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    3.earnings Per Share

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    Tseke
    This document discusses diluted earnings per share (DEPS) and provides examples of how to calculate DEPS when there are potential ordinary shares from options, convertible instruments, and contingent shares. DEPS is calculated by dividing diluted earnings by the weighted average number of ordinary shares adjusted to include the effects of all dilutive potential ordinary shares. Examples are provided to demonstrate how to calculate DEPS when there are convertible debentures, convertible preference shares, and contingent shares based on performance targets. Disclosure requirements are also outlined.

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    3.earnings Per Share

    Uploaded by

    Tseke
    28 views13 pages
    This document discusses diluted earnings per share (DEPS) and provides examples of how to calculate DEPS when there are potential ordinary shares from options, convertible instruments, and contingent shares. DEPS is calculated by dividing diluted earnings by the weighted average number of ordinary shares adjusted to include the effects of all dilutive potential ordinary shares. Examples are provided to demonstrate how to calculate DEPS when there are convertible debentures, convertible preference shares, and contingent shares based on performance targets. Disclosure requirements are also outlined.

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    3.Earnings Per Share

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    This document discusses diluted earnings per share (DEPS) and provides examples of how to calculate DEPS when there are potential ordinary shares from options, convertible instruments, and contingent shares. DEPS is calculated by dividing diluted earnings by the weighted average number of ordinary shares adjusted to include the effects of all dilutive potential ordinary shares. Examples are provided to demonstrate how to calculate DEPS when there are convertible debentures, convertible preference shares, and contingent shares based on performance targets. Disclosure requirements are also outlined.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    28 views13 pages

    3.earnings Per Share

    Uploaded by

    Tseke
    This document discusses diluted earnings per share (DEPS) and provides examples of how to calculate DEPS when there are potential ordinary shares from options, convertible instruments, and contingent shares. DEPS is calculated by dividing diluted earnings by the weighted average number of ordinary shares adjusted to include the effects of all dilutive potential ordinary shares. Examples are provided to demonstrate how to calculate DEPS when there are convertible debentures, convertible preference shares, and contingent shares based on performance targets. Disclosure requirements are also outlined.

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    Earnings Per Share

    Diluted EPS
    Potential Shares (Options; Convertible
    Debentures and Convertible Preference
    Shares)
    Diluted EPS
    A dilution is defined as:
    A reduction in earning per share, or
    An increase in a loss per share.
    Resulting from the assumption that:
    • Convertible instruments are converted; or
    • Options/ warrants are exercised; or
    • Ordinary shares are issued upon the
    satisfaction of specified conditions
    Example 19
    Diluted EPS

    Basic earning 20x5 R500 000

    1 200 000 ordinary shares in issue

    300 000 options granted to were issued to the directors for no


    value

    Calculate EPS and DEOPS


    Example 19
    • Diluted EPS
    Example 19 Ordinary

    Weighted Average

    Actual Diluted

    Opening balance 1 200 000 1 200 000

    Issue for value 0 300 000

    1 200 000 1 500 000

    Issue for no value 0 0

    Closing balance 1 200 000 1 500 000


    Diluted EPS
    Options Convertible Convertible
    Debentures Preference
    Shares
    Effect on No effect +Finance + Dividends
    earnings costs saved saved if
    net of tax treated as
    finance cost

    Number of + number of +Number of +Number of


    shares bonus shares/ possible possible
    not for value extra/new extra/new
    shares shares
    Potential shares
    A potential ordinary share is defined as:
    • A financial instrument or
    other contract
    • that may entitle a holder to ordinary shares
    • Potential shares may cause a dilution in EPS
    Potential Shares Dilution
    Adjustment OPTIONS CONVERTIBLE CONVERTIBL
    DEBENTURES E
    PREFRENCE
    SHARES

    Earnings No effect Add finance Add


    No Costs saved dividend if
    Adjust. net of tax treated as
    finance cost

    Number Add Add possible Add possible


    Of number of number of new number of
    Shares bonus/not shares new shares
    for value
    Example 21
    Convertible debentures

    Profit for the year is R279 000 afterR30 000 debenture interest before tax

    Tax rate is 30 %
    100 000 ordinary shares @ R2 each

    200 000 convertible debentures (one ordinary shares per debenture) at 2 each

    Calculate the diluted basic eps and the diuted eps


    Example 21

    Example 21 Convertible debentures

    Profit for the year  


    Preference dividend  
    Basic Earnings  
    Adjustments  
    Finance Cost avoided  
    Diluted Earnings  
    Example 22
    Convertible Preference shares
    Profit from operations 465 000
    Finance costs -60 000
    Profit before tax 405 000
    Income tax expense -121 500
    Profit for the period 283 500

    200 000 ords @ R2; 100 000 convertible 20 % debs


    Convert the option of deb s/h 1 to 1 basis
    Mandatory pref div R40 0000/ 30 % tax rate/ pred dix not tax deductible
    A: prefs are liability R60 000 bank interest;R40 0000 pref div is R45 000 interest use
    the effective interest rate
    B Prefs are equity R60 000 bank interest
    Example 22

    Example 21 Convertible preference


    Profit for the year  Liability Equity
    Preference
    dividend  
    Basic Earnings  
    Adjustments  
    Finance Cost
    avoided  
    Diluted Earnings  
    Example 23
    Contingent shares

    Airway Ltd has 1 million ordinary shares issued 20x4

    Airway Ltd on 2 January 20x5 bought 100 % of Radio Ltd by an issue of extra 1 million
    ordinary shares shares

    Another 500 000 ordinary shares are contingent on Radio Ltd generating over a total
    of R100 million profits over the next three years
    Airway Ltd earned R500 million profits in 20x5 (20x4: R400 million)

    Radio Ltd earned R200 million profits in 20x5

    Calculate for both years the basic and diluted eps


    Disclosure
    • Pages 1168 and 1169
    • EPS and DEPS at the bottom of the statement of comprehensive
    income (comparatives=current year and prior year.
     2016 2015
     EPS xxxx xxx
     DEPS xxxx xxx
    • EPS Note to the annual financial statement distinguishing between
    the current year and prior year:
     Earnings 2016 Rxxx (2015: Rxx)
     Weighted number of shares 2016: XXXX (2015: xxxx)
    • Reconciliation page 1169

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