1. EARNINGS PER SHARE (EPS)
MFRS 133
EARNINGS PER SHARE (EPS)

2. Basic EPS
Public listed entities are required to calculate EPS and diluted EPS, where applicable
The EPS is calculated for:
Continuing operations attributable to the parent entity; and
Profit or loss attributable to the parent.
Basic EPS =
Profit after tax – Preference dividend – Minority interest
Weighted average (WA) number of equity shares in issue

3. Basic EPS – Example Called up capital of ABC at 1.1.X7 consisted of:
400,000 10% preference shares
4m ordinary shares
Profit after tax for X7 is RM428,000
A full year’s preference dividend of RM28,000 were paid.
No change to share capital during the year.
Basic EPS =
428,000 – 28,000
4,000,000
10 sen

4. Profit Attributable to Equity Shareholders
Profit Attributable is reduced by preference dividends declared for the year
Preference dividends deducted for cumulative preference shares are the amount due for the year regardless of whether the dividends have been declared for the year.
At the same time, any dividends in arrears brought forward is not included in the preference dividends for the purpose of calculating EPS.

5. Profit Attributable to Equity Shareholders - Example
XYZ has 5m 7% cumulative preference shares & 10m ordinary shares.
Profit after tax for FYE X1 was RM200,000 & XYZ preference dividend paid for half year was RM175,000.
Profit after tax FYE X2 was RM800,000.
XYZ declared & paid current year’s preference dividends & previous year’s preference dividends in arrears.
X1 Basic loss per share =
200,000 – (5m x 7%)
10,000,000
1.5 sen

6. Profit Attributable to Equity Shareholders - Example
XYZ has 5m 7% cumulative preference shares & 10m ordinary shares.
Profit after tax FYE X2 was RM800,000.
XYZ declared & paid current year’s preference dividends & previous year’s preference dividends in arrears.
X2 Basic EPS =
800,000 – (5m x 7%)
10,000,000
4.5 sen

7. Weighted average number of shares
To calculate basic EPS, the profit or loss after tax is divided by the weighted average number of ordinary shares outstanding during the period
Shares are usually included in the weighted average number of shares computation from the date the consideration is receivable (which is generally the date of their issue)
E.g. ordinary shares issued in exchange for cash are included when cash is receivable
The timing for the inclusion of ordinary shares is determined by the terms and conditions attaching to their issue.
Due consideration is given to the substance of any contract associated with the issue.

8. Weighted average number of shares
Terms
Timing
Shares issued for cash
When cash is received
Voluntary reinvestment of dividends
When dividends are reinvested
Conversion of debt instrument (to equity)
Date when interest ceases to accrue
Shares issued for interest or principal (of loan)
Shares issued in settlement of liability
From settlement date
Shares issued as consideration for acquisition of asset (not cash)
Date when acq. is recognised
Shares issued for rendering of services
As services are rendered

9. Changes in Share Capital
Issue at full market price
Share buy-back
Share split and consolidation
Bonus issue
Rights issue

10. Shares issued at market price for a consideration
Weighted average number of shares is the number of ordinary shares outstanding at the beginning of the period adjusted by the number of ordinary shares issued during the period multiplied by a time-weighting factor.
E.g. On 1.1.X3, Beeze Bhd had 10m fully paid up ordinary shares.
On 1.4.X3, Beeze issued 2m shares at fair value.
PAT attributable to ordinary shares for X3 was RM2.3m
FYE: X3
Weighted average no. of shares =
10m shares x 3/12 = 2.5m
12m shares x 9/12 = 9.0m
11.5m
Basic EPS = 2.3m/11.5m = 20 sen

11. Share buyback
Weighted average is adjusted for the time from the date on which buyback is affected to reporting date & divided by the total time in the period.
E.g. On 1.1.X3, Zees Bhd had in issue 4m ordinary shares. On 1.4.X3, Zees issued 1m shares at fair value for consideration. On 1.9.X3, it bought back 2m shares.
Profit after tax attributable to ord shareholders was RM400,000.
Basic EPS =
400,000
(4m x 3/12) + (5m x 5/12) + (3m x 4/12)
9.8 sen

