https://library.croneri.co.

uk/cch_uk/iast/ias33-example-
200312#toc-13

Example 12 Calculation and presentation of basic and

diluted earnings per share (comprehensive example)[*]
This example illustrates the quarterly and annual calculations of basic and diluted earnings per
share in the year 20X1 for Company A, which has a complex capital structure. The control
number is profit or loss from continuing operations attributable to the parent entity. Other facts
assumed are as follows:

Average market price of ordinary shares: The average market prices of ordinary shares for the
calendar year 20X1 were as follows:

First quarter CU49

Second quarter CU60
Third quarter CU67
Fourth quarter CU67

The average market price of ordinary shares from 1 July to 1 September 20X1 was CU65.

Ordinary shares: The number of ordinary shares outstanding at the beginning of 20X1 was
5,000,000. On 1 March 20X1, 200,000 ordinary shares were issued for cash.

Convertible bonds: In the last quarter of 20X0, 5 per cent convertible bonds with a principal
amount of CU12,000,000 due in 20 years were sold for cash at CU1,000 (par). Interest is payable
twice a year, on 1 November and 1 May. Each CU1,000 bond is convertible into 40 ordinary
shares. No bonds were converted in 20X0. The entire issue was converted on 1 April 20X1
because the issue was called by Company A.

Convertible preference shares: In the second quarter of 20X0, 800,000 convertible preference
shares were issued for assets in a purchase transaction. The quarterly dividend on each
convertible preference share is CU0.05, payable at the end of the quarter for shares outstanding
at that date. Each share is convertible into one ordinary share. Holders of 600,000 convertible
preference shares converted their preference shares into ordinary shares on 1 June 20X1.

Warrants: Warrants to buy 600,000 ordinary shares at CU55 per share for a period of five years
were issued on 1 January 20X1. All outstanding warrants were exercised on 1 September 20X1.
Options: Options to buy 1,500,000 ordinary shares at CU75 per share for a period of 10 years
were issued on 1 July 20X1. No options were exercised during 20X1 because the exercise price
of the options exceeded the market price of the ordinary shares.

Tax rate: The tax rate was 40 per cent for 20X1.

Profit (loss) from continuing operations Profit (loss) attributable to the

20X1
attributable to the parent entity[(a)] parent entity
CU CU
First quarter 5,000,000 5,000,000
Second
6,500,000 6,500,000
quarter
Third
1,000,000 (1,000,000)
quarter
Fourth
(700,000) (700,000)
quarter
Full year 11,800,000 9,800,000
This is the control number (before adjusting for
(a)
preference dividends).
Company A had a CU2,000,000 loss (net of tax) from
(b)
discontinued operations in the third quarter.
First Quarter 20X1
Basic EPS calculation CU
Profit from continuing operations
5,000,000
attributable to the parent entity
Less: [preference share dividends]1 (40,000) [(a)]
Profit attributable to ordinary equity
4,960,000
holders of the parent entity
Shares Fraction of Weighted-average
Dates
outstanding period shares
1 January–28 February 5,000,000 2/3 3,333,333
Issue of ordinary shares on
200,000
1 March
1 March–31 March 5,200,000 1/3 1,733,333
Weighted-average shares 5,066,666
Basic EPS CU0.98
(a) 800,000 shares × CU0.05
Diluted EPS calculation
Profit attributable to ordinary equity holders of the parent
CU4,960,000
entity
Plus: profit impact of assumed conversions
 CU40,000
Preference share dividends
[(b)]
CU90,000
Interest on 5% convertible bonds
[(c)]
Effect of assumed conversions CU130,000
Profit attributable to ordinary equity holders of the parent entity
CU5,090,000
including assumed conversions
Weighted-average shares 5,066,666
Plus: incremental shares from assumed conversions
Warrants 0[(d)]
Convertible preference shares 800,000
5% convertible bonds 480,000
Dilutive potential ordinary shares 1,280,000
Adjusted weighted-average shares 6,346,666
Diluted EPS CU0.80
(b) 800,000 shares × CU0.05
(c) (CU12,000,000 × 5%) ÷ 4; less taxes at 40%
The warrants were not assumed to be exercised because they were antidilutive in the period
(d)
(CU55 [exercise price] > CU49 [average price]).

