PAS 33:

Earnings per
Share

Prepared by:

LLANAH MAE S. MOAMBING Faculty

– Accountancy Dep’t
 Learning Objectives
– Define and know proper presentation of EPS
– Know the formula in computing basic EPS and diluted EPS
– Determine/compute the weighted average number of ordinary shares
– Identify potential ordinary shares
– Compute basic and diluted EPS

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 Earnings per Share
What is EPS? – It is the amount attributable to every ordinary share outstanding during the
period
– Applies only to ORDINARY SHARES
– Two presentations of EPS
1. Basic Earnings per share
2. Diluted Earnings per share

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 Earnings per Share
Uses:
1. Determinant of the market price
2. Measures management performance in conducting operations
3. Basis of dividend policy

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 Earnings per Share
Presentation:
– For continuing operations, presented on the FACE OF THE INCOME STATEMENT.
– For discontinued operations, either on the FACE OF THE INCOME STATEMENT or
NOTES TO FINANCIAL STATEMENTS
EPS must be presented even if it is negative.
When negative?
- When the company generated losses during the period.
- Called Basic loss per share.

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Earnings per Share
Formula:
For Basic earnings per share:
= Net Income – Preferred Dividends
Ordinary Shares Outstanding
For Basic loss per share:
= Net Loss – Preferred Dividends
Ordinary Shares Outstanding
PREPARED BY: MS. LLANAH MAE S. MOAMBING
PAS 23: EARNINGS PER SHARE
For Diluted earnings per share:
*With convertible bonds payable
= Net Income + Interest Exp. net of tax
OS Outstanding + Potential OS
For Diluted earnings per share:
*With convertible preference share
= Net Income
OS Outstanding + Potential OS
For Diluted earnings per share:
*With share options or warrants
= Net Income
OS Outstanding + Potential OS
3/20/2020
 Earnings per Share
Formula:
- If preference share is cumulative,
For Basic earnings per share: DEDUCT dividends for the current
= Net Income – Preferred Dividends year only whether DECLARED OR
Ordinary Shares Outstanding NOT.
- If noncumulative, deduct ONLY
WHEN DECLARED.
- If silent, noncumulative.
- If there is a significant
change, the weighted
average number of
Ordinary shares
outstanding during the
period must be used.
PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020
PAS 23: EARNINGS PER SHARE
 Ok!  Let’s use the illustration
on your book.

PREPARED BY: MS. LLANAH MAE S. MOAMBING

PAS 23: EARNINGS PER SHARE 3/20/2020
 #1
The same with the computation of the
average expenditures under borrowing
cost.
Assume that the company had transactions relating to its shares:
Jan 1 100,000
May 1 150,000
Sep 1 150,000 Or this
This
In getting the average shares you may use either of the two ways:
Date Shares Months Outstanding Peso Months Date Shares Months Outstanding Peso Months
Jan. 1 100,000 12 1,200,000 Jan. 1 100,000 12/12 100,000
May 1 150,000 8 1,200,000 May 1 150,000 8/12 100,000
Sep. 1 150,000 4 600,000 Sep. 1 150,000 4/12 50,000
Total 3,000,000 Average Shares 250,000
Average Shares (3,000,000/12 months) 250,000

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 #2: This is complicated compared to the
first one.

Assume that that company provided the following information relating to its
shares:
Jan. 1 Beginning Balance 50,000
Mar. 1 Issued for cash 25,000
July 1 Declared 20% share dividend
November 1 Reacquired shares 6,000

The net income during the period is P1,500,000.

10% Preference share Capital, P100 par, P1,000,000

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
This is due to the stock
dividend declared. “1” Step 1: Compute for the average shares.
refers to the entire
50,000 shares and “.20”
Provided information relating to its shares: As you can see,
is the 20% declared
Jan. 1 Beginning Balance 50,000
20% stock dividend
stock dividend relating
is applicable only
to the 50,000 shares. Mar. 1 Issued for cash 25,000
to the shares
The same will apply to July 1 Declared 20% share dividend outstanding before
the 25,000 shares
November 1 Reacquired shares 6,000 the declaration,
50,000 and 25,000
As observed, Compute for the average shares: shares.
reacquired shares
pertains to treasury Date Computation of Average Shares Average Shares
shares during the Jan. 1 (50,000 shares * 1.20 * 12/12) 60,000
period. If you noticed,
it is averaged and Mar. 1 (25,000 shares * 1.20 *10/12) 25,000
deducted to the total July 1 No computation
outstanding shares. Nov. 1 (6,000 treasury shares *2/12) (1,000)
Total Average Shares 84,000

