NAS 33 – EARNINGS PER SHARE

Q1 Calculate Basic and Diluted EPS from the following data:

Net Profit for the year Rs. 10,000,000
No of equity shares outstanding 2,000,000
Av erage Fair v alue of one equity share during
Rs. 75
the year
Potential Equity Shares
Options 100,000 with exercise of price of
Rs 60.
Conv ertible Preference Shares classified as 800,000 shares entitled to a
equity cumulativ e div idend of Rs. 8 per
share; each preference share is
conv ertible into 2 equity shares.
12% conv ertible debenture of Rs. 100 each Nominal amount Rs. 10,000,000.
Each Debenture is conv ertible
into 4 equity shares.
Tax Rate 30%

Q2 From the Books of Apple Ltd, following information are available as on

01.04.2012.
Particulars Number
Equity Shares of Rs. 10 each outstanding 100,000
Partly paid equity shares of Rs. 10 each Rs. 5 paid 100,000
Options outstanding at an exercise price of Rs. 60
for one equity shares Rs. 10 each. Average Fair 10,000
value of equity share during both years Rs. 75
10% convertible preference shares of Rs. 100
each, conversion ratio 2 equity shares for each 80,000
preference share
12% convertible debentures of Rs. 100 conversion
10,000
ratio 4 equity shares for each debenture
On 01.10.2012 the partly paid shares were fully
paid up
On 01.01.2013 the company issued 1 bonus share
for 8 shares held on that date
Net profit attributable to the equity shareholders for the years ending 31.03.2013
was Rs. 10,00,000.
Calculate:
(a) Earnings per share ending 31.03.2013 and 31.03.2012.
(b) Diluted earnings per share and diluted EPS for the year ending 31.03.2012,
assuming the same information for previous year, also assume that partly paid
shares are eligible for proportionate dividend only.

Q3 Mr Hamad, currently owns 20 million shares in Aircon Ltd. He recently received

the published financial statements of Aircon Ltd for the year ended 31 March
2016. Mr Hamad is not sure how the performance of the company during the year
will affect the market value of the entity’s shares but he is aware that the earnings
per share statistics are often used by analysts in assessing the performance of
listed companies.
Extracts from these published financial statements and other relevant information
are given below.
Statement of profit or loss for the period ended 31 March 2016
2016 (Rs. 2015 (Rs.
Million) Million)
Revenue 18,000 15,300
Cost of sales (11,340) (9,180)
Gross profit 6,660 6,120
Operating expenses (3,420) (3,240)
Operating profit 3,240 2,880
Interest payable (540) (576)
Profit before tax 2,700 2,304
Taxation (846) (720)
Profit after tax 1,854 1,584
Statement of financial position as at 31 March 2016
2016 (Rs. Million) 2015 (Rs. Million)
Non-current assets
Intangible Assets 5,400 -
Tangible Assets 7,200 6,660
12,600 6,660
Current assets
Inventories 2,340 1,800
Receivables 2,700 2,160
Cash in hand 180 162
5,220 4,122
TOTAL ASSETS 17,820 10,782
EQUITY
Share Capital 2,700 900
Share Premium 4,860 900
Retained Earnings 1,620 1,206
9,180 3,006
Non-current liabilities
15% Loan note 3600 3600

