Diluted Earnings per Share Flashcards
(26 cards)
The diluted earnings per share incorporates the effect of
presumptive exercise of dilutive potential ordinary shares.
Potential ordinary shares may arise from:
- Preference shares convertible to ordinary shares
- Bonds convertible to ordinary shares
- Share options, warrants and other equivalent
- Written put options
- Contingently issuable shares
refers to the decrease in earnings per share or increase in loss per share as a result of incorporation of potential ordinary shares
Dilution
refers to the increase in earnings per share or decrease in loss per share as a result of incorporation of potential ordinary shares
Antidilution
Potential ordinary shares shall be included in the Diluted EPS calculation if the effect is
dilutive
If the effect of exercise of potential ordinary shares is antidilutive, it shall be
ignored
The adjustment to the denominator shall be time-weighted from whichever is the later of the following:
Beginning of the period - if
the potential ordinary share were issued in the previous period
The adjustment to the denominator shall be time-weighted from whichever is the later of the following: Date of issuance - if
the potential ordinary share were issued in the current period
Convertible preference shares (added to numerator)
Dividend related to convertible preference share, if any, previously deduct from net income in BEPS calculation
Convertible preference shares (added to denominator)
Time-weighted number of ordinary shares into which preference shares are convertible.
Convertible debt securities
(added to numerator)
After-tax interest expense on the convertible debt securities.
Convertible debt securities
(Added to denominator)
Time-weighted number of ordinary shares into which bond are convertible debt securities
Share options and warrants
(Added to numerator)
None
Share options and warrants
(added to denominator)
Assumed number of share issued for no consideration
How to determine assumed number of share issued for no consideration
No. of shares covered by the share option
Less: Assumed treasury shares
Equals: No. of shares added to denominator
Assumed treasury share is computed as follows:
(No. of shares x Exercise price) ÷ Ave. market price
refer to the entity’s obligation to issue or sell its equity securities to holder of share options and warrant.
Share options and warrants
Share options and warrant are only dilutive when
the exercise price is LOWER than the average market price
Written Put options
(added to numerator)
None
Written Put options
(Added to denominator)
Excess of the assumed no. of shares issued to meet the put obligation over the number of shares covered by the put option
Put options and warrant are only dilutive when
the exercise price is HIGHER than the average market price.
Contingent shares are treated as _________________ if the conditions are satisfied.
outstanding and included in the EPS calculation
Contingent shares are included in DEPS from
the beginning of the period or the date the contingent agreement, whichever comes later.
Earnings per incremental share shall be computed as follows:
Amount added to the numerator ÷ Amount added to the denominator
