IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 26/ Earnings Per Share (lAS 33)

291

Required Ca lculate basic and diluted earni ngs per share . (Ass ume that no con version takes place in the year.) Solution Basic earnings per share is $000 ~ 10,000 = 20c per share Diluted earnings per share

Effect on earnings Profit for basic earnings per share Add interest saved Less tax relief Adjusted earnings

2,000 40 .....ill.) 2028

Number or ordinary shares if loan stock was converted: Basic earnings per share-s-ordinary shares On conversion, most favorable terms

10,000 1,200

[800,000 x (150/100)]

Diluted earnings per share 2 028 = 18 I 11 ,200 . c

7.9 Shar e optio ns and other share purchase a rrang ements are dilutive to the exte nt that th ey re sult in th e issue o f ordi nary shares fo r less th an fai r value . lAS 33 wants to re flect th is fac t by requiring thi s tr eatment: (a) The options /s hare purchase arrangements are deemed to have been exerc ised at the exer– cise pri ce . (b) The " deemed" proceeds are th en converted into a number o f shares at fair value. (c ) The di fference between the shares deemed to have been issue d and th e shares th at would have been issue d at full mar ket p rice is the diluti on and are shares issued fo r " no consid– e ra tion." 7.10 Th is method is ofte n called the treasury stock method.

Case Study 5

Facts

$3 million $10 million $8 2 million

Net profit for year 20X1 Ordinary shares outstanding during 20X I Average fair value of one ordinary share: year 20XI Shares under option during 20X I, convertible at $6 per share

Required Ca lculate basic and diluted earnin gs per share . Solution

Basic earnings per share $3 million = 30 10 million c Diluted earnings per share Shares under option

2 million

Number of shares that would have been issued at fair value if converted (2 million x $6 = $12 million): $12 million/$8

(1.5 million)