Current liabilities
Trade payables 3,060 2,160
Taxation 900 756
Bank Overdraft 1,080 1,260
5,040 4,176
TOTAL EQUITY & LIABILITIES 17,820 10,782
The following information is also relevant:
(i) The share capital of the company comprises Rs. 1 equity shares only.
(ii) On 1 October 2015, the company made a rights issue to existing shareholders
of two new shares for every one share held at a price of Rs. 5.94 per share and
paid issue cost of Rs. 180,000.
(iii) The market price of shares immediately before the rights issue was Rs. 6.30 per
share.
(iv) No other changes took place in the equity capital of Aircon Ltd in the year
ended 31 March 2016.
Required
(a) Compute EPS for the year and the comparative figures that will be included
in the published financial statements of Aircon Ltd for the year ended 31 March
2016.
(b) Using the extracts you have been provided with, write a report to Mr Hamad
identifying the key factors which led to the change in the EPS of Aircon Ltd since
the year ended 31 March 2016.
(c) Comment on the relevance of the EPS statistics to shareholders.
Q4 The statement of profit or loss for the year ended 31 December 2016 relates to
Cachet Ltd.
2016 (Rs.
Million)
Profit before taxation 121,900
Taxation (52,900)
69,000
Transfer to general reserve (5,750)
Dividends:
Preference shares (1,380)
Ordinary Shares (2,070)
Retained Profits 59,800
1 January 2016, the issued share capital of Cachet Ltd was 23,000 6% preference
shares of Rs. 1 each and 20,700 ordinary shares of Rs. 1 each.
Required
Calculate the basic and diluted earnings per share for the year ended 31
December, 2016 under the following circumstances:
(i) No change in the issued share capital.
(ii) The company made a bonus issue of one ordinary share for every four shares
in issue at 30 September, 2016.
(iii) The company made a rights issue of shares on 1 October 2016 in the proportion
of 1 for every 5 shares held at a price of Rs. 1.20. The middle market price for the
shares on the last day of quotation cum rights was Rs. 1.80 per share.

Q5 On 1 January Year 5, Mary had 5 million ordinary shares in issue. The following
transactions in shares took place during the next year.
1 February: A 1 for 5 bonus issue
1 April: A 1 for 2 rights issue at Rs. 1 per share. The market price of the shares prior
to the rights issue was Rs. 4.
1 June: An issue at full market price of 800,000 shares.
In Year 5 Mary made a profit before tax of Rs. 3,362,000. It paid ordinary dividends
of Rs. 1,200,000 and preference dividends of Rs. 800,000. Tax was Rs. 600,500. The
reported EPS for Year 4 was Rs.0.32.
Required
Calculate the EPS for Year 5 and the adjusted EPS for Year 4 for comparativ e
purposes.
Q6 Mandy has had 5 million shares in issue for many years. Earnings for the year
ended 31 December Year 4 were Rs. 2,579,000. Earnings for the year ended 31
December Year 3 were Rs. 1,979,000. Tax is at the rate of 30%.
Outstanding share options on 500,000 shares have also existed for a number of
years. These can be exercised at a future date at a price of Rs. 3 per share. The
average market price of shares in Year 3 was Rs. 4 and in Year 4 was Rs. 5.
On 1 April Year 3 Mandy issued Rs. 1,000,000 convertible 7% bonds. These are
convertible into ordinary shares at the following rates.
On 31 December Year 6: 30 shares for every Rs. 100 of bonds
On 31 December Year 7: 25 shares for every Rs. 100 of bonds
On 31 December Year 8: 20 shares for every Rs. 100 of bonds
Required
Calculate the diluted EPS for Year 4 and the comparative diluted EPS for Year 3.

Q7 The profit after tax earned by AAZ Limited during the year ended December
31, 2016 amounted to Rs. 127.83 million. The weighted average number of shares
outstanding during the year were 85.22 million.
Details of potential ordinary shares as at December 31, 2016 are as follows:
The company had issued debentures which are convertible into 3 million
ordinary shares. The debenture holders can exercise the option on December 31,
2018. If the debentures are not converted into ordinary shares they shall be
redeemed on December 31, 2018. The interest on debentures for the year 2016
amounted to Rs. 7.5 million.
Preference shares issued in 2013 are convertible into 4 million ordinary shares at
the option of the preference shareholders. The conversion option is exercisable
on December 31, 2020. The dividend paid on preference shares during the year
2016 amounted to Rs. 2.45 million.
The company has issued options carrying the right to acquire 1.5 million ordinary
shares of the company on or after December 31, 2016 at a strike price of Rs. 9.90
per share. During the year 2016, the average market price of the shares was Rs.
11 per share.
The company is subject to income tax at the rate of 30%.
Required
(a) Compute basic and diluted earnings per share.
(b) Prepare a note for inclusion in the company’s financial statements for the year
ended December 31, 2016 in accordance with the requirements of International
Accounting Standards.

Q8 The following information pertains to ABC Limited, in respect of year ended

March 31, 2016.

