1. MFRS 133 EARNINGS PER SHARE (EPS)

2. Weighted average (WA) number of equity shares in issue
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
Weighted average (WA) number of equity shares in issue
Example 1 (page 668)

3. 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.
Example 2 (page 669)

4. 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), for example, 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.

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

6. 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.
Examples 5 and 6 (page )

7. 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, for example, a bonus element in a rights issue;
a share split; and
a reverse share split (consolidation of shares)

8. Bonus Issues
Bonus shares are capitalisation of earnings where additional shares are issued to existing shareholders in proportion to their existing holdings for no consideration.
Denominator in the equation should be made up of the 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. This is for comparative purposes only.
If there has been an 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.
Example 7 (page 675)

9. Rights Issues
As these shares are issued at below the market price, it is a combination of shares issued at market price for a consideration and a bonus issue.
The formula for calculating the basic EPS is to combine the facts as for issuing the shares at market value for a consideration and a bonus issue.
Two factors, the bonus factor and weighted average number of shares after the exercise of the rights issue are to be considered.
 The denominator for the formula will have two items:
the original shares in issue adjusted for the bonus, plus
the weighted average number of shares after the exercise.
The bonus will be from the beginning of the year and the issue at fair value will be from the exercise date.

10. Rights Issues (c’td) The adjustment factor is:
  Fair value of the shares
immediately prior to the exercise of rights
Theoretical ex-rights per share
Example 8 (page 676)

11. 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

12. 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 
However, if the preference shares were issued during the year, say 1st April, then the earliest date possible is 1st April of that year
 Adjustment to earnings
On the assumption that the preference shares will be converted to ordinary shares, the preference dividends on these convertible preference shares need not be provided for. The profit after tax need not be deducted for the preference dividends.
Example 9 (page 680)

13. Convertible Loan Stock in Issue
If the loan stock were converted to ordinary shares the company need not pay any interest. In other words, there will be 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.
Example 10 (page 681)

14. Options in Issue
Options are special rights given to employees to acquire ordinary shares directly from the company
The additional shares to be included in the computation of the EPS is the 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.
 No adjustments are made to the earnings even though the company would be receiving some form of consideration.
Example 11 & 12(page )

15. Warrants in Issue
When companies have granted warrants, the computation of diluted earnings per share is similar to that of options in issue.
Example 13 (page 684)

16. 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 is the difference between the number of shares subscribed and the number of shares assumed to be purchased.
Example 14 (page 684)

17. Order in Which to Include Dilutive Instruments
In some instances, an entity may have more than one potential ordinary share.
According to MFRS133 paragraph 44, 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.
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.
Example 15 (page 686)

18. Contingently Issuable Shares
Contingently issuable ordinary shares are included in the calculation of DEPS if the conditions are satisfied (i.e. the events have occurred).
They are included from the beginning of the period or from the date of the contingent share agreement, if later.
However, if the conditions are not met, the number of contingently issuable shares included in the DEPS calculation is based on the number of shares that would be issuable if the end of the period was the end of the contingency period.
Restatement is not permitted if the conditions are not met when the contingency period expires.