International Financial Reporting Standards_guide.pdf

354 Chapter 32 Earnings per Share (IAS 33)
TABLE 32.2 Dilutive Potential Ordinary Shares and Their Effect on the Weighted Average Number of Shares
Potential ordinary shares Effect on number of shares Test for and sequence of dilution
Dilutive warrants and options
Convertible preference shares
or debentures
Contingently issuable shares
(see defi nition)
Contracts that can be settled
in ordinary shares (such as
convertible debentures)
Written put options, that is,
the right of holder to have the
entity repurchase the shares
at a fi xed price in future
Purchased options
It must be assumed that they will all be converted
or exercised.
Increase the weighted average number of shares
by the shares deemed to be issued for no
consideration (that is, the difference between the
number of shares to be issued in terms of the
contracts and the number that would have been
issued at average market period in order to raise
the same proceeds as the options or warrants).
Increase the weighted average number of shares
by the expected future increase in ordinary shares
resulting from the conversion.
Assume the end of the reporting period is the end
of the contingency period.
Increase weighted average number of shares that
will be issued when the conditions are met.
Include them until the conditions are met (after
which they are included in basic earnings per
share).
If the entity has the option to settle in equity: all
the shares are included unless it is the entity’s
policy to settle in cash.
If the holder has the option to settle in equity:
shares are only included if the issue of shares is
the most dilutive option.
Increase the weighted average number of shares
with all shares that must be issued at beginning
of year to make the proceeds to buy back shares,
that is, the number of shares that will probably be
bought back (assume they will all be exercised).
None as they will always be anti-dilutive. The entity
cannot be assumed to exercise as it will act in its
own benefi t, and a decreased earnings per share is
not benefi cial.
These items are dilutive when they
would result in the issue of the
ordinary shares for less than average
market price for the shares.
These are mostly dilutive as they have
no effect on earnings.
These items are dilutive when the
dividends or interest after tax per
ordinary share receivable is less than
basic earnings per share.*
This would increase earnings with
the after-tax future saving in dividends
or interest when these items are
converted.
These items are dilutive when the
issue will decrease basic earnings
per share.*
These are most dilutive as they have
no effect on earnings.
These items are dilutive when the
issue will decrease basic earnings
per share.*
Increase in earnings by any changes in
profi t or loss if the contract was wholly
equity.
These items are dilutive when the
entity has to buy them back at a price
that is more than market price at the
time.
These are mostly dilutive as they have
no effect on earnings.
These items will always be anti-dilutive.
* The control earnings per share used to determine the dilutive effect and sequence of dilution is calculated as follows:
Profit from continuing operations only
Weighted average number of shares for basic earnings per share