Second Quarter 20X1

Basic EPS calculation CU

Profit from continuing operations attributable to the parent entity 6,500,000
1
Less: [preference share dividends] (10,000) [(a)]
Profit attributable to ordinary equity holders of the parent entity 6,490,000
Fraction of Weighted-average
Dates Shares outstanding
period shares
1 April 5,200,000
Conversion of 5% bonds on 1 April 480,000
1 April–31 May 5,680,000 2/3 3,786,666
Conversion of preference shares 1
600,000
June
1 June–30 June 6,280,000 1/3 2,093,333
Weighted-average shares 5,880,000
Basic EPS CU1.10
Diluted EPS calculation
Profit attributable to ordinary equity holders of the
CU6,490,000
parent entity
Plus: profit impact of assumed conversions
Preference share dividends CU10,000
Effect of assumed conversions CU10,000
Profit attributable to ordinary equity holders of the parent CU6,500,000
 Fraction of Weighted-average
Dates Shares outstanding
period shares
entity including assumed conversions
Weighted-average shares
Plus: incremental shares from assumed conversions
Warrants 50,000[(c)]
Convertible preference shares 600,000[(d)]
Dilutive potential ordinary shares 650,000
Adjusted weighted-average shares 6,530,000
Diluted EPS CU1.00
(a) 200,000 shares × CU0.05
(b) 200,000 shares × CU0.05
CU55 × 600,000 = CU33,000,000; CU33,000,000 ÷ CU60 = 550,000; 600,000 – 550,000
(c)
= 50,000 shares OR [(CU60 − CU55) ÷ CU60] × 600,000 shares = 50,000 shares
(d) (800,000 shares × 2/3) + (200,000 shares × 1/3)

Third Quarter 20X1

Basic EPS calculation CU

Profit from continuing operations attributable to the parent entity 1,000,000
1
Less: [preference share dividends] (10,000)
Profit from continuing operations attributable to ordinary equity holders of the
990,000
parent entity
Loss from discontinued operations attributable to the parent entity (2,000,000)
Loss attributable to ordinary equity holders of the parent entity (1,010,000)
Fraction of Weighted-average
Dates Shares outstanding
period shares
1 July–31 August 6,280,000 2/3 4,186,666
Exercise of warrants on 1 September 600,000
1 September–30 September 6,880,000 1/3 2,293,333
Weighted-average shares 6,480,000
Basic EPS
Profit from continuing operations CU0.15
Loss from discontinued operations (CU0.31)
Loss (CU0.16)
Diluted EPS calculation
Profit from continuing operations attributable to ordinary
CU990,000
equity holders of the parent entity
Plus: profit impact of assumed conversions
Preference share dividends CU10,000
Effect of assumed conversions CU10,000
Profit from continuing operations attributable to ordinary CU1,000,000
equity holders of the parent entity including assumed
 Fraction of Weighted-average
Dates Shares outstanding
period shares
conversions
Loss from discontinued operations attributable to the parent
(CU2,000,000)
entity
Loss attributable to ordinary equity holders of the parent
(CU1,000,000)
entity including assumed conversions
Weighted-average shares 6,480,000
Plus: incremental shares from assumed conversions
Warrants 61,538[(a)]
Convertible preference shares 200,000
Dilutive potential ordinary shares 261,538
Adjusted weighted-average shares 6,741,538
Diluted EPS
Profit from continuing operations CU0.15
Loss from discontinued operations (CU0.30)
Loss (CU0.15)
(a) [(CU65 − CU55) ÷ CU65] × 600,000 = 92,308 shares; 92,308 × 2/3 = 61,538 shares

Note: The incremental shares from assumed conversions are included in calculating the diluted
per-share amounts for the loss from discontinued operations and loss even though they are
antidilutive. This is because the control number (profit from continuing operations attributable to
ordinary equity holders of the parent entity, adjusted for preference dividends) was positive (ie
profit, rather than loss).

Fourth Quarter 20X1

Basic EPS calculation CU

Loss from continuing operations attributable to the parent entity (700,000)
Add: [preference share dividends]1 (10,000)
Loss attributable to ordinary equity holders of the parent entity (710,000)

Full Year 20X1

Basic EPS calculation CU

Profit from continuing operations attributable to the parent entity 7,500,000
1
Less: [preference share dividends] (70,000)
Profit from continuing operations attributable to ordinary equity holders of the
11,730,000
parent entity
Loss from discontinued operations attributable to the parent entity (2,000,000)
Profit attributable to ordinary equity holders of the parent entity 9,730,000
(a) (CU12,000,000 × 5%) ÷ 4; less taxes at 40%
 [(CU57.125* – CU55) ÷ CU57.125] × 600,000 = 22,320 shares; 22,320 × 8/12 = 14,880
(b)
shares *The average market price from 1 January 20X1 to 1 September 20X1
(c) (800,000 shares × 5/12) + (200,000 shares × 7/12)
(d) 480,000 shares × 3/12