Rs. (‘000)
Consolidated profit for the year (including non-controlling interest) 15,000
Profit attributable to non-controlling interest 2,000
Dividend paid during the year to ordinary shareholders 4,000
Dividend paid on 10% Cumulative preference shares for the year 2015 2,000
Dividend paid on 10% Cumulative preference shares for the year 2016 2,000
Dividend declared on 12% Non-cumulative preference shares for 2016 2,400

(i) The company had 10 million ordinary shares at March 31, 2015.
(ii) The cumulative preference shares were issued at the time of inception of the
company.
(iii) The 12% non-cumulative preference shares are convertible into ordinary
shares, on or before December 31, 2017 at a premium of Rs. 2 per share. The
conversion rights are not adjusted for subsequent bonus issues.
(iv) 0.50 million non-cumulative preference shares were conv erted into ordinary
shares on July 1, 2015.
(v) The dividend declared on the non-cumulative preference shares, as referred
above, was paid in April 2016.
(vi) 1.20 million right shares of Rs. 10 each were issued at a premium of Rs. 1.50 per
share on October 1, 2015. The market price on the date of issue was Rs. 12.50 per
share.
(vii) 20% bonus shares were issued on January 1, 2016.
(viii) Due to insufficient profit no dividend was declared during the year ended
March 31, 2015.
(ix) The average market price for the year ended March 31, 2016 was Rs. 15 per
share.
Required
Compute the basic and diluted earnings per share and prepare a note for
inclusion in the consolidated financial statements for the year ended March 31,
2016.

Q9 Alpha Limited (AL), a listed company, acquired 80% equity in Zee Limited (ZL)
on 1 July 2010. The following information has been extracted from their draft
financial statements:
AL ZL
(Rs. ‘000) (Rs. ‘000)
Balance as at 1 January 2013
Share capital (Rs. 100 each) 80,000 35,000
12% Convertible bonds (Rs. 100 each) 30,000 -
Profit for the year ended 31 December 2013 60,000 25,000
(after tax)
Following information is also available:
(i) The bonds were issued at par on 1 January 2011 and are convertible at any
time before the redemption date of 31 December 2015, at the rate of five
ordinary shares for every four bonds.
(ii) Cost and fair value information of ZL’s investment property is as under:
31 Dec 2013 31 Dec 2012
(Rs. ‘000) (Rs. ‘000)
Cost 65,000 60,000
Fair Value 67,000 59,000
ZL uses cost model while the group policy is to use the fair value model to account
for investment property.
(iii) AL operates a defined benefit gratuity scheme for its employees. The actuary’s
report has been received after the preparation of draft financial statements and
provides the following information pertaining to the year ended 31 December
2013:
Rs. (‘000)
Actuarial losses 150
Current service costs 8,000
Net interest income 3,000

(iv) On 1 August 2013, under employees’ share option scheme, 60,000 shares were
issued by AL to its employees at Rs. 150 per share against the average market
price of Rs. 250 per share.
(v) Dividend details are as under:
AL ZL
2013 (Interim) 2012 (Final) 2013 (Interim) 2012 (Final)
Cash 18% 10% 12% 15%
Bonus Shares - 20% - 16%
At the time of payment of dividend, income tax at 10% was deducted by AL and
ZL.
(vi) Applicable tax rate for business income is 35%.
Required:
Extracts from the consolidated profit and loss account of Alpha Limited (including
earnings per share) for the year ended 31 December 2013 in accordance with
the International Financial Reporting Standards. (Note: Comparative figures and
information for notes to the financial statements are not required)

Q10 Readymax Garments PLC (RG) is a company involved in sewing and

exporting ready-made garments to European countries. The following
transactions and events have occurred in respect of its ordinary shares.
(i) Paid a dividend of Rs. 10 per share for its ordinary shares in issue as at 1 July 2020
in the form of a stock dividend (number of shares based on prevailing market
price).
(ii) Issued 500,000 ordinary shares for cash on 1 October 2020. The issue price was
Rs. 175 per share.
(iii) Paid a dividend of Rs. 10 per share for its ordinary shares in issue as at 1 May
2021 in the form of a stock dividend (number of shares based on prevailing market
price).
The shares in issue as at 31 March 2020 and 1 July 2020 were 1,000,000 shares. The
market price per share as at 1 July 2020 was Rs. 200 and as at 1 May 2021 it was
Rs. 155.
The net profit of RG for the years ended 31 March 2020 and 31 March 2021 were
Rs. 110 million and Rs. 125 million respectively.
RG had issued Rs. 200 million worth of 12% cumulative preference shares on 1 April
2017. The company has the option to redeem these shares at its discretion. In both
years that ended 31 March 2020 and 2021 the company declared a 12% dividend
for theses preference shares.
The financial statements of RG for the year ended 31 March 2021 will be
authorised for issue on 31 July 2021.
Required:
Compute the earnings per share (EPS) together with its comparative amounts to
be presented in the financial statements of RG for the year ended 31 March 2021.

