Ind AS 33 Earnings per Share EIRC, Kolkata Mohit Jain 16 February For discussion purposes only

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1 Ind AS 33 Earnings per Share EIRC, Kolkata Mohit Jain 16 February 2018 For discussion purposes only 0

2 Scope Ind AS 33 is applicable to companies that have issued ordinary shares to which Ind ASs notified under the Companies Act apply. When an entity presents both consolidated financial statements and separate financial statements, the disclosures required by Ind AS 33 shall be presented both in the consolidated financial statements and separate financial statements. 1

3 Key Concepts Ordinary share Equity instrument subordinate to all other classes of equity instruments. In Indian context, the term ordinary shares is equivalent to equity shares Potential ordinary share Financial instrument or contract that may entitle its holder to ordinary shares Examples: convertibles, options and warrants Dilutive when conversion to ordinary shares would reduce EPS or increase loss per share Dilution Reduction in EPS or an increase in loss per share Assumes conversion of convertible instruments, exercise of options or warrants or that ordinary shares are issued upon the satisfaction of specified conditions 2

4 Ordinary Shares An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments. Ordinary shares participate in profit for the period only after other types of shares such as preference shares have participated. An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same rights to receive dividends. 3

5 Potential Ordinary Shares A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. Examples of potential ordinary shares are: Financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares Options and warrants Shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business or other assets. 4

6 Key Concepts Item Earnings (the numerator) Basic EPS Profit or loss attributable to ordinary equity holders of the parent entity Shares (the denominator) Weighted average number of ordinary shares outstanding during the period 5

7 Basic EPS Calculation Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. Profit or loss used is the after-tax profit or loss. Profit or loss for the year is adjusted for after-tax amounts of preference dividends, differences arising on settlement of preference shares and other similar effects relating to preference shares classified as equity. Further, where any item of income or expense which is otherwise required to be recognised in profit or loss in accordance with Ind ASs is debited or credited to securities premium account / other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic earnings per share. 6

8 Basic EPS Calculation (contd.) It is important to be clear about the classification of the preference shares (equity vs. debt) and the tax treatment of the preference share dividends. The after-tax amount of preference dividends that is deducted from profit or loss is: The after-tax amount of any preference dividends on non-cumulative preference shares declared in respect of the period; and The after-tax amount of the preference dividends for cumulative preference shares required for the period, whether or not the dividends have been declared. The amount of preference dividends for the period does not include the amount of any preference dividends for cumulative preference shares paid or declared during the current period in respect of previous periods. 7

9 Basic EPS Calculation (contd.) When calculating the weighted average number of ordinary shares during a period, use a daily time weighting factor or a reasonable approximation. The weighted average number of ordinary shares outstanding during the period and for all periods presented shall be adjusted for events, other than the conversion of potential ordinary shares, that have changed the number of ordinary shares outstanding without a corresponding increase in resources (e.g., bonus issue, sharesplit). In a capitalisation or bonus issue or a share split, ordinary shares are issued to existing shareholders for no additional consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented. For example, on a two-for-one bonus issue, the number of ordinary shares outstanding before the issue is multiplied by three to obtain the new total number of ordinary shares, or by two to obtain the number of additional ordinary shares. 8

10 Key Concepts Contingently issuable share: 1. Ordinary shares issuable for little or no cash or other consideration 2. Dependent on the satisfaction of specified conditions If conditions satisfied: Include in diluted EPS from start of period, or if later from the date of contingent share agreement Include in basic EPS from the date when all the necessary conditions are satisfied If conditions not satisfied: Include in diluted EPS based on the number of shares that would be issuable if the end of the period were the end of the contingency period. 3. Shares that are issuable solely after the passage of time are not contingently issuable shares, because the passage of time is a certainty. 9

