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FINANCIAL ACCOUNTING AND REPORTING

EARNINGS PER SHARE
I. Key Definitions
Earnings per share Profit accruing to ordinary shareholders for each share held.
Diluted earnings Lowest possible EPS from the assumed exercise of potential ordinary shares.
per share
Most dilutive Lowest incremental EPS from dividing the Net Income Adjustment by the
potential ordinary number of incremental ordinary shares
share
Also known as a common share or common stock. An equity instrument that is
Ordinary share
subordinate to all other classes of equity shares.
Financial instrument or other contract that may entitle its holder to ordinary
Potential ordinary
shares. Includes convertible debt, convertible preference shares, share
share
warrants, share options and written put options
Options and Financial instruments that give the holder the right to purchase ordinary shares.
warrants
Contingent share Agreement to issue shares that is dependent on the satisfaction of specified
agreement conditions.
Contingently Ordinary shares issuable for little or no cash or other consideration upon the
issuable ordinary satisfaction of specified conditions in a contingent share agreement.
shares
Contracts that give the holder the right to sell ordinary shares at a specified price
Put options
for a given period.
Increase in earnings per share or a reduction in loss per share resulting from the
assumption that convertible instruments are converted, that options or warrants
Antidilution
are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions.
Reduction in earnings per share or an increase in loss per share resulting from
the assumption that convertible instruments are converted, that options or
Dilution
warrants are exercised, or that ordinary shares are issued upon the satisfaction
of specified conditions.
II. Requirement to Present EPS
a) An entity whose securities are publicly traded (or that is in process of public issuance) must
present, on the face of the income statement, basic and diluted earnings per share for:
Profit or loss from continuing operations attributable to the ordinary equity holders of the parent
entity; and
Profit or loss attributable to the ordinary equity holders of the parent entity for the period for
each class of ordinary shares that has a different right to share in profit for the period.
b) Basic and diluted earnings per share must be presented with equal prominence for all periods
presented, including loss per share.
c) If an entity reports a discontinued operation, basic and diluted amounts per share must be
disclosed for the discontinued operation either on the face of the income statement or in the notes
to the financial statements.
III. Basic EPS
a) Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the parent
entity (the numerator) by the weighted average number of ordinary shares outstanding (the
denominator) during the period.
b) The earnings numerators (profit or loss from continuing operations and net profit or loss) used for
the calculation should be after deducting all expenses including taxes, minority interests, and
preference dividends.
c). The denominator is calculated by adjusting the shares in issue at the beginning of the period by the
number of shares bought back or issued during the period, multiplied by a time-weighting factor.
d) Contingently issuable shares are included in the basic EPS denominator if the contingency has
been met.

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IV. Diluted EPS

a. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of
dilutive options and other dilutive potential ordinary shares. The effects of anti-dilutive potential
ordinary shares are ignored in calculating diluted EPS.
b. Guidance on Calculating Dilution
Convertible securities. The numerator should be adjusted for the after-tax effects of
dividends and interest charged in relation to dilutive potential ordinary shares and for any
other changes in income that would result from the conversion of the potential ordinary
shares.
Options and warrants. In calculating diluted EPS, assume the exercise of outstanding
dilutive options and warrants. The assumed proceeds from exercise should be regarded as
having been used to repurchase ordinary shares at the average market price during the
period. The difference between the number of ordinary shares assumed issued on exercise
and the number of ordinary shares assumed repurchased shall be treated as an issue of
ordinary shares for no consideration.
Contingently issuable shares. Contingently issuable ordinary shares are treated as
outstanding and included in the calculation of both basic and diluted EPS if the conditions
have been met. If the conditions have not been met, the number of contingently issuable
shares included in the diluted EPS calculation is based on the number of shares that would
be issuable if the end of the period were the end of the contingency period. Restatement is
not permitted if the conditions are not met when the contingency period expires.
Contracts that may be settled in ordinary shares or cash. Presume that the contract will
be settled in ordinary shares, and include the resulting potential ordinary shares in diluted
EPS if the effect is dilutive.

V. Retrospective Adjustments
The calculation of basic and diluted EPS for all periods presented is adjusted retrospectively when
the number of ordinary or potential ordinary shares outstanding increases as a result of a
capitalization, bonus issue, or share split, or decreases as a result of a reverse share split. If
such changes occur after the reporting date but before the financial statements are authorized for
issue, the per share calculations for those and any prior period financial statements presented are
based on the new number of shares.

VI. Rights Issues

a. The issue of ordinary shares at the time of exercise or conversion of potential ordinary shares
does not usually give rise to a bonus element. This is because the potential ordinary shares are
usually issued for full value, resulting in a proportionate change in the resources available to the
entity. In a rights issue, however, the exercise price is often less than the fair value of the shares.
Therefore, such a rights issue includes a bonus element. If a rights issue is offered to all existing
shareholders, the number of ordinary shares to be used in calculating basic and diluted earnings
per share for all periods before the rights issue is the number of ordinary shares outstanding
before the issue, multiplied by the following factor:
Fair value per share immediately before the exercise of rights
Theoretical ex-rights fair value per share
b. The theoretical ex-rights fair value per share is calculated by adding the aggregate market value
of the shares immediately before the exercise of the rights to the proceeds from the exercise of
the rights, and dividing by the number of shares outstanding after the exercise of the rights.
Where the rights are to be publicly traded separately from the shares before the exercise date,
fair value for the purposes of this calculation is established at the close of the last day on which
the shares are traded together with the rights.

Calculation of theoretical ex-rights value per share

Fair value of all outstanding shares before exercise of rights + total amount received from exercise of rights
Number of shares outstanding before exercise + number of shares issued in the exercise

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