12. Shares issued without a corresponding change in resources
Situations where there is an increase in the issued share capital without any increase or inflow of net assets to the entity are:
a capitalisation or bonus issue;
a bonus element in any other issue, e.g.
a bonus element in a rights issue;
a share split; and
a reverse share split (consolidation of shares)

13. Bonus Issues
= capitalisation of earnings where additional shares are issued to existing shareholders in proportion to their existing holdings for no consideration.
Denominator = number of shares already in issue plus the bonus shares as though the bonus shares were in issue from the beginning of the period.
Basic EPS for the previous period will be adjusted to take into account the bonus issue - for comparative purposes only.
Issue of bonus shares after year-end but before authorisation of the financial statements
the EPS for the current year should be calculated based on the revised number of shares.

14. Bonus Issues E.g. CBA Bhd had in issue 4m ordinary shares.
CBA made a 1 for 4 bonus issue on 1.10.X7.
Profit after tax for X7 was RM400,000
Basic EPS for X6 was 11 sen.
Restated EPS for X6 = 11 sen x 4/5 = 8.8 sen
11 sen  1/4m
?  1/5m
(1/5)/(1/4) x 11 sen
Basic EPS =
400,000
(4m x 9/12 x 5/4) + (5m x 3/12)
8 sen

15. Rights Issues
Shares are issued at below the market price  combination of shares issued at market price for a consideration and a bonus issue.
Formula for basic EPS = combine the facts as for issuing the shares at market value for a consideration and a bonus issue.
Bonus factor and weighted average number of shares after the exercise of the rights issue to be considered.

16. Rights Issues Denominator for the formula will have 2 items:
the original shares in issue adjusted for the bonus, plus
the weighted average number of shares after the exercise.
Bonus - from the beginning of the year
Issue at fair value - from the exercise date.

17. Rights Issues (Contd.) The adjustment factor is:
  Fair value of the shares
immediately prior to the exercise of rights
Theoretical ex-rights per share

18. Rights Issues (Contd.) E.g. FYE 31.12, 4m ordinary shares.
On 1.4.X7, rights issue 1 for 4 at price of RM2 each
Market value of 31.3.X7 was RM4 each
PAT for X6 – RM400,000; X7 – RM500,000
Basic EPS for X6 = 400,000/4m = 10 sen

19. Rights Issues (Contd.) Basic EPS for X7: First, calculate bonus factor
No. of shares Price per share Total
4 4 (market) 16
1 2 (rights) 2
Theoretical ex-rights price = 18/5 = RM3.60
Bonus factor = 4/3.6
Next, denominator (weighted average no. of shares)
4m shares x 4/3.6 x 3/12 = 1,111,111
5m shares x 9/ = 3,750,000
4,861,111

20. Rights Issues (Contd.) Basic EPS for X7 (Contd.):
Basic EPS = 500,000/4,861,111 = sen
Basic EPS for X6 needs to be adjusted by the bonus element for comparative purposes:
10 sen x 3.6/4 = 9 sen

21. Diluted EPS (DEPS)
DEPS is to be calculated if the entity has potential ordinary shares
Potential ordinary shares include:
convertibles such as convertible loan stock convertible preference shares;
share options and warrants that allow holders of these options and warrants to buy shares of the entity in the future; and
Partly paid shares

22. Convertible Preference Shares in Issue
Conversion date
It is always assumed that the conversion of preference shares to ordinary shares could take place at the earliest date possible 
CPS in issue at the beginning of the year  earliest date = beginning of the year
CPS issued during the year (e.g. 1 April)  earliest date possible is 1 April of that year
 Adjustment to earnings
preference dividends need not be provided for – it is assumed that the preference shares will be converted to ordinary shares
The profit after tax need not be deducted for the preference dividends.