11 Key Concepts Item Basic EPS Diluted EPS Earnings (the numerator) Profit or loss attributable to ordinary equity holders of the parent entity Adjust for the effects of potential ordinary shares May include dividends, interest or other changes in income or expense Shares (the denominator) Weighted average number of ordinary shares Assume conversion of all dilutive potential ordinary shares Assume conversion as of the beginning of the period, or issue date, if later 10

12 Clarifications - Ind AS Transition Facilitation Group (ITFG) Background: Paragraph 9 of Ind AS 33, Earnings per Share states that, An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity. Query: Does this mean that a subsidiary company, not wholly owned, should present EPS only for the portion of the profit which is attributable to the parent entity? Clarification: When an entity presents EPS in its separate financial statements, then the same shall be calculated based on the profit or loss attributable to its equity shareholders. [ITFG Clarification Bulletin 11, Issue 3] 11

13 Clarifications - Ind AS Transition Facilitation Group (ITFG) Background: Paragraph 12 of Ind AS 33 states that, Where any item of income or expense which is otherwise required to be recognised in profit or loss in accordance with Indian Accounting Standards is debited or credited to securities premium account/other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic earnings per share. Query: Whether the amount debited to Foreign Currency Monetary Item Translation Difference Account (FCMITDA) is required to be reduced from profit or loss from continuing operations for calculating Basic EPS? Clarification: Exchange differences that are being debited to FCMITDA is in accordance with Ind AS and therefore, the same is not required to be reduced from profit or loss from continuing operations for the purpose of calculating basic earnings per share. [ITFG Clarification Bulletin 10, Issue 5] 12

14 EPS Workings - Extracts from Annual Report Statement of Profit and Loss for the year ended 31 March,

15 EPS Workings - Extracts from Annual Report Disclosure in Notes to Accounts - IndAS Disclosure in Notes to Accounts PY before bonus issue 14

16 EPS Workings - Extracts from Annual Report Statement of Profit and Loss for the year ended 31 March,

17 EPS Workings - Extracts from Annual Report Disclosure in Notes to Accounts - IndAS 16

18 Overview of key differences Area of Difference Primary literature Indian GAAP IFRS Ind AS AS 20 Earnings Per Share IAS 33 Earnings Per Share Ind AS 33 Earnings Per Share Disclosure in separate financial statements AS 20 requires disclosure of basic and diluted EPS information both in the separate and consolidated financial statements of the parent. When an entity presents both separate and consolidated financial statements, EPS is required to be presented only in the consolidated financial statements. An entity may disclose EPS in its separate financial statements voluntarily. EPS is required to be presented in both, consolidated as well as separate financial statements. Disclosure of EPS from continuing and discontinued operations No separate disclosure for EPS from continuing and discontinuing operations. The statement of comprehensive income will present basic and diluted earnings per share from continuing operations and if applicable, basic and diluted earnings per share from discontinued operations. EPS from discontinued operations may alternatively be disclosed in the notes. Similar to IFRS. Extraordinary items EPS with and without extraordinary items is to be presented. Since IAS 1 prohibits the disclosure of items as extraordinary, no separate consideration is given to such items while calculating EPS. Similar to IFRS. 17

19 Overview of key differences Area of Difference Primary literature Indian GAAP IFRS Ind AS AS 20 Earnings Per Share IAS 33 Earnings Per Share Ind AS 33 Earnings Per Share Items of income or expense debited or credited to securities premium account/ other reserves No specific guidance. The ICAI has proposed a limited revision to AS 20 which will require that for purpose of calculating basic earnings per share, the net profit or loss for the period attributable to equity shareholders should be the net profit or loss for the period after adjusting the amount in respect of an item of income or expense which is debited or credited to share premium account/reserves, that is otherwise required to be recognised in the statement of profit and loss in accordance with Accounting Standards. No specific guidance Where any item of income or expense which is otherwise required to be recognised in profit or loss in accordance with Indian Accounting Standards is debited or credited to securities premium account/ other reserves, profit or loss from continuing operations should be adjusted by the amount in respect thereof for the purpose of calculating basic earnings per share. 18

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