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 Step 2: Identify whether the preference
shares are cumulative or noncumulative.
Step 3: Compute for the Basic EPS.
– Since the problem did not state if the PS is
Net incomeor
cumulative during
noncumulative, we will assume – If the company generated a loss of
that ittheis period.
noncumulative. P1,500,000 rather than income and PS are
– Basic=EPS is computed as Average Shares
follows: noncumulative, the Basic Loss per share is
P1,000,000 * .10 Computed. computed as follows:
Or
= * 10,000
= 10% * P100 par P1,500,000
Pref shares = (P1,500,000)
84,000 average shares 84,000 average shares
= P17.86shares are cumulative, the
– If the Preference = (P17.86)
Basic EPS would be:
– If preference shares are cumulative:

= P1,500,000 – P100,000 = (P1,500,000) – P100,000

84,000 average shares 84,000 average shares
= P16.67 = (P19.05)
PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020
PAS 23: EARNINGS PER SHARE
 How are you, so far?
I hope you are keeping up. 

Let’s have another example.

(You can do this!)

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 #3: This is one is more
complicated.
Assume that that company provided the following information relating to its
shares:
January 1 55,000 shares issued and outstanding
May 1 Issued 25,000 new shares
July 1 Share split 5 for 2
August 1 Purchased 16,000 treasury shares
November 1 15% share dividend or bonus issue
December 1 Share split 3 for 1

The net income during the period is P3,400,000.

12% Cumulative Preference share Capital with P120 par value, P1,500,000

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 If you noticed, stock
dividend and share
#3: Compute for the average split are applicable
only to the shares

Are you familiar with

shares.
Given: January 1 55,000 shares issued and outstanding
outstanding before its
declaration. All share
May 1 Issued 25,000 new shares
share split? split (July and Dec.)
July 1 Share split 5 for 2
and stock dividend
August 1 Purchased 16,000 treasury shares are applied to 55,000
Click Me!
November 1 15% share dividend or bonus issue and 25,000 shares
December 1 Share split 3 for 1 while only the share
split declared during
Dec. and stock
Date Computation of Average Shares Average Shares in November
dividend
January 1 (55,000 shares * 5 ÷ 2 share split * 1.15 * 3 ÷ 1 share split * 12/12) apply to Treasury
474,375
shares.
May 1 (25,000 shares * 5 ÷ 2 share split * 1.15 * 3 ÷ 1 share split * 8/12) 143,750
August 1 (16,000 shares * 1.15 * 3 ÷ 1 share split * 5/12) (23,000)
Total Average Shares 595,125

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 #3: Compute for the Basic EPS

– Basic EPS is computed as follows:

= P3,400,000 – P180,000
595,125 average shares
= P5.41

= P1,500,000 * 12%
Or
= 12% * P120 par * 12,500 Preference shares

(1,500,000 ÷ 120 par value)

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 OK!
AS OF THIS MOMENT, TRY TO STRETCH YOUR
ARMS AND LEGS.

RELAX YOUR MIND.…

YOU ARE ALMOST FINISHED VIEWING THIS!

WE ARE DOWN TO THE LAST TOPIC.  

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Diluted EPS
- follows “as if” scenario
DILUTION
– Arises when inclusion of potential
ordinary shares decreases the
basic earnings per share or
increase the basic loss per share.
– If happens, the potential ordinary
shares are dilutive
– RECORDED
PREPARED BY: MS. LLANAH MAE S. MOAMBING
PAS 23: EARNINGS PER SHARE
ANTIDILUTION
– Arises when inclusion of potential
ordinary shares increases the
basic earnings per share or
decrease the basic loss per share.
– If happens, the potential ordinary
shares are antidilutive
– IGNORED
3/20/2020
 Three topic will be discussed here:

1. Convertible Bonds
2. Convertible Preference Shares
3. Share options and warrants

PREPARED BY: MS. LLANAH MAE S. MOAMBING 3/20/2020

PAS 23: EARNINGS PER SHARE
 Convertible Bonds
Example:
12% Convertible Bonds Payable, each P2,000 bond is P 2,000,000
convertible into 15 ordinary shares
Ordinary shares capital, P90 par, 500,000 shares authorized, 13,500,000
150,000 shares issued
Net Income 4,500,000
Income Tax Rate 32%