23. Convertible Preference Shares in Issue
E.g. In issue 2m ordinary shares & RM250,000 7% convertible preference shares.
1 CPS can be converted into 1 ordinary share.
Profit after tax for year X7 = RM517,500
Preference dividend for X7 = RM17,500
Basic EPS = (517,500 – 17,500)/2m = 25 sen
Diluted EPS = 517,500/(2m + 250,000) = 23 sen

24. Convertible Preference Shares in Issue
E.g. In issue 2m ordinary shares
Issued RM250,000 7% convertible preference shares in July X7.
1 CPS can be converted into 1 ordinary share.
Profit after tax for year X7 = RM517,500 (X8: RM617,500)
Preference dividend for X7 & X8 = RM17,500
Basic EPS = (517,500 – 8,750)/2m = sen
Diluted EPS = 517,500/(2m + 6/12 x 250,000) = sen
Basic EPS for X8 = (617,500 – 17,500)/2m = 30 sen
Diluted EPS = 617,500/(2m + 250,000) = sen

25. Convertible Loan Stock in Issue
If the loan stock were converted to ordinary shares the company need not pay any interest.
a saving on interest cost.
However, the company will be liable to a higher tax charge as there is a reduction in the interest expense.
The net effect on the earnings attributable to ordinary shareholders will be increased by the after-tax interest savings.
As for the increase in the number of shares, it is similar to the situation where the company has convertible preference shares.

26. Convertible Loan Stock in Issue
E.g. In issue 6m ordinary shares & RM300,000 10% convertible debentures.
Debentures of RM100 can be converted into 150 ordinary shares.
Profit after tax is RM500,000 for X7.
Tax rate is 30%.
Basic EPS = 500,000/6m = 8.3 sen
Diluted EPS = 500,000 + (70% x 10% x 300,000)
6m + 450,000
= 8.1 sen

27. Options in Issue
Options are special rights given to employees to acquire ordinary shares directly from the company
Usually company will fix exercise price when options are granted
Terms of an option includes exercise period
Option holders usually exercise their rights when exercise price < market price
Options are dilutive when they result in issuance of OS for less than fair value.
E.g. options for 100,000 exercise price RM2
Average market price = RM3
High probability of options being exercised

28. Options in Issue
Additional shares to be included in the computation of the EPS =
difference between the shares issued under the option and
shares that could be issued at the fair value based on the total consideration received from the exercise of the option.
Such shares are considered potential bonus shares – no effect on profit/funds of the company  dilutive
No adjustments are made to the earnings eventhough the company would be receiving some form of consideration.

29. Options in Issue (Contd.)
XY has in issue 10m shares.
On 1.1.X4, it issued options to its directors to acquire 2m shares at RM2 per share.
As at the end of the year, X4, none of the options were exercised.
Average market price of equity shares during the year X4 was RM3.20 each.
If options were exercised  2m x RM2 = RM4m
Issuing shares at market price  RM4m/RM3.20 = 1.25m shares
Diff between no. of shares under option scheme & issuing shares for the same amount at market price:
2m – 1.25m = 0.75m (bonus shares)

30. Options in Issue (Contd.)
A company had in issue 2.5m OS had granted a share option to directors to purchase 500,000 OS at RM2 each.
Options were granted in X5 & as at the end of X7, options have not been exercised.
PAT for X7 = RM500,000
Average market price per share for X7 = RM2.50.
Basic EPS for X7 = 500,000/2.5m = 20 sen

31. Options in Issue (Contd.)
Diluted EPS for X7
Shares under option = 500,000
Shares that could be issued at fair value = (500,000 x RM2)/2.5 = 400,000
Difference = 100,000 shares
Shares in issue prior to option = 2.5m
Total number of shares = 2.6m
Diluted EPS = 500,000/2.6m = sen

32. Options in Issue (Contd.)
A company had in issue 2.5m OS had granted a share option to directors to purchase 500,000 OS at RM2 each.
Options were granted on 1.4.X7; options have not been exercised.
PAT for X7 = RM500,000
Average market price per share for X7 = RM2.50.
Shares under option = 500,000
Shares that could be issued at fair value = (500,000 x RM2)/2.5 = 400,000
Difference = 100,000 shares, x 9/12 = 75,000
Shares in issue prior to option = 2.5m
Total number of shares = 2.575m
Diluted EPS = 500,000/2.575m = sen

33. Warrants Calculation of DEPS is similar to options.
In X7, a company had in issue 4m OS & 500,000 10% debentures with warrant to buy 250,000 shares at RM0.50 per share.
The debentures cannot be converted.
PAT for X7 = RM750,000
Average fair value per share for X7 = RM2
Tax rate = 30%
Basic EPS for X7 = 750,000/4m = sen
Diluted EPS for X7
= 750,000/4m + (250,000 x 0.5/2)
= sen

