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In: Accounting

briefly describe the requirements of AASB133 'earning per share' for the calculation of earning per share.

briefly describe the requirements of AASB133 'earning per share' for the calculation of earning per share.

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Expert Solution

Requirements for the purpose of calculation of Earnings per share

An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders

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

For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted average number of ordinary shares outstanding during the period

Using the weighted average number of ordinary shares outstanding during the period reflects the possibility that the amount of
shareholders‟ capital varied during the period as a result of a larger or smaller number of shares being outstanding at any time. The weighted average number of ordinary shares outstanding during the period is the
number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period; a reasonable
approximation of the weighted average is adequate in many circumstances

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 change in resources

Ordinary shares may be issued, or the number of ordinary shares
outstanding may be reduced, without a corresponding change in resources. Examples include:
(a) a capitalisation or bonus issue (sometimes referred to as a stock dividend);
(b) a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders;
(c) a share split; and
(d) a reverse share split (consolidation of shares).

Diluted Earnings per Share

An entity shall calculate diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordinary equity holders of the parent entity, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares

For the purpose of calculating diluted earnings per share, the number of ordinary shares shall be the weighted average number
of ordinary shares calculated in accordancewith standard plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. Dilutive potential ordinary shares shall be deemed to have beenconverted into ordinary shares at the beginning of the period or, if later, the date of the issue of the potential ordinary shares.


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