301 / 488
292
Wiley IFRS: Practical Implementation Guide and Workbook
Therefore shares for "no consideration"
(2 million - 1.5 million )
Diluted earnings per share
$3 million
O
5 '11'
=
20c per share
I .
rm IOn
(0.5million)
Profit fromcontinuing operations
Losson discontinued operations (taxrelief$500million)
Income tax
Minority interest (loss on discontinued activities $500million)
Preference share appropriation-dividend (2 years)
-other
7.11
Any potential ordinary shares that expired or were canceled are included in the diluted
earnings per share calculation for the period in which they were outstanding. Thus share options
that lapsed during the period would be included in the calculation and weighted for the period they
were outstanding.
7.12
Potential ordinary shares are dilutive if their deemed conversion to ordinary shares would
decrease net profit per share from
continuing ordinary operations.
Thus the "control number" is the
net profit from continuing operations.
It
is the effect of potential ordinary shares on this "number"
that determines whether the issue of potential ordinary shares is dilutive or antidilutive.
7.13
The effects of all antidilutive potential ordinary shares are ignored in the calculation of
diluted earnings per share. Each issue of potential ordinary shares is considered individually in the
order most dilutive to least dilutive. Net profit from continuing operations is the net profit from
ordinary activities after deducting preference dividends and after excluding items relating to
discontinued operations.
Case Study 6
Facts
Extracts from group financial statements of AB, a public limited company, year ended April 30, 20XI.
:Jim
35,000
(1,500)
(7.500)
(1,500)
(30)
(5)
Share capital at April 30, 20XI
Ordinary sharesof $1
5%Convertible preference shares
1,000
300
Other Information
(a) On January I, 20XI , 48 million ordinary shares were issued on the acquisition of CD pic at a
valuation of $190 million. If CD earns cumulative profits in excess of $8,000 million up to
April 30, 20X2, an additional 10 million shares are issuable to the vendors. If the profits do not
reach that amount, then only 2 million shares are issuable on April 30, 20X2.
(b) The profits for the three months to April 30, 20X I, are $1,200 million.
(c) On May II , 20XI, there was a bonus issue of one for four ordinary shares. The financial state–
ments are made up to April 30, 20XI, and had not yet been published.
(d) The company has a share option scheme. The directors exercised options relating to 18 million
shares on February 28, 20XI, at a price of $3 per share . In addition, options were granted dur–
ing the year on March I, 20X I, to subscribe for 10 million shares at $2 each. The fair value of
the shares on March 1, 20X I, was $4, and the average fair value for the year was $5.
(e) The preference shares are convertible into ordinary shares on May I, 20X2, on the basis of one
ordinary share for every two preference shares or on May 1, 20X3, on the basis of one ordinary
share for every four preference shares.
(f)
There is a profit share scheme in operation whereby employees receive a bonus of 5% of profits
from continuing operations after tax and preference dividends.
(g) XY pic, a 100% owned subsidiary of AB, has in issue 9% convertible bonds of $200 million
that can be converted into one ordinary share of AB for every $10 worth of bonds. Income tax
is levied at 33%.
Required
Calculate basic and diluted earnings per share.