34. Partly Paid Shares
An entity may have in issue partly paid-up shares, and dividends on these partly paid-up shares are paid based on paid-up capital.
The unpaid amount on the capital represents potential shares.
When these shares are fully paid up, it would lead to an increase in issued shares which might dilute the EPS.
The unpaid balance is assumed to represent the proceeds used to purchase ordinary shares.
The number of shares included in diluted EPS calculation:
difference between the number of shares subscribed and
the number of shares assumed to be purchased.

35. Partly Paid Shares Supreme has in issue 4m fully paid OS
On 1.1.X7, Supreme issued a further 1m OS for RM1.5m
These shares were 50% paid up as at X7.
The dividend participation is to be based on the paid up capital.
Average fair value per share for the year is RM2.
PAT for X7 = RM1.2m
Basic EPS = 1.2m/(4m + 0.5m) = sen
Diluted EPS = RM1.2m/(4.5m + 125,000*) = sen
*Cash to be received from calling up of 1m OS = 50% x 1.5m = 750,000
Company could issue RM750,000/RM2 shares from the proceeds, i.e. 375,000 shares
Difference between 500,000 – 375,000 = 125,000 shares

36. Order in Which to Include Dilutive Instruments
In some instances, an entity may have more than one potential ordinary share.
In determining whether potential ordinary shares are dilutive or anti-dilutive, each issue or series of potential ordinary shares is considered separately rather than in aggregate.
The sequence in which potential ordinary shares are considered may affect whether they are dilutive.
Therefore, to maximise the dilution of basic EPS, each issue or series of potential ordinary shares is considered in sequence from the most dilutive to the least dilutive, i.e. dilutive potential ordinary shares with the lowest ‘earnings per incremental share’ are included in the diluted EPS calculation before those with a higher earnings per incremental share.

37. Order in Which to Include Dilutive Instruments
Options and warrants are generally included first because they do not affect the numerator of the calculation.
The entity is to use the profit or loss from continuing operations attributable to the ordinary shares in calculating the EPS.

38. Order in Which to Include Dilutive Instruments
Profit from continuing operations RM’000 attributable to parent entity 570 Less: Preference dividends (70) Profit from continuing operations attributable to ordinary equity holders of parent entity 500 Loss from discontinuing operations attributable to parent entity (100) Profit attributable to ordinary equity holders of parent entity 400 Ordinary shares outstanding 2m Average market price of 1 ordinary share during the year RM4.50

39. Order in Which to Include Dilutive Instruments
Potential ordinary shares:
Options
1m with exercise price of RM3 per share
10% convertible
preference shares
1m shares. Every 5 CPS are
convertible into 1 OS.
10% convertible loan stock
Nominal amount RM1m.
Each RM500 loan stock is convertible into 250 OS.
There is no amortisation of premium or discount affecting determination of interest expense.
Tax rate = 30%. Compute the DEPS.

40. Order in Which to Include Dilutive Instruments
Potential ordinary shares:
Options
1m shares x RM3 = RM3m
This can be used to MV RM4.50 = RM3m/4.5 = 666,667 shares
Shares under option = 1m shares
Difference = 1m – 666,667 = 333,333 shares
10% convertible
preference shares
Increase in earnings if PS are converted:
Interest 10% x RM1m x 70% (net of tax) = RM70,000
Potential shares = 1m/5 = 200,000 shares
10% convertible loan stock
Increase in earnings if loan stock is converted:
Interest 10% x RM1m x 70% (net of tax) =
RM70,000
Potential shares = 1m/500 x 250 OS =
500,000 shares

41. Order in Which to Include Dilutive Instruments
Increase in earnings on conversion of potential OS:
Increase in
earnings
Increase in no. of OS
Earnings per incremental share
Options
Nil
333,333
10% CPS
70,000
200,000
35 sen
10% CLS
500,000
14 sen
The higher the earnings per incremental share, the more anti-dilutive the instrument is.
OR, the lower the earnings per incremental share, the less dilutive the instrument is.
We need to order from
the most dilutive to the
least, i.e.
Options
10% CLS
10% CPS

42. Order in Which to Include Dilutive Instruments
Profit (RM)
No. of OS
Per share (sen)
As reported
500,000
2,000,000 25
Options
Nil
333,333
2,333,333
21.43
Dilutive
10% CLS
70,000
570,000
2,833,333
20.11
10% CPS
200,000
640,000
3,033,333
21.10
Anti-dilutive
We do not take into account anti-dilutive elements, i.e. CPS.
DEPS stops at sen.

