IND AS 33 Earning per share (Brief discussion and formulas)
INTRODUCTION OF IND AS 33:
IND AS 33 Earning per Share is used for making comparisons between two different entities. It also helps in comparison of earnings of two different periods within same entry. EPS is used in P/E Ratio also. Ind As-33 provides a standard procedure for its calculation. EPS is disclosed on the face of P&L in financial statements. This requirement of disclosure is for separate and consolidated financial statement.
EPS CAN BE OF TWO TYPES:
- Basic EPS (BEPS)
- Diluted EPS (DEPS)
BASIC EPS CAN BE CALCULATED AS FOLLOWS:
=[Earnings Attributable to Ordinary Shareholders (Divided by) Avg. of O/S E/Share during the year].
Earning attributable to ordinary Shareholders is calculated as follows:
Profit/loss (after tax) attributable to parent Entry xxx
(-) Pref. dividend (after tax) for cumulative p/share xxx
(-) Pref. dividend (after tax) for Non- cumulative p/share if such dividend has been declared xxx
(-) Statement loss on pref. Share. It means excess amount paid on settlement of
P share which was not penned earlier (eg. Premium on Redemption of P. share) xxx
(-) Income or expenses adjusted against security prem. (other Reserves) which otherwise
should be adjusted against P&L xxx
Earnings Attributable to parent Entry xxx
* It Profit/ Loss is available for Contusing Operations, then BEPS Should also be calculated For Continuing Operations.
* Ex-difference not written off, but capitalist in assets should not be adjusted in P&L A/c.
EXAMPLE: X LTD has earnings 10,00,000 in its Separate financial Statements.
No. Of Share = 40,000
X ltd has Subsidiary Y Profit earned by group is:
X ltd holds 80% share of y ltd calculation BEPS.
SOLUTION: BEPS = Earnings/ No. of Share
Separate financial statements = Rs.10, 00,000/40,000 = Rs.25/share.
Consolidated Financial Statement= (10, 00,000 + 320000)/40,000 = Rs.33/Share.
WEIGHTED AVERAGE OF OUTSTANDING EQUITY SHARES:
1. Weighted average is based on time weights (Time can be in month or days).
2. Weighted Average is calculated only for Outstanding Ordinary Shares in an entity.
3. If Ordinary Shares are of Different values, then calculation should be made on per Rs. basis.
4. Date of issue of shares will be date on which proceeds are receivable by entity.
5. Date of Issue for Bonus Shares, Share Split or Share Consolidation should be from earliest reporting date.
Earnings attributable to Ordinary shares (Year 2016-17) = Rs.5,00,000, Opening balance 01/04/2016: 30000 shares of Rs.10/-, Fresh Issue 01/11/2016= 10,000. Calculate BEPS.
SOLUTION: = 5,00,000/ [(30000*7/12)+ (40000*5/12)] = Rs. 14.63 per share.
TREATMENT OF BONUS SHARES AND SHARE SPLIT/ SHARE CONSOLIDATION:
1. Bonus Share or Share Split are without consideration. It means resources are not received for Bonus or Split Share. Hence, EPS is also calculated assuming bonus is from earliest date reported. Bonus fraction is Identified and used for calculation.
2. Bonus Fraction = 100% +Bonus Element = Bonus Fraction., OR
3. Bonus Fraction = [No.of original holding+ Bonus Entitlement]/ No. of Original Holdings.
4. Bonus Fraction indicates total capital after including incentive (in form of Bonus).
5. Bonus Fraction is multiplied with shares on which bonus is allowed (for C.Y. and P.Y.). Hence, P.Y. Ratio also gets restated due to bonus.
TREATMENT OF SHARE ISSUED ON ACQUISITION:
These ate Weighted averaged from date of acquisition. Hence, treatment is similar to issue of shares at full price.
TREATMENT OF RIGHT ISSUE:
1.These shares are issued at Concessional price. Hence, it requires treatment of Bonus and Treatment for full price issue.
STEP-1: Calculate fare value Ex-right based on Price before right Issue.
[(No. of shares before Right * Fair Value before Right)+( Right Share * Right Price)]/ Total No. of shares after Right.
STEP-2: Calculate Bonus Fraction:
(Price before Bonus Issue)/ Fair Value Ex-Right.
STEP-3: Bonus fraction is used as in Bonus per Share split. Right shares are added to capital on date of issue.
1. Diluted EPS is additionally reported along with BEPS.
2. BEPS after adjusting effect of Dilute or Potential or Ordinary Shares.
3. Potential Ordinary Shares are those instruments which entitles its holder to Ordinary shares in future.
4. For Example: 1) Options (Including share based options). 2) Warrants. 3) Convertible Preference shares/ debentures, etc.
5. To identify Potential Ordinary Shares (POS) in options, we need to assume that resources expected to receive are proceeds of fresh issue at Average F.V. of shares during the year.
6. POS = Options – [(Proceeds expected to be received in cash or kind (divided by) Avg Fair Value.
7. If POS is negative, ignore it for DEPS.
FOLLOWING STEPS ARE APPLIED FOR DILUTIVE EPS:
STEP-1: Calculate Incremental POS:
=[ Effect of POS on earning if these are converted in Ordinary Shares (divided by) Effect of POS on weighted average if these are amounted to Ordinary Shares].
STEP-2: Arrange Incremental EPS in Increasing Order.
STEP-3: Test Dilutive POS.
IND AS 33 Earning per share