EARNINGS PER SHARE

PART 1: BASIC EARNINGS PER SHARE

IAS/PAS 33
!!Prescribes the principles for determination

and presentation of earnings per share so as to improve intercomparability between different entities and intra-comparability within an entity from period to period.

FOCUS
!!Consistent determination of the

denominator of the EPS calculation

TYPES
!!Basic Earnings per Share !!Diluted Earnings per Share

USES
!!Assessing the value of an entitys shares !!Promoting comparability when measuring

performance !!Providing a basis for dividend policy

BASIC EPS
!!The amount of profit or loss attributable to

each ordinary share that is outstanding during all or part of the period.

FORMULA
BASIC EPS = Profit or loss less Preferred Dividends . Weighted average number of outstanding ordinary shares

CONSIDERATIONSFOR P/L
!!P/L should be net of income tax expense !!P/L sould 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

ADJUSTMENTS FOR PREFERENCE DIVIDENDS

!!If PS are cumulative, one-year dividend is

deducted from profit or loss whether or not the dividends have been declared. !!If PS are noncumulative, dividend is deducted from profit or loss only when declared

EXAMPLE 1 CUMULATIVE PS
ABC Co. had the following capital structure during 2013 and 2014: Preference shares, P10 par, 6% cumulative 50,000 shares issued and outstanding --- P500,000 Ordinary shares, P10 par, 200,000 shares issued and outstanding --- P2,000,000 ABC reported a profit after tax of P1,200,000 for the year ended December 31, 2014. ABC paid no preferred dividends during 2013 and paid P15,000 in preferred dividends during 2014.

EXAMPLE 2 REDEEMABLE PS
During 2013, ABC Co. had the following two classes of shares issued and outstanding for the entire year: 1,000, 12% redeemable PS, P100 par --- P100,000 100,000 ordinary shares, P10 par --- P1,000,000 During 2013, ABC declared dividends of P60,000 and P90,000 to preference shares and ordinary shares, respectively. ABCs 2013 income statement reported profit of P2,500,000. ABCs income tax rate is 30%

EXAMPLE 3 - PARTICIPATING PREFERENCE SHARES

ABC Co. had the following share capital outstanding all throughout 2013: 10% Preference shares, P40 par, 50,000 shares issued and outstanding --- P2,000,000 Ordinary shares, P10 par, 100,000 shares issued and outstanding with a basic allocation of 10% --- P1,000,000 The preference shares are non-convertible but are cumulative and fully participating. ABC Co. reported profits of P1,200,000 for 2013 and declared P800,000 dividends on December 31, 2013. There are no dividends in arrears on December 31, 2012.

WANOOS
!!Reflects the possibility that the amount of

shareholders capital varied during the period as a result of a larger or smaller number of shares being outstanding at any time

EXAMPLE 4 - WANOOS
ABC Co had the following ordinary share transactions during the current year: Jan 1 Ordinary shares outstanding 200,000 Feb 1 Declared10% bonus issue 20,000 May 1 Acquired treasury shares 12,000 June 1 Issued shares in a business combination 60,000 Aug 1 Issued shares for cash 30,000 Sep 1 Issued a 2-for-1 share split Dec 1 Reissued treasury shares 6,000

FOCUS
!!Consistent determination of the

denominator of the EPS calculation