43. Order in Which to Include Dilutive Instruments
Disclosure:
Basic EPS (sen)
Diluted EPS
(sen)
Profit from continuing operations attributable to ordinary equity holders of the parent 25
20.11
Loss from discontinuing operations attributable to ordinary equity holders of parent
(5)#
(3.5)%
Profit attributable to ordinary equity holders of parent
20&
16.58*
# (RM100,000)/2m shares = (5 sen)
% (RM100,000)/2,833,333 shares = (3.5 sen)
& RM400,000)/2m shares = 20 sen
* RM400,000)/2,833,333 shares = sen

44. Retrospective Adjustments
Issue of bonus shares/share split/reverse share split after the reporting date but before FS are authorised for issue
Calculation of basic EPS & DEPS should be adjusted retrospectively:
For the above
For effects of errors & adjustments resulting from changes in accounting policies

45. Presentation Basic EPS & DEPS (+ve/-ve)
Statement of comprehensive income
For profit/loss from continuing operations (parent)
For profit/loss attributable to parent
……for each class of ordinary shares that have a diff right to share in profit
For profit/loss on discontinued operations

46. Disclosure Numerators Amounts used
Reconciliation of the amounts to profit/loss attributable to parent
Denominators
Weighted average number of OS
Reconciliation of the amounts to each other (including the individual effect of each class of instruments that affects EPS)
Instruments that could potentially dilute EPS in future but not included in DEPS because they are anti-dilutive for the period
Description of OS transactions or potential OS transactions that occur after reporting date which would have significantly changed no. of OS or potential OS

47. Class Exercise
Page 673, Q1
Bonus issue, rights issue, issue of new shares
Calculation of basic EPS
Page 674, Q2
Calculation of diluted EPS

48. Q1 - Answers 1/1/X5 1/6/X5 1/10/X5 31/12/X5 5/12 4/12 3/12 300m OS
Bonus 1 for 2:
+ 150m = 450m
New issue:
+ 50m = 500m
450m for 9/12

49. Q1 - Answers Basic EPS x4 63m - 10.5m* 300m = 17.5 sen
continuing operations
73m m*
= sen
Loss per share x4
Discontinued operations
10m
= 3.33 sen
* Cumulative preference dividends
7% x 150m shares = RM10.5m

50. Q1 - Answers Basic EPS x5 (75m – 10.5m)/
[(300m x Bonus factor 3/2 x 5/12)
+ Bonus issue (300m x 3/2 x 4/12)
+ (450m + new issue 50m x 3/12)]
= sen
Restated
Basic EPS x4
17.5 sen x 2 3
= sen

51. Q1 - Answers
Basic EPS x6
100m – 10.5m (500m x 8/12 x 3/2.83*) + (600m x 4/12) = m m
= sen
Restated Basic EPS x5
13.95 sen x 2.83 3
= sen
*Bonus factor
No. of shares Price per share Total
5 3 (market) 15
1 2 (rights) 2
Theoretical ex-rights price = 17/6 = RM2.83
Bonus factor = 3/2.83

52. Q2 - Answers
Basic EPS x5
500,000 – 35,000
(2m x 3/12 x 1/0.96*) + (2.5m x 9/12)
= 465,000
2,395,833
= 19.4 sen
Restated
EPS x4
18 sen x 0.96 1
= 17.3 sen
Diluted EPS x5
465,000 + (10% x 500,000 x 70%)
2,395,833 + (500,000 x 200/100)
= 14.7 sen
*Bonus factor
No. of shares Price per share Total
4 1 (market) 4
(rights) 0.8
Theoretical ex-rights price = 4.8/5 = 0.96
Bonus factor = 1/0.96 52