1. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 1 IND AS 33 EARNINGS PER SHARE By CA. S. B. Zaware Central Council Member, ICAI New Delhi Member, Accounting Standards Board Chairman, Ind As(IFRS) Implementation Committee

2. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee To prescribe the principles required for the determination of Earnings per share(EPS) as well as its presentation to improve comparability. The Objective of EPS calculation is to provide a measure performance of the entity with reference to each class of ordinary share in the performance of the entity over the reporting period. Objective 2

3. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee This Ind AS shall apply to all the companies that have issued ordinary shares to which Indian Accounting Standards apply. Where an entity prepares both consolidated financial statements and separate financial statements then the EPS based on consolidated statements shall be disclosed in consolidated statements and EPS calculated on separate financial statements shall be disclosed in separate financial statements. Scope 3

4. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee The basic EPS shall be calculated by dividing the profit(loss) attributable to the ordinary equity shareholders by the weighted average of ordinary shares outstanding during the period. For calculating the Basic earnings per share, the amounts attributable to ordinary share holders in respect of profit or loss from continuing and discontinuing operations shall be the amount of earnings. Weighted average number of ordinary shares shall be the outstanding number of ordinary shares at the beginning of the period adjusted by the number of ordinary shares that has been issued or bought back during the period and multiplied by time factor. Computation of Basic EPS 4

5. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee The Basic EPS for the current period and for all the periods presented shall be adjusted for events that will result in a change in number of ordinary shares outstanding without a corresponding change in resources as if the event had occurred at the beginning of the earliest period presented. E.g. In a bonus issue the number of ordinary shares outstanding is increased without any increase in earnings. Computation of Basic EPS (continued.) 5

6. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 6 Calculation of Basic EPS Basic Earning Per Share = Net profit or loss for the period attributable to the ordinary equity shareholders Weighted Average Number of Ordinary Shares outstanding during the period

7. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 7 Determination of Preference dividend Non-cumulative preference shares: Preference dividend already declared / provided is to be considered. Cumulative preference shares: Preference dividend payable for the period should be considered, irrespective of whether it is provided or not. In case of Cumulative preference shares, arrears of preference dividend declared and paid should not be deducted, as they are already considered in the respective year of accrual.

8. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 8 Ordinary Shares with Different Dividend rights If an Enterprise has more than one class of Ordinary shares, Net Profit is apportioned over different classes of Ordinary shares according to dividend rights. EPS is reported separately for every class. E.g. A Ltd. has 1,00,000 Class A shares and 2,00,000 Class B Shares. Class B Share is entitled to twice the dividend of every Class A share. Net profit for the year is Rs. 3000 Lakhs. Profit attributable to Class A shares is Rs. 600 lakhs and Class B Shares is Rs. 2,400 lakhs. (Use Concept of Equivalent Shares)

9. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 9 X Ltd. has following different classes of Ordinary shares of Rs. 10 each, outstanding as on 31 st March 2015. Example – Shares of Different Class Profit for the year ended 31st March 2015 was Rs. 8,00,000. Calculate Basic EPS. ClassNo. of SharesDividend Rights A1,00,000Proportionate to Capital B30,000In proportion of 3:2 with respect to Class A Shares C30,000In proportion of 5:2 with respect to Class A Shares D40,000In proportion of 6:2 with respect to Class A Shares

10. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 10 Answer Net profit attributable to each class of shares is calculated by converting shares into Equivalent Shares. Here all shares are converted into Equivalent Class A Shares. ClassNumber of shares (A) Ratio of Rights (B) Equivalent Class A shares (C) Apportioned Net Profits (Rs.) (D) Basic EPS Rs. (E) = D/A A1,00,0001:11,00,0002,35,294 * 2.35 B30,0003:245,0001,05,8823.53 C30,0005:275,0001,76,4715.88 D40,0006:21,20,0002,82,3537.06 Total3,40,0008,00,000 * 1,00,000/3,40,000 X 8,00,000

11. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 11 Transfer to reserves & Tax on Dividend Transfer to various mandatory reserves appropriated out of earnings available to ordinary equity shareholders, are included and is a part of the Numerator, since profit for EPS calculation is considered as profit earned before appropriation. Logic: Though these reserves are not immediately available to ordinary equity shareholders, reserves are ultimately meant for distribution amongst the ordinary equity shareholders. Equity Dividend Distribution Tax u/s 115-O of Income Tax Act, is not deducted from the earnings i.e. the numerator.

12. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 12 Example – Mandatory Reserves As per the agreement entered with the Debenture holders, X Ltd. is required to transfer adequate portion of its profit to the Debenture Redemption Reserve (DRR), over the period of maturity of debentures, such that, on maturity the DRR would constitute at least half of the amount due to debenture holders. As this amount transferred to DRR is not available for distribution among Ordinary shareholders, CFO of X Ltd. has deducted this amount from numerator in computation of Basic EPS. Is treatment in accordance with the Ind AS-33?

13. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 13 Answer The treatment given by X Ltd. is not in accordance with Ind AS-33. The transfer to DRR would be included and is a part of the numerator in calculating Basic EPS. Ind AS-33 requires all amounts attributable to Ordinary shareholders, be included in determination of EPS. The amount transferred to DRR, though not immediately available to Ordinary shareholders, is ultimately meant for distribution among the Ordinary shareholders. Accordingly it is a part of numerator for calculation of EPS.

14. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 14 Summing up Numerator Dividend on Ordinary Shares (including tax on dividend) Transfer to reserves Numerator Includes Preference Dividend Tax on Preference Dividend Taxes on Income Current Tax Deferred taxes Profit brought forward from previous years Numerator Excludes  

15. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 15 Weighted Average No. of Ordinary Shares - Denominator For the purpose of calculating Basic EPS, number of Ordinary shares should be weighted average number of Ordinary shares outstanding during the period. There may be change in shareholders capital during the year due to the issue of fresh shares, buy back, bonus issue, right issue etc. These changes in the capital needs to be considered in calculation of EPS. Logic for Weighted Average Shares: The consideration received/paid for issue/buy back of shares was available to generate the earnings only for the part of the year. Hence the Weight of the time is assigned to number of shares to arrive at weighted average shares.

16. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 16 Example –Weighted Average DateParticularsOpening Balance Shares Issued Shares bought back Closing Balance 01.04.14 30.06.14 01.01.15 31.03.15 Opening bal. Issue for Cash Buy back Closing bal. 10,000 15,000 14,000 5,000 1,000 10,000 15,000 14,000 Calculate the Weighted Average No. of Ordinary Shares from the following Information.

17. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 17 Answer Alternative 1: Periodical Weightage = (10,000 x ) + (15,000 x ) + (14,000 x ) = 13,500 3 12 6 12 3 12 Alternative 2: Yearly Weightage = (10,000 x ) + (5,000 x ) - ( 1,000 x ) = 13,500 12 9 12 3 12

18. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 18 Timing for inclusion in Weighted Average In most of the cases, shares are included in the weighted average from the date the consideration is receivable. Following table summarises the various situations Shares IssuedDate of Inclusion For cashDate on which cash is receivable Conversion of debtDate of conversion In lieu of interestDate when interest ceases to accrue Settlement of liabilityDate when settlement becomes effective Acquisition of assetDate when acquisition is recognised For rendering servicesAs the service is rendered Contingently issuable shares Date on which conditions are met

19. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 19 Weighted Average in case of Partly Paid Shares ParticularsWeighted Average Partly paid Ordinary shares participating dividends to the extent of paid up value Weighted Average is calculated by converting partly paid shares into equivalent fully paid shares. Partly paid Ordinary shares not entitled to dividends to the extent of paid up value  Not considered in calculation of Basic EPS.  Partly paid shares are treated as option (Potential Ordinary Shares) and considered in calculation of Diluted EPS.  Dividend is paid on the paid up value.

20. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 20 Example – Partly Paid Shares DateParticularsNo. of shares Issued Face value per share Paid up value per share 1.4.14 1.1.15 Opening bal. Issue for Cash 10,000 5,000 Rs. 10 Rs. 5 Calculate Weighted Average No. of Ordinary shares from following information Answer: Weighted Average Number of Ordinary Shares = (10,000 X 12/12) + (5,000 X 5/10 X 3/12) = 10,625 Shares. for converting into equivalent units for Calculating Weighted Average

21. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 21 Example – Partly Paid Shares Y Ltd. made the Public issue of 1,00,000 Ordinary shares of Rs. 10 each, during the year ended 31st March 2015.The issue was subscribed fully and the calls were made as given below Rs. 5 on application and allotment on 1st July 2014 Rs. 2 on first call made on September 30th 2014 Rs. 3 on Second and final call made on 1st January 2015 Partly paid shares are entitled to the dividend to the extent of paid up value. Y Ltd. had 5,00,000 shares outstanding at the beginning of the year. Net profit for the year ended 31st March 2015 was Rs. 20,00,000. Calculate the Basic EPS.

22. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 22 Answer Calculation of Weighted Average No. of Shares No. of Shares Paid up Value Equivalent Shares No. of Months Weighted Average 5,00,000105,00,000125,00,000 1,00,000550,000937,500 1,00,000220,000610,000 1,00,000330,00037,500 Weighted Average No. of Shares5,55,000 Basic EPS = 20,00,000 / 5,55,000 = Rs. 3.60

23. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 23 Weighted Average of Shares having different Face Values Weighted Average of shares having different face values, but the same dividend rights with reference to paid up value, is calculated by converting such shares into equivalent number of shares of same face value. E.g. If Company has 15,000 shares of Face value of Rs. 10 each and 50,000 shares of Face value of Rs. 1 each, then weighted average number of Ordinary shares would be 20,000 Ordinary shares (Equivalent to Rs. 10 each) or 2,00,000 Ordinary shares (Equivalent to Rs. 1 each).

24. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 24 Adjustment to weighted average for shares issued without consideration This is a situation where the number of shares are increased without corresponding increase in the resources available to generate earnings. Ind AS-33 has identified such events leading to the increase in shares without corresponding increase in resources. In such cases Ind AS-33 requires the EPS to be presented after adjusting for such events - For the current period All prior periods presented in financial statements i.e. Restatement (adjustment to comparative figures.)

25. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 25 Cases where shares are issued without consideration Examples: Bonus Issue Share split Reverse share split (consolidation of shares) Bonus element in right issue

26. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 26 Weighted Average - Bonus Shares Bonus shares issued are deemed to have been outstanding from the beginning of the earliest reporting period.

27. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 27 Logic for Bonus issue adjustment 1. Bonus issue does not result in change in ownership percentage of the shareholder. As such, to show the dilution in EPS reported in the year of bonus issue without changing previous periods, EPS would give misleading impression of decline in profitability. 2. As bonus shares are issued without consideration, there is no changes in resources generated. 3. Bonus shares are issued by capitalisation of reserves. The reserves contain the profit earned in the previous periods also.

28. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 28 Share Split & Reverse Share Split Share Split means sub-division of shares. The number of shares is increased after the share split. Reverse Share Split means Consolidation of Shares. The number of shares is decreased after the consolidation of shares. Adjustment to be made: Basic EPS for the current year and previous periods should be computed as if the split / reverse split has taken place from the beginning of earliest reported period.

29. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 29 Net profit 2013-14Rs. 10,00,000 Net profit 2014-15Rs. 15,00,000 No. of Ordinary shares till 31.3. 201410,000 Bonus issue as on 1.4.20141:1 Restated EPS 2013-1410,00,000 / 20,000 = Rs. 50 EPS 2014-1515,00,000 / 20,000 = Rs. 75 Example – Bonus Shares X Ltd. Data. Let us understand the computation

30. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 30 Right shares Exercise of right usually give rise to bonus element, as the exercise price of shares is often less than the fair value of the shares. Number of Ordinary shares to be used for calculating Basic EPS for all periods prior to right issue is given by following formula Weighted Average No. of Shares No. of Ordinary shares outstanding prior to issue Adjustment factor = X

31. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 31 Right shares Calculation of Adjustment Factor Adjustment Factor Fair value per share prior to exercise of right Theoretical Ex-right fair value per share =

32. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 32 Right shares Theoretical Ex-right fair value per share Fair value of all outstanding shares prior to right + amount received from exercise of rights No. of outstanding shares prior to right + No. of shares issued in exercise of rights. =

33. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 33 Right shares Alternatively Theoretical Ex-right fair value per share MN + S N + 1 M= Cum Right Market Price N= No. of Ordinary shares required to get one right S= Subscription cost of right share =

34. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 34 Example – Right Shares Net profit 2013-14 (April – March)Rs. 6,00,000 Net profit 2014-15 (April – March)Rs. 7,50,000 No. of Ordinary shares outstanding prior to right issue. 1,50,000 Right issue1 : 3 Right issue price Date of Right issue Rs. 25 31.12.2014 Fair Value of Ordinary share immediately prior to rights issue on 31.12.2014 Rs. 45 Compute Basic EPS for 2014-15 & Restated EPS for 2013-14

35. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 35 Computation of Weighted Average no. Ordinary shares 2013-14 originally reported no. of shares 1,50,000 shares 2013-14 Restated= 1,50,000 x Adjustment Factor = 1,50,000 x 1.125 = 1,68,750 shares 2014-15=(1,50,000 X 1.125 X 9/12) + (2,00,000 X 3/12) = 1,26,563 + 50,000 = 1,76,563 shares

36. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 36 Basic Earning per Share 2013-14 originally reported= 600000/150000 = Rs. 4 2013-14 Restated= 600000/ 1,68,750 = Rs. 3.56 2014-15= 750000 / 1,76,563 = Rs. 4.25

37. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 37 Calculation of Adjustment Factor Adjustment Factor Fair value per share prior to exercise of right Theoretical Ex-right fair value per share 45 40 (Refer next slide.) =1.125 = =

38. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 38 Theoretical Ex-right fair value per share Fair value of all outstanding shares prior to right + amount received from exercise of rights No. of outstanding shares prior to right + No. of shares issued in exercise of rights. (45 x 1,50,000) + (25 x 50,000) 1,50,000 + 50,000 Rs. 40 = = =

39. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Dilution is a reduction in earnings per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions. Similarly, potential ordinary shares would be treated as anti dilutive when and only when their conversion into ordinary shares would increase the EPS or decrease the loss per share. Diluted Earnings per Share 39

40. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee For calculating diluted EPS, an entity needs to adjust its earnings as well as the weighted number of ordinary shares outstanding for the effects of all potential ordinary shares. The earnings attributable to ordinary shareholders used in calculating basic EPS is increased by the post tax dividends and interest in respect of dilutive potential ordinary shares and is adjusted for any other changes in income or expenses that would result from the conversion of the dilutive potential ordinary shares, and the weighted average number of ordinary shares outstanding will get increased by the number of additional shares that will be issued. Computation of Dilutive EPS 40

41. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Example: 10% debenture of Rs. 1000 will be converted into 10 shares,therefore, there will be a saving on interest cost of Rs. 70 (after income tax say @ 30%), which will be added to the earnings and the number of shares that will be issued i.e.. 10 will be added to the weighted number of shares to calculate the Dilutive EPS. In determining whether potential ordinary shares are dilutive or ant dilutive, each issue of potential ordinary shares is considered separately and the sequence shall be from the most dilutive to the least dilutive. Computation of Dilutive EPS (continued.) 41

42. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Options and warrants are considered dilutive when ordinary shares are issued for less than the average market price of ordinary shares. The amount of dilution is the average market price of ordinary shares during the period minus the issue price of the shares. Where the entity repurchases its own shares, such as written put options and forward purchase contracts, are considered in the calculation of dilutive EPS if the effect is dilutive i.e. the exercise price is above the average market price. Treatment of Options, Warrants and written Put Options 42

43. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 43 Potential Ordinary shares –Meaning A potential Ordinary share is a financial instrument or other contract that entitles, or may entitle, its holder to Ordinary shares. Examples of potential Ordinary shares are: Debt instruments or preference shares, that are convertible into Ordinary shares; Share warrants; Options giving right to subscribe for Ordinary shares Shares issuable on satisfaction of certain conditions

44. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 44 Classification of Potential Ordinary Shares Dilutive: PES are said to be Dilutive when conversion of PES leads to decrease in Basic EPS. In following circumstances PES are dilutive Exercise price of options is less than the fair value of Ordinary shares. E.g. Market price of the share is Rs. 250 and employees who are holding ESOP can purchase shares at Rs. 125. ??? PES are converted into Ordinary shares without any exercise price. E.g. each debenture holder will get 4 Ordinary shares. Anti dilutive : Conversion of PES for Diluted EPS calculation does not lead to decrease in Basic EPS.

45. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 45 Diluted EPS EPS will be dilutive only when conversion of potential Ordinary share would decrease the Basic EPS. Anti- dilutive EPS (i.e. Increase in Basic EPS) is ignored and not presented.

46. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 46 Calculation of Diluted EPS Diluted Earning Per Share Net profit or loss for the period attributable to the Ordinary equity shareholders duly adjusted with dividend, interest and other related expenses on dilutive potential Ordinary shares. Weighted Average Number of Ordinary Shares outstanding during the period Plus potential No. of Ordinary shares. = Let’s understand the numerator and denominator in detail.

47. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 47 Adjusted Net Profit - Numerator ParticularsAmount Numerator as in Basic EPS------ Add: 1.Dividend recognised on Dilutive PES (e.g. Preference Dividend) 2.Dividend Distribution Tax on above dividend 3. Interest recognised on Dilutive PES (E.g. interest on convertible debentures) ------ Add/Less: Tax amount of any change in expenses or income ------ Adjusted Net Profit------

48. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 48 Adjusted Net Profit – Discontinuing operations The Net Profit can be classified into two types Net profit from Continuing Operations Net profit from Discontinuing Operations Basic EPS is calculated for both types with reference to both above referred categories. Diluted EPS is calculated by considering Net profit from the continuing operations only.

49. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 49 Example – DEPS – Adjusted NP Calculate Numerator for Diluted EPS of Bouncer Ltd. Rs. Lakhs 1. Net Profit available to Ordinary Equity shareholders5,000 2. 10% Convertible Debentures500 3. 8% Convertible Preference Shares200 4. 10% Non Convertible Preference Shares300 5. Dividend distribution Tax20% (Actual Rate : 20.357647%) 1. Tax Rate applicable to Bouncer Ltd.30% 2. Ignore Surcharge and Education Cess. 3. CEO of the company is entitled to Performance Incentive of 5% of Profit before Tax.

50. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 50 Answer ParticularsAmount Net Profit for Basic EPS Add: 1. Interest on 10% Convertible Debentures 2.Preference dividend on 8% Convertible preference Shares 3.Dividend distribution Tax @ 20% on above 4.Incentive to CEO 5 % of Rs. 50 lakhs 5,000 50 16 3.20 (2.50) Less: Tax Increase @30 % on Rs. 47.50 Lakhs(14.25) Adjusted Net Profit5052.45 Note: 10% Non Convertible Preference Shares are not Potential Ordinary shares and hence not considered in adjusted Net profit calculation. Rs. Lakhs

51. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 51 Adjusted No. of Shares - Denominator ParticularsAmount Denominator as in Basic EPS------ Add: Weighted average of additional Ordinary shares which would have been outstanding assuming conversion of PES ------ Adjusted No. of shares------ Weighted Average of additional Ordinary shares should be calculated considering-  Deemed date of conversion of PES  Price at which conversion takes place

52. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 52 Deemed Date of conversion of PES ParticularsDeemed Date of conversion When PES were outstanding at the beginning of the period (See Note Below) Beginning of the period When PES are issued during the current year Date of issue of PES Note: Even if the PES outstanding at the beginning of the year are converted into Ordinary Shares, during the period, they will be considered in Diluted EPS calculation from the beginning of the year till the date of conversion. After the conversion they will be considered in Basic EPS Calculation.

53. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 53 Example – Diluted EPS – Weighted Average Let’s understand denominator. Capital Structure on 1.4.2014 Ordinary Equity Share Capital (FV Rs. 10)10,00,000 12% Convertible Debentures (FV Rs. 100)5,00,000 (Each Debenture Convertible into 3 Shares) Changes in Capital Structure During 2014-15 On 1st October 2014, 2500 Debentures were converted into Ordinary shares. Remaining debentures were outstanding at the year end. On 1st Jan 2015, Additional 1,000 12% Convertible Debentures of Rs. 100 each were issued on 3:1 Conversion basis. Calculated Weighted Average for calculating Diluted EPS.

54. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 54 Answer ParticularsNo of Shares No. of Months Weighted Average 1,00,000 Ordinary Shares1,00,000121,00,000 7500 Ordinary Shares issued on conversion of 2500 Debentures Weighted Avg. no. of Ordinary shares for Basic EPS calculation 7,50063,750 1,03,750 2,500 Convertible Debentures Converted on 1st October 2014 7,50063,750 2,500 Convertible Debentures Outstanding at year end 7,500127,500 Issue of 1000 convertible debentures on 1st Jan 2015 3,0003750 Adjusted No. of shares1,15,750

55. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 55 Example – DEPS ParticularsSituation 1Situation 2 Net profit for 2014-15 Rs. No. of Ordinary shares outstanding Basic EPS Rs. No. of 10% convertible debentures of Rs. 100 each 7,50,000 1,50,000 5 10,000 7,50,000 1,50,000 5 10,000 Continued….. Calculation of DEPS in case of Convertible Debentures

56. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 56 ParticularsSituation 1Situation 2 Conversion ratio3 Ordinary shares for every 2 debentures. 1 Ordinary shares for every 2 debentures. No. of Ordinary shares on conversion 15,0005,000 Interest expenses Rs.1,00,000 Income Tax relating to interest @ 35% Rs. 35,000 Continued….. Example – DEPS

57. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 57 ParticularsSituation 1Situation 2 Adjusted net profit for the year Rs. 7,50,000 + 1,00,000 - 35,000 = 8,15,000 7,50,000 + 1,00,000 - 35,000 = 8,15,000 Total No. of Ordinary Shares 1,50,000 + 15,000 = 1,65,000 1,50,000 + 5,000 = 1,55,000 Diluted EPS Rs.4.945.26 EffectDilutiveAnti dilutive Basic EPS Rs. Diluted EPS RS. 5.00 4.94 5.00 5.00??? Answer – DEPS

58. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 58 Effect of share option on diluted EPS Options are considered in computation of Basic EPS, only after the options are exercised. Till the time options are not exercised, they are considered only in calculation of Diluted EPS. The options are considered Dilutive to the extent of difference between No. of shares issuable under option contract at Exercise price & No. of shares that would have been issued at fair value Option exercisable at or above fair value is not dilutive, but anti dilutive.

59. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 59 Option Exercise price The exercise price of the option, no. of shares issuable under option is determined from the terms of the Option contract. When exercise price of the option is in a particular range (e.g. Rs. 60 to 90), the computation of number of shares issuable under the option contract assumes the most advantageous conversion rate or exercise price from the standpoint of the holder of the potential Ordinary shares. (in our example it will be Rs. 60)

60. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 60 Example – DEPS Net profit 2014-15Rs. 7,50,000 Weighted average no. of Ordinary shares outstanding during 2014-15 1,50,000 Average fair value of 1 Ordinary share during 2014-15 Rs. 40 No. of Ordinary shares under option during 2014-15 25,000 Exercise price for shares under optionRs. 25 Calculate Basic and Diluted EPS from the following information

61. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Example on Effect of share option on diluted EPS ParticularsEarnings Rs. SharesEPS Rs. Net profit for 2014-157,50,000 Weighted average no. of Ordinary shares outstanding during 2014-15 1,50,000 Basic EPS5.00 No. of Ordinary shares under option25,000 No. of Ordinary shares that would have been issued at fair value (25,000 x 25 ) / 40 (15,625) Diluted EPS7,50,0001,59,3754.71 61

62. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 62 ParticularsEarnings Rs. SharesEPS Rs. No. of Ordinary shares under option 25,000 No. of Ordinary shares that would have been issued at fair value (25,000 x 25 ) 40 (15,625) Diluted EPS7,50,0001,59,3754.71.... Example on Effect of share option on diluted EPS

63. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 63 Sequence of potential Ordinary shares There may be more than one issue or type of potential Ordinary shares. E.g. Company may have Convertible Debentures, Employee Stock Options etc. In considering whether potential Ordinary shares are dilutive or anti-dilutive, each issue or series of potential Ordinary shares is considered separately rather than in aggregate. The sequence in which potential Ordinary shares are considered may affect whether or not they are dilutive. Therefore, in order to maximize the dilution of Basic EPS, each issue or series of potential Ordinary shares is considered in sequence from most dilutive to less dilutive to least dilutive.

64. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 64 Example – Determination of Sequence Net profit for 2014-15 Rs. 7,50,000 Weighted average no. of Ordinary shares outstanding during the year 1,50,000 Average fair value of Ordinary shares during the year Rs. 40

65. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 65 Example – Determination of Sequence Particulars Conversion Ratio Options25000 Ordinary shares at exercise price of Rs. 25 10 % Convertible preference (FV of Rs. 6,00,000] 1 Ordinary share of Rs. 10 each for every 6 Preference shares held 12% convertible Debentures 4 Ordinary shares of [ Face Value Rs.10,00,000 ] Rs. 100 each for every Debentures held Tax Rate35% Dividend distribution tax rate20%

66. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 66 Answer – Determination of Sequence Potential Ordinary Share Source Increase in earnings Rs. Increase in No. of shares Incremental EPS Rs. Sequence Option09,3750I 10% Preference Share 72,00010,0007.20III 12% convertible Debentures 78,00040,0001.95II

67. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Answer – Determination of Sequence ParticularsNet Profit attributable to Ordinary Shareholders No. of Ordinary shares EPSRemarks Basic EPS Calculation7,50,0001,50,0005.00 Option09,375 After option7,50,0001,59,3754.71Dilutive 12% convertible Debentures 78,00040,000 After Debentures8,28,0001,99,3754.15Dilutive 10 % Preference shares 72,000 10,000 After Preference shares9,00,000 2,09,375 4.30Anti- Dilutive 67

68. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 68 Answer – Determination of Sequence Basic EPS Rs. 5.00 Diluted EPS Rs. 4.15 (Not Rs. 4.30)

69. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 69 Contingently Issuable Shares Meaning: Ordinary shares which are issuable upon the satisfaction of certain conditions resulting from contractual arrangements are called as contingently issuable shares. Timing of inclusion in computation of EPS: EPSConditions are metConditions not yet met BasicIncluded from the date when conditions are met Not included if conditions are not met Diluted  Included up to the date of meeting the conditions. Included from beginning of period of contractual arrangements

70. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee An entity shall present in the statement of profit and loss basic and diluted earnings per share for each class of ordinary shares that has a different right to share in profit for the period. An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the discontinued operation either in the statement of profit or loss or in the notes. An entity shall present basic and diluted earnings per share, even if the amounts are negative (i.e.. loss per share) Presentation 70

71. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee The amounts used as earnings and weighted average number of ordinary shares in calculating basic and diluted earnings per share and reconciliation thereof. A description of share transactions that occur after the reporting period and that would have changed the number of ordinary or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period. Disclosure 71

72. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Existing AS 20 does not specifically deal with options held by the entity on its shares, e.g., purchased options, written put option etc. Ind AS 33 deals with the same. Ind AS 33 requires presentation of basic and diluted EPS from continuing and discontinued operations separately. However, existing AS 20 does not require any such disclosure. Comparison between AS 20 and Ind AS 33 72

73. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee Existing AS 20 requires the disclosure of EPS with and without extraordinary items. Since as per Ind AS 1, Presentation of Financial Statements, no item can be presented as an extraordinary item, Ind AS 33 does not require the aforesaid disclosure. Certain compulsory convertible instruments may be treated as ordinary equity instruments from the beginning under Ind AS 33 and, thus, will impact the computation of Basic EPS as well as the diluted EPS but under AS 20,these instruments will be considered for computing only the diluted EPS and not the basic EPS. Comparison between AS 20 and Ind AS 33 73

74. The Institute of Chartered Accountants of India, New Delhi Ind AS (IFRS) Implementation Committee 74