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ACT3127 Advanced Financial Accounting II

ACT3127 Advanced Financial Accounting II. FRS 133: Earning Per Share. Contents. Basic Diluted Presentation and disclosure. EPS. “amount of profit attributable to each equity share” Profit attributable to the equity shareholders ( earnings ) Number of equity shares outstanding

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ACT3127 Advanced Financial Accounting II

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  1. ACT3127 Advanced Financial Accounting II FRS 133: Earning Per Share

  2. Contents • Basic • Diluted • Presentation and disclosure

  3. EPS “amount of profit attributable to each equity share” Profit attributable to the equity shareholders (earnings) Number of equity shares outstanding (shares)

  4. Basic – earnings • Continuing operations (133.9) • After tax (133.12) • Exclude dividends for MI (133.13) • Exclude dividends for • Non-cummulative preference shares • Cummulative preference shares for the period (133.14)

  5. Basic – shares • “…weighted average number of ordinary shares outstanding during the period…” (133.19) • “…beginning of the period, adjusted by …bought back (deducted) or issued (added) during the period multiplied by a time-weighting factor.” (133.20)

  6. Shares – illustration • 1st Jan: 2,000,000 OS outstanding • 1st April: 200,000 OS bought back • 1st Sept: 300,000 new OS issued Shares = ???

  7. Shares – illustration (balance) Shares = 2,000,000 x 3/12 (1st Jan – 1st Apr SBB) + 1,800,000 x 5/12 (1st Apr – 1st Sept New) + 2,100,000 x 4/12 (1st Sept – 31st Dec) = 1,950,000

  8. Shares – illustration (portion) Shares = 2,000,000 x 12/12 (1st Jan) - 200,000 x 9/12 (1st Apr SBB) + 300,000 x 4/12 (1st Sept New) = 1,950,000

  9. Basic – shares • “…weighted average…adjusted for events, … that have changed the number of ordinary shares outstanding without corresponding change in resources.” (133.26) • Adjust retrospectively back

  10. Illustration • 31st Dec: declare bonus shares • 1 for every 100 (excluding new shares) • 1 for every 100 (for new issued shares) • 31st Dec: share split  1-into-2 + 18,000 x 12/12 (bonus – retrospective) + 3,000 x 4/12(bonus – issue date) + 1,800,000 x 12/12 (split for initial shares outstanding) + 300,000 x 4/12 (split for new shares)

  11. Basic – rights issue • Issued < fair value: element of bonus shares Fair value - RM3.50 (“cum-rights”) Rights - RM2.00 RM3,500 - 1,000 vs. 1,750 bonus

  12. Basic – rights issue Theoretical “ex-rights” FV per share: aggregate market value of shares immediately before the exercise + proceeds of from the exercise Number of shares outstanding after the exercise of the rights

  13. Basic – rights issue Notional bonus: Units before rights x [“Cum-rights” price – “ex-rights” price] “ex-rights” price

  14. Basic – rights issue Total shares outstanding before rights: No. of shares outstanding before the issue X FV per share immediately before the exercise Theoretical “ex – rights” FV per share

  15. Illustration – rights issue 1st Jan – 2,000,000 units outstanding 1st Aug – rights: 1-for-5 at RM2.00 – cum-rights: RM3.50 Shares for EPS =

  16. Illustration – rights issue Units under rights = Theoretical ex-rights price = Notional bonus = Total shares outstanding before rights =

  17. Illustration – rights issue Total number of shares for the purpose of EPS = = = units end

  18. Earnings – diluted • Potential ordinary shares  basic AND diluted EPS • Adjust for: • Any dividends in relation to the potential ordinary shares (CPS) • Any interest recognised in the period (CD) • Other changes in income or expense resulted from conversion (133.33(a) – (c))

  19. Earnings – diluted • CPS – RM500,000 with 4% interest  RM20,000 • CD – RM1,000,000 with 5% interest  RM50,000 Earnings + RM20,000 + RM50,000

  20. Diluted – shares • “…plus weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.” (133.36) • Date: issues of instruments

  21. Diluted – shares • ‘anti-dilutive’ when • CPS – dividend per share obtainable on conversion > basic eps • CD – interests per share obtainable on conversion > basic eps  ignored • Options, warrants and equivalents - dilutive if market price > exercise price

  22. Presentation and disclosure • Presentation - on the face of income statement (133.66) - basic and diluted EPS for discontinued operations (133.68) - present, even if amount are negative (loss) (133.69)

  23. Presentation and disclosure • Disclosure – 133.70(a) – (d) - earnings - weighted average number of OS - instruments that potentially could dilute basic EPS - transactions that could change number of shares or dilute EPS

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