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Earnings per Share (PAS 33)

Generally speaking, EPS is income for the period reported on a per share of common stock basis.
The presentation of EPS on the income statement is required by GAAP for corporations whose shares of
stocks are publicly traded.
Basic EPS must be presented even if the amounts are negative (that is, a loss per share).
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the
weighted average number of ordinary shares outstanding (the denominator) during the period.
Net income
Weighted average common shares outstanding

The earnings numerators (profit or loss from continuing operations and net profit or loss) used for the calculation
should be after deducting preference dividends.
Cumulative preferred shares only the preferred dividend for the current year is deducted from the net
income whether such dividend is declared or not.
Non-cumulative preferred shares - the preferred dividend for the current year is deducted from the net
income if such dividend is declared.

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.

Illustrative Problems:
1.

On December 31, 2006, Jamfest Travel Inc. had 450,000 shares of no-par common stock
issued and outstanding. All shares were sold for P 7.50. On June 30, 2007, the firm issued an additional 135,000 shares
for P 7 per share. The 2007 income was P 319,200. On September 1, 2008, a 15 percent stock dividend was issued to
all common shareholders. On October 1, 2008, 60,000 shares were reacquired as treasury shares. Net income in 2008
was P 278,063.
(a) Compute the weighted-average number of common shares outstanding for 2007 and 2008
(b) Compute the basic EPS in 2007and 2008 to be reported on comparative statements at the end of 2008.

2.

At December 31, 2005, the Murdock Company had 150,000 shares of common stock issued and outstanding. On
April 1, 2006, an additional 30,000 shares of common stock were issued. Murdock's net income for the year ended
December 31, 2006, was P 517,500. During 2006, Murdock declared and paid P 300,000 in cash dividends on its
noncumulative preferred stock.
(a) Compute the weighted-average number of common shares outstanding for 2006
(b) Compute the basic EPS for 2006

3.

On December 31, 2005, Superior, Inc. had 600,000 shares of common stock issued and outstanding. On March 31,
2006, 10,000 common shares were subscribed. Superior issued a 10 percent stock dividend on July 1, 2006. On
October 1, 2006, Superior reacquired 48,000 shares of its common stock and recorded the purchase using the cost
method of accounting for treasury stock.
In addition, the corporation has a 10% preferred shares, P 100 par, 10,000 issued and outstanding for 2006. No
dividends were declared for the year. Net income for 2006 is P 2,500,000.
(a) What number of shares should be used in computing basic earnings per share for the year ended Dec. 31, 2006?
(b) Assuming the preferred shares are non-cumulative., what is its basic EPS for 2006?
(c) Assuming the preferred shares are cumulative, what is its basic EPS for 2006?