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# BASIC EARNINGS PER SHARE

Simple problems

## Problem 31-1 (AICPA Adapted)

On December 31, 2018 and 2017, Gow Company had 100,000 ordinary shares and 10,000 cumulative preference
shares of 5%, P100 par value.
No dividends were declared on either the preference or ordinary share in 2018 or 2017. Net income for the current
year was P900,000.
What amount should be reported as basic earnings per share?

a. 8.50
b. 9.50
c. 9.00
d. 5.00

## Net Income 900,000

Preference dividend (1,000,000 x 5%) ( 50,000)

## Basic earnings per share

(850,000 / 100,000 ordinary shares) 8.50

Whether cumulative or noncumulative, only one year, preference dividend is deducted from net income.

## Ordinary share capital 200,000

Preference share capital 50,000

On October 1, 2018, the entity issued a 10% stock dividend on ordinary shares and declared the annual cash
dividend of P200,000 on preference shares.

## The preference shares are noncumulative, nonparticipating and nonconvertible.

Net income for the year ended December 31, 2018 was P1,920,000.

a. 8.20
b. 8.72
c. 9.36
d. 7.82

## Ordinary shares – January 1, 2016 200,000

Stock dividend on October 1, 2016 (10% x 200,000) 20,000

## Net income 1,920,000

Preference dividend (200,000)

## Basic EPS (1,720,000 / 220,000) 7.82

Note that the preference shares are noncumulative, but the annual preference dividend is deducted from net income
because it was declared during the year.

## Problem 31-3 (AICPA Adapted)

Ube Company had the following capital structure during 2017 and 2018:

## Preference share capital, P10 par, 4% cumulative,

25,000 shares issued and outstanding 250,000

## Ordinary share capital, P5 par, 200,000 shares

issued and outstanding 1,000,000

The entity reported net income of P500,000 for the year ended December 31, 2018.

The entity paid no preference dividends during 2017 and paid P16,000 in preference dividends during 2018.

a. 2.42
b. 2.45
c. 2.48
d. 2.50

## Net income 500,000

Preference dividend for one year (250,000 x 4%) (10,000)

## Basic earnings per share (490,000 / 200,000) 2.45

Problem 31-4 (IFRS)

Smart Company reported profit before tax of P5,800,000 and income tax expense of P1,500,000 for the current year.
In addition, the entity paid during the year an ordinary dividend of P400,000 and a preference dividend of P500,000
on the redeemable preferences shares.

## 1. What amount should be reported as basic earnings per share?

a. 21.50
b. 19.00
c. 8.60
d. 7.60

2. What amount should be reported as basic earnings per share assuming the preference shares are
nonredeemable?

a. 29.00
b. 19.00
c. 21.50
d. 16.50

Solution 31-4

Question 1 Answer a

## Basic earnings per share (4,300,000 / 200,000) 21.50

The preference dividend is ignored because the preference shares are redeemable and considered as financial
liability.

The preference dividend of P500,000 is already deducted from the net income as a finance cost.

Question 2 Answer b

## Net income 4,300,000

Preference dividend (500,000)

## Problem 31-5 (IAA)

On January1, 2018, Pink Company had 200,000 ordinary shares and 100,000 4% P100 par value cumulative
preference shares outstanding.

No dividends were declared on either the preference or ordinary shares in 2017 or 2018
On March 1, 2019, prior to the issuance of the financial statements for the year ended December 31,2018, the entity
declared a 100% share dividend on ordinary shares.

a. 35.50
b. 37.50
c. 17.75
d. 18.75

## Net income 7,500,000

Preference dividend (4% x 10,000,000) (400,000)

## Net income to ordinary shares 7,100,000

Divide by ordinary shares 400,000

## Original ordinary shares 200,000

Share dividend -100% 200,000

## Total ordinary shares 400,000

The share split should be retroactively applied to the earliest period presented.

Note also that the share split occurred prior to the issuance of the financial statements.

Otherwise, if the share split occurred after the issuance of the financial statements, the share split is ignored.

## Problem 31-6 (IAA)

Laguna Company reported net income of P15,000,000 for the current year. The net income reflects an income tax
rate of 30%.

The next net income included a casualty loss of P5,000,000 before income tax.

## The entity showed the following shareholders’ equity at year end:

Preference share capital 10% cumulative, P50 par value, 100,000 shares 5,000,000
Ordinary share capital, P100 par value 30,000,000
Retained earnings 18,000,000
Treasury ordinary shares, 50,000, at cost 4,000,000

## What amount should be reported as basic earnings per share?

a. 58.00
b. 60.00
c. 73.60
d. 48.33
Solution 31-6 Answer a

## Ordinary shares issued (30,000,000 / 100 par value) 300,000

Treasury shares (50,000)

## Net income 15,000,000

Preference dividend (10% x 5,000,000) (500,000)

## Basic earnings per share (14,500,000 / 250,000) 58

Note that the numerator is net income reflecting all items included in profit or loss, such as casualty loss.

## Problem 31-7 (IAA)

On January 1, 2018, Sabina Company had ordinary share capital outstanding of P100 par value, 200,000 shares or a
total par value of P20,000,000.

On July 1, 2018, a bonus issue was made in the ratio of one additional ordinary share for each original share. The net
income for the current year was P12,000,000

a. 30
b. 40
c. 20
d. 60

## January 1 Ordinary share 200,000

July 1 Bonus issue 200,000

## Basic earnings per share (12,000,000/400,000) 30

Problem 31-8 (Application Guidance PAS 33)

On January 1, 2018, Gina Company had 300,000 ordinary shares outstanding, P100 par or a total par value of
P30,000,000.

During 2018, the entity issued rights to acquire one ordinary share at P100 in the ratio of one share for every 5
shares held.

The rights are exercised on March 31, 2018. The market value of each ordinary share immediately prior to march
31, 2018 was P160. The net income for 2018 was P6,000,000.

a. 17.14
b. 16.67
c. 18.75
d. 17.39

## = Value of one right

Number of rights to purchase one share plus 1

## Applying the formula, the theoretical value of one right is:

160-100 60
= = P10 per right
5+1 6

## Market value of share right-on 160

Theoretical value of right 10

## Adjustment factor 160/150

The number of ordinary shares outstanding prior to the exercise of the rights is multiplied by an adjustment factor
whose numerator is the market value of the share right-on and whose denominator is the market value of the share
ex-right.

## Ordinary shares on January 1 300,000

Ordinary shares issued through exercise of rights on March 31(300,000/5) 60,000

## January 1 300,000 x 160/150 x 3/12 80,000

March 31 360, 000 x 9/12 270,000

## Problem 31-9 (Application Guidance PAS 33)

Excel Company had 600,000 ordinary shares outstanding on January 1, 2018. During 2018, the entity issued rights
to acquire one ordinary share at P10 in the ratio of one new share for every 4 shares outstanding.

The market value of the ordinary share immediately prior to the rights issue is P35. The rights were exercised on
October 1, 2018.

a. 11.40
b. 12.00
c. 14.25
d. 13.41

## Solution 31-9 Answer b

35-10
Theoretical value of right =
4+1

= 5

## Market value of share right-on 35

Theoretical value of right 5

## Ordinary shares on January 1 600,000

Ordinary shares issued through exercise of rights on October 1(600,000/4) 150,000

## January 1 600,000 x 35/30 x 9/12 525,000

October 1 750, 000 x 3/12 187,500

## Problem 31-10 (IAA)

During the current year, Innova Company had outstanding 200,000 ordinary shares and 20,000 cumulative
preference shares with a P10 per share dividend. Each preference share is convertible into five ordinary shares.

The entity had a P3,000,000 net loss for the year. No dividends were paid or declared.

a. 15.00
b. 16.00
c. 10.00
d. 10.67

## Net loss 3,000,000

Preference dividend (20,000 x 10) 200,000

## Basic loss per share (3,200,000/200,000) 16.00

The annual preference dividend is added to the net loss to get the total loss attribute to the ordinary shares
QUESTION 60-11 Multiple choice (PAS 33)

## 1. EPS disclosures are required for

a. Entities whose ordinary shares and potential ordinary shares are publicly traded.
b. Entities that are in the process of issuing ordinary shares in the public market.
c. All entities.
d. Entities whose ordinary shares and potential ordinary shares are publicly traded and entities
that are in the process of issuing ordinary shares in the public market.
2. EPS disclosures are
a. Required for all public and nonpublic entities
b. Required for public entities and encouraged for nonpublic entities
c. Encouraged for public entities and required for nonpublic entities
d. Encouraged for all entities
3. When an entity issues both consolidated and separate financial statements, the EPS information is required
a. For both sets of financial statements
b. In neither set of financial statements
c. Only for consolidated financial statements
d. Only for separate financial statements
4. Earnings per share shall be computed on the basis of
a. The number of shares outstanding at the end of the year
b. A weighted average of the number of shares outstanding during the year regardless of the extent of
fluctuations
c. A weighted average of the number of shares outstanding during the year except that minor
fluctuations in the number of shares may be disregarded
d. The number of shares outstanding at the middle of year
5. Earnings per share shall be reported for all of the following, except
a. Continuing operations
b. Discontinued operations
c. Net income
d. Net cash provided by operating activities
6. In computing basic earnings per share, if the preference shares cumulative, the amount that should be
deducted as an adjustment to the numerator is the
a. Preference dividends in arrears
b. Preference dividends paid during the year
c. Annual preference dividend
d. Annual ordinary dividend
7. In computing basic earnings per share, the amount of preference dividends on noncumulative preference
shares should be
a. Deducted from net income whether declared or not
b. Deducted from net income only when declared
c. Added to net income only when declared
d. Ignored
8. In computing basic earnings per share, the full amount of the required preference dividends on
cumulative preference shares for the period should be
a. Ignored
b. Deducted from net income only when declared
c. Deducted from net income whether declared or not
d. Added to net income whether declared or not
9. In computing basic loss per share, the annual preference dividend on cumulative preference shares should
be
a. Ignored
b. Deducted from net loss whether declared or not
c. Added to the net loss whether declared or not
d. Added to the net loss only when declared

## QUESTION 60-12 Multiple choice (IFRS)

1. Earnings per share shall be calculated before accounting for which of the following?
a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest
2. If a bonus occurs between the year-end and the date that the financial statements are authorized for issue
a. The EPS for both the current and the previous year is adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted
3. If a new issue of shares for cash is made between the year-end and the date that the financial statements are
authorized for issue
a. The EPS for both the current and the previous year is adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted
4. The weighted average number of shares outstanding during the period for all periods other than the
conversion of potential ordinary shares should be adjusted for
a. Any change in the number of ordinary shares without a change in resources
b. Any prior period adjustment
c. Any new issue of shares for cash
d. Any convertible instruments settled in cash
5. Which figure for earnings does EPS information use?
a. Profit attributable to ordinary equity holder and preference shareholders of the parent
b. Profit before taxation
c. Profit from operations
d. Profit attributable to ordinary equity holders of the parent

6. Ordinary shares issued as part of a business combination are included in the EPS calculation from
a. The beginning of the accounting period.
b. The date of acquisition
c. The end of the accounting period.
d. The midpoint of the accounting year.
7. Shares which are issued to settle a liability are included in the EPS calculation from
a. Date of the contract for services
b. Halfway through the rendering of services
c. The completion of services
d. The settlement date
8. Shares which are to be issued upon the conversion of a mandatorily convertible instrument upon the
conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per
share from
a. The date of the contract for the shares
b. Halfway through the period
c. The date of conversion
d. The issue of the share certificate
9. Under IFRS, where ordinary shares are issued but not fully paid, the ordinary shares are treated in the
calculation of basic EPS
a. In the same way as fully paid ordinary shares.
b. As a fraction of an ordinary share to the extent that the shares are entitled to participate in
dividends.
c. In the same way as warrants or options and are included only in diluted EPS.
d. Are ignored.

## QUESTION 60-13 Multiple Choice (IAA)

1. Where in the financial statements should basic and diluted EPS be reported?
a. In the accompanying notes
b. In management discussion and analysis
c. In the income statement
d. In the statement of cash flows
2. An entity that reports a discontinued operation shall present basic and diluted earnings per share for the
discontinued operation
a. Only on the face of the income statement.
b. Only in the notes to the financial statements.
c. Either on the face of the income statement or in the notes to financial statements.
d. Only if the management chooses to do so.
3. What is the correct treatment of a share dividend issued in mid-year when computing the weighted average
number of ordinary shares outstanding for earnings per share purposes?
a. The share dividend should be weighted by the length of time that the additional shares are
outstanding during the period.
b. The share dividend should be included in the weighted average number of shares outstanding only if
the additional shares result