Computation of Basic Earning Per Share: IND AS 33

Before going with the Main Topic let's First Understand "WHAT IS EARNING PER SHARE". It is a concept envisaged by Ind AS (Indian Accounting Standards) 33 "EARNING PER SHARE".

Three questions needs to be answered:

1. What is Earning Per Share?

Earning Per Share is an important toll to measure the performance of the company. This depicts earnings per Ordinary Share (Equity Shares) of the company. It is calculated by dividing Net Profits by the number of Ordinary Shares (Equity Shares) outstanding.

2. Why Earning Per Share is computed?

The Ordinary Shareholders (Equity Shareholders) invest their money in an entity as owners of the company. They undertake Business Risks and Financial Risks along with other Systematic and Unsystematic risks with a hope or expectation that " they will get Higher than Normal return on their investments".
EPS is a ratio used to measure an entity's profitability and to value its shares.
The Purpose is to analyze how effectively an entity has used the resources provided by the Ordinary Shareholders (Equity Shareholders).

3. Where it is shown?

The disclosure of EPS is given both in Consolidated Financial Statements (if any) and Separate Financial Statement.

COMPUTATION OF BASIC EARNING PER SHARE

1. Basic Earning per share is measured using Profit or Loss attributable to ordinary equity holders.

Ordinary Share is an Equity instrument that is subordinate to all other classes of equity instruments.
Ordinary Shares participate in profit/loss for the period ONLY after all other types of shares such as preference shares have participated,

The holders of Ordinary Shares are called Ordinary Equity holders.

2. Formula for calculating Basic Earning Per Share :

PROFIT/LOSS ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS
WEIGHTED AVERAGE NUMBER OF EQUITY SHARES OUTSTANDING DURING THE PERIOD

3. Computation of Profit/Loss attributable to Ordinary Equity holders:

Profit/Loss After Tax – Dividend on Preference Shares + Any difference arising on settlement of Preference Shares

Note: Only Preference Shares which are classified as Equity will be considered for this purpose.

An Entity is required to classify Preference Shares either as Equity or Financial Liability. In case of former the preference dividend will be adjusted from equity whereas latter will be treated as a Finance Cost in arriving at Profit/Loss after tax.

For Simplification:

1. Preference Shares classified as equity: Profit/Loss After Tax – Dividend on Preference Shares

2. Preference Shares classified as Financial Liability: Treated similar to other Interest Expense like Interest on Bank Loan or Interest on Debentures etc.

• Dividend on Non-cumulative Preference Shares needs to be deducted only if declared by the entity.
• Dividend on Cumulative Preference Shares needs to be deducted irrespective of its Declaration i.e. whether declared or not.
• Any Issue Discount or Issue Premium needs to be amortized as Preference Dividend irrespective of the fact that the same had been debited or credited to Securities Premium Account.
• Premium on Redemption or Repurchase of Preference Shares is to be deducted (Any difference arising on settlement of Preference Shares) in calculating of Profit/Loss attributable to Ordinary Equity holders.

3. Computation of weighted average number of equity shares outstanding during the period

Time weighting Factor: Number of Days shares re outstanding / Total number of days in the period