Q11 On 1 April 2018 Aaron issued Rs. 30 million, 12% convertible bonds at par value
of Rs. 100. Interest is payable annually in arrears. The terms of the conversion (on
1 April 2022) are that, for every par value (Rs. 100) of a bond, 50 ordinary shares
will be issued at the option of loan stockholders. Alternatively, the bonds will be
redeemed on 1 April 2022 at par, for cash. The credit rating of the company was
such that it would have had to offer investors non-convertible bonds at a rate of
return of 15% per annum, on any investment.
Share options
On 1 April 2018 Aaron issued share options on 18 million ordinary shares
exercisable from 1 April 2021 at Rs. 2.50 per share. The average market value of
Aaron’s ordinary shares for the year ended 31 March 2019 was Rs. 4.00 each.
The income tax rate is 28%. Earnings attributable to ordinary shareholders for the
year ended 31 March 2019 were Rs. 120 million. The stated capital of the
company as at 31 March 2019 comprised 75 million ordinary shares.
Calculate Aaron’s basic and diluted earnings per share basedfor the year ended
31 March 2019 assuming that both the convertible bond and the share options
are dilutive. (Comparative figures are not required).

Q12 IAS 33 – Earnings per Share – sets out requirements for the calculation and
presentation of earnings per share in financial statements of listed entities. The
requirements include the disclosure of basic earnings per share and, where an
entity has potential ordinary shares in issue, the additional disclosure of diluted
earnings per share in certain circumstances.
Kappa is a listed entity with a number of subsidiaries. Extracts from the
consolidated statement of profit or loss and other comprehensive income of
Kappa for the year ended 30 September 2018 appear below:

Attributable to Non-controlling TOTAL

Kappa ($ ‘000) Interest ($ ‘000) ($ ‘000)
Profit for the year 39,000 3,000 42,000
Other comprehensive income 5,000 - 5,000
Total comprehensive income 44,000 3,000 47,000

The long-term finance of Kappa comprises:

(i) 200 million ordinary shares in issue at the start of the year. On 1 January 2018,
Kappa issued 50 million new ordinary shares at full market value.
(ii) 80 million irredeemable preference shares. These shares were in issue for the
whole of the year ended 30 September 2018. The dividend on these preference
shares is discretionary.
(iii) $180 million 6% convertible loan stock issued on 1 October 2016 and repayable
on 30 September 2021 at par.
Interest is payable annually in arrears. As an alternative to repayment at par, the
lenders on maturity can elect to exchange their loan stock for 100 million ordinary
shares in Kappa. On 1 October 2016, the prevailing market interest rate for five-
year loan stock which had no right of conversion was 8%. Using an annual
discount rate of 8%, the present value of $1 payable in five years is $0·68 and the
cumulative present value of $1 payable at the end of years one to five is $3·99.
In the year ended 30 September 2018, Kappa declared an ordinary dividend of
10 cents per share and a dividend of 5 cents per share on the irredeemable
preference shares.
The annual rate of income tax applicable to Kappa and its subsidiaries is 20%.
All transactions have been correctly accounted for in the financial statements of
Kappa for the year ended 30 September 2018.
Required:
(a) Explain the meaning of the term ‘potential ordinary shares’ and provide TWO
examples of potential ordinary shares OTHER THAN convertible loans.
(b) Explain how the diluted earnings per share is calculated and when it needs to
be disclosed.
(c) Compute the finance cost of the convertible loan stock which will be shown
in the consolidated statement of profit or loss of Kappa for the year ended 30
September 2018 and the related loan liability which will be shown in the
consolidated statement of financial position of Kappa at 30 September 2018.
(d) Compute the basic and diluted earnings per share amounts for Kappa for the
year ended 30 September 2018 which will be presented in its consolidated
financial statements for that year.