Compute for:
1. Basic EPS
2. Diluted EPS

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Basic EPS
= Net Income – Preferred Dividends
Average Outstanding Shares
= P 4,500,000 – 0
150,000 shares

Basic EPS = P 30

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Face Value of Bonds P2,000,000
Multiplied to 12% (Interest Expense = Principal*Rate*Time)
Interest Expense 240,000

Diluted EPS It was deducted during the time net income was computed. It is added back
because if the bonds were converted at the beginning of the year, there will be
no interest paid during the year.
Assumed that, the convertible bonds Diluted EPS
payable is converted.
= Net Income + Interest Expense, net of Tax
Shares that would have been issued:
Ordinary Shares Outstanding + Potential Shares
As stated, there will be 15 ordinary
= P4,500,000 + (P240,000 * 68%)
shares per P2,000 bond. Thus,
150,000 + 15,000
= P2,000,000 ÷ P2,000 bonds = 1,000
= P4,663,200
= 1,000 * 15 ordinary shares
165,000
= 15,000 ordinary shares
= P 28.26
PREPARED BY: MS. LLANAH MAE S. MOAMBING
3/20/2020
PAS 23: EARNINGS PER SHARE
 Convertible Bonds
Basic EPS Diluted EPS
= Net Income – Preferred Dividends = Net Income – P Div. + Interest Expense, net of Tax
Average Outstanding Shares Ordinary Shares Outstanding + Potential Shares
= P 4,500,000 – 0 = P4,500,000 + (P240,000 * 68%)
150,000 shares 150,000 + 15,000

Basic EPS = P 30 = P4,663,200

165,000
The shares are dilutive since = P 28.26
it decreased the Basic EPS.

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Convertible Preference Shares
Example:
12% Cumulative Preference Share Capital, P100 par value each P 2,000,000
share is convertible into 3 ordinary shares
Ordinary shares capital, P90 par, 500,000 shares authorized, 13,500,000
150,000 shares issued
Net Income 4,500,000
Income Tax Rate 32%

Compute for:
1. Basic EPS
2. Diluted EPS

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 NOTE:
If the preference shares are
noncumulative, deduct only the preferred
dividend when declared.

Basic EPS Diluted EPS

= Net Income – Preferred Dividends = Net Income
Average Outstanding Shares Ordinary Shares Outstanding + Potential Shares
= P 4,500,000 – P240,000 = P4,500,000
150,000 shares 150,000 + 60,000
Basic EPS = P 28.40 = P4,500,000
210,000 PS Capital P 2,000,000
÷ par value P 100
= P 21.43 # of Pref Shares 20,000
The shares are dilutive since * 3
it decreased the Basic EPS. # of Potential shares 60,000

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE
 Options and Warrants
– Options are granted to employees enabling them to acquire ordinary shares
– Warrants are granted to shareholders enabling them to acquire ordinary shares
– These are included in the computation of EPS through TREASURY SHARE
METHOD.
– Options and warrants are DILUTIVE if the exercise price or option price is less
than the average market price of the ordinary shares

PREPARED BY: MS. LLANAH MAE S. MOAMBING

PAS 23: EARNINGS PER SHARE 3/20/2020
 Assumption:
Net Income P 2,600,000
Ordinary share capital, P20 par, 50,000 shares P 1,000,000
Employee share options:
Option Shares 20,000
Option Price P 125
Average Market Price P 200

Compute for:
1. Basic EPS
2. Diluted EPS
PREPARED BY: MS. LLANAH MAE S. MOAMBING
PAS 23: EARNINGS PER SHARE 3/20/2020
 Basic EPS Diluted EPS
= Net Income – Preferred Dividends = Net Income - Preference Shares
Average Outstanding Shares Ordinary Shares Outstanding + Potential Shares
= P 2,600,000 – 0 = P2,600,000
50,000 shares 50,000 + 7,500
Basic EPS = P 52 = P2,600,000
Option Shares 20,000
57,500 * Option price P 125
Proceeds from exercise P 2,500,000
= P 45.22 ÷ Ave. market price P 200
The shares are dilutive since Assumed Treasury 12,500
it decreased the Basic EPS.
Option Shares 20,000
Assumed Treasury shares 12,500
PREPARED BY: MS. LLANAH MAE S. MOAMBING Potential Ordinary shares 7,500
3/20/2020
PAS 23: EARNINGS PER SHARE
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I hope this presentation is helpful. God Bless!!!   

PREPARED BY: MS. LLANAH MAE S. MOAMBING

3/20/2020
PAS 23: EARNINGS PER SHARE