IAS 33 Earnings Per Share

Question 1

• Explain the relevance and importance of ‘earrings per share’

Answer 1

EPS is widely regarded as the most important indicator of a company’s performance.
It is important that users of the financial statements are able to: Compare the EPS of different entities and compare the EPS of the same entity in different accounting periods

Question 2

Calculate basic earnings per share including dealing with bonus and rights issues

Answer 2

Basic EPS = Profit (or loss) attributable to ordinary shareholders / Weighted average number of ordinary shares outstanding during the period
If bonus shares are issued during the period, these need to be added to the ‘number of shares outstanding at the beginning of the period’

Question 3

Explain the term ‘dilution’ and calculate ‘diluted earnings per share’

Answer 3

Dilution arises when in the future some investors get the rights to additional shares. Diluted EPS calculates what the effect would be if all those charge holders did so at the end of the year.
DEPS = Earnings + notional extra earnings / number of shares + notional extra shares