IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

26 EARNINGS PER SHARE (lAS 33)

1. BACKGROUND AND INTRODUCTION 1.1 Earn ings per share (EPS) is simply a profit figure divided by a number of shares. The Stan– dard concentrates on determining the number of shares to be used in the computation and gives limited guidance on the computation of the profit figure. The consi stent use of the price/earnings ratio (PIE) by users of financial statements as an indicator of corporate performance led to the need for a Standard on earnings per share, which is a key component of the PIE ratio. 1.2 However, any inconsistency of accounting policies between entities will result in a lack of comparability of the earnings per share figure. lAS 33 enhances financial reporting by ensuring that there is at least consistency in the calculation of the denominator in the earnings per share statistic. 1.3 lAS 33 applies to • Entities whose ordinary shares or potential ordinary shares are publicly traded or that are in the process of issuing shares in the public markets • Entities that voluntarily choose to disclose 1.4 When both parent and group information are presented together, only the earnings per share for the group are required to be disclosed. If the parent discloses earnings per share information in its separa te accounts, then this information should not be disclosed in the consolidated financial statements. 2. DEFINITIONS OF KEY TERMS (in accordance with lAS 33) Ordinary shar e. An equity instrument that is subordinate to all other classes of equity instru– ment. Potential ordinary share. A financial instrument or other contract that may entitle its holder to ordinary shares . Examples are options, warrants, and financial liabilities or equity instruments that are convertible into ordinary shares.) Basic earnings per share. Calculated by dividing the profit or loss attributable to the ordinary shareholders by the weighted-average number of ordinary shares outstanding during the ac– counting period. Dilution. The reduction in earnings per share or increase in the loss per share resulting from the assumption that potential ordinary shares will materialize. Antidilution. An increase in earnings per share or a reduction in loss per share resulting from the assumption that potential ordinary shares will materialize. 3. ORDINARY SHARES 3.1 An "ordinary share" participates in profit for the period only after other types of shares, such as preferred shares, have participated. 3.2 An entity may have more than one class of ordinary shares. For example, Entity A has two classes of "common" shares, Class X and Class Y. If Class X is entitled to fixed dividend of $10 per share plus a dividend of 5%, and Class Y is entitled to a dividend of 5% only, then Class X shares are not ordinary shares, as the fixed dividend per share ($ 10) creates a preference over Class Y shares, and hence Class Y shares are subordinate to Class X shares. 4. PRESENTATION OF EARNINGS PER SHARE 4.1 An entity should present on the face of the income statement both basic and diluted earnings per share for profit or loss from continuing operations attributable to the ordinary equity holders of