for exam preparation.

What does IAS 33 apply to?

Entities whose ordinary shares are publicly traded or in the process of being issued in public markets.

What figures should be presented on the face of the statement of comprehensive income according to IAS 33?

Basic and diluted EPS figures should be presented with equal prominence.

How is Basic EPS calculated?

Basic EPS is calculated as Profit or loss attributable to ordinary equity holders divided by the Weighted average number of shares outstanding during the period.

What adjustments should be made to profit after tax when calculating EPS?

Deduct any preference share dividends related to preference shares treated as equity.

What does WANOS stand for?

Weighted Average Number of Shares outstanding.

What determines the WANOS calculation?

The number of shares outstanding and the proportion of the reporting period that those shares were outstanding.

How are new shares issued for cash treated in the WANOS calculation?

They are included when the consideration becomes receivable.

What happens to treasury shares when calculating EPS?

Treasury shares are deducted on purchase.

What is a bonus issue?

A bonus issue is when new shares are issued without the entity receiving additional resources.

How should bonus issues be treated according to IAS 33?

They should be treated as if made in the earliest reported period and prior periods' EPS must be restated.

How is the basic EPS calculated when a bonus issue occurs?

It assumes the bonus was issued in the current period.

What is a rights issue?

An issue of shares for cash to existing ordinary equity holders in proportion to their current shareholdings at a discount to the current market price.

What is the adjustment factor in a rights issue?

An adjustment factor is applied to the number of shares in issue before the rights issue to calculate the weighted average number of shares.

What must be done to EPS calculations for prior periods after a rights issue?

Prior year EPS figures must be multiplied by the reciprocal of the adjustment factor.

How is the theoretical ex-rights price (TERP) calculated?

TERP is calculated as the total price of shares divided by the total number of shares post-rights issue.

What happens to the diluted EPS calculation if potential ordinary shares are dilutive?

They are only considered in the calculation if their conversion to ordinary shares would decrease EPS.

What types of instruments can create potential ordinary shares?

Convertible bonds, preference shares, options, and contingently issuable shares.

Can contingent shares be included in the diluted EPS calculation?

Yes, if the conditions leading to their issuance are satisfied by the end of the accounting period.

What is the objective of including dilutive potential ordinary shares in EPS?

To reflect the maximum potential dilution to existing shareholders' earnings.

How are options and warrants treated in the diluted EPS calculation?

They are treated as being ‘in the money’ and potential shares are calculated accordingly.

What are vested options?

Options where all conditions are fulfilled and can be exercised at any time.

What should you do with unvested options in the diluted EPS calculation?

Add the amount recognized in profit or loss to the proceeds when calculating 'free' shares.

What is a contingent share?

Shares that may be issued based on certain conditions being met, relevant for share-based payments or acquisitions.

What must be disclosed by an entity regarding EPS?

The amounts used in calculations for basic and diluted EPS, along with reconciliations and anti-dilutive instruments.

What is the significance of the adjustment factor for a rights issue?

It ensures prior EPS figures are consistent with current calculations post-rights issue.

How is diluted earnings per share affected by convertible instruments?

WANOS increases due to new shares, and profit increases from ceasing interest payments.

What signifies dilutive potential ordinary shares?

Their conversion decreases earnings per share or increases loss per share.

How should anti-dilutive potential shares be treated?

They are disregarded in the diluted EPS calculation.

How is the weighted average number of shares calculated when an entity has multiple issues?

Each issue is calculated separately and considered for dilution.

What is the effect of treasury shares on the EPS calculation?

They are excluded from the number of shares when calculating EPS.

In the context of EPS, what are warrants?

Options that give holders the right to purchase shares at a fixed price, potentially dilutive if 'in the money'.

How does a bonus issue affect shares outstanding?

It increases the outstanding shares in the current period and requires restating prior EPS.

What is a simple calculation for adjusted EPS in light of a bonus issue?

Total profit attributable divided by the total weighted shares post-bonus issue.

What adjustment is made when calculating basic EPS relative to treasury shares?

Treasury shares are subtracted when calculating the total shares in issue.

How do employee share options impact diluted EPS?

They must be calculated based on whether they are vested or unvested.

What happens to the profit when convertible loans are converted into shares?

Interest payments cease, increasing profit for EPS calculation.

When calculating diluted EPS, how are newly issued shares considered?

They are included based on their effective conversion rate, maximizing shareholder benefit.

What is the first step in determining if potential shares are dilutive?

Each potential ordinary share issue is calculated separately.

What is the main reasoning behind adjusting prior EPS for rights issues?

To maintain comparability across periods.

What is the role of the theoretical ex-rights price (TERP) in diluted EPS calculations?

It serves as the baseline for adjusting the number of shares after a rights issue.

How do widely traded shares differ in the context of EPS calculations?

They are subject to additional scrutiny, especially regarding dilution and adjustments.

Why is it important to disclose instruments that are anti-dilutive?

To provide transparency regarding potential shares not included in EPS calculations.

What is the effect of convertible debt on diluted EPS?

It increases the number of shares and affects the overall profit used in the calculation.

What is the ultimate objective behind determining diluted EPS?

To reflect the potential decrease in earnings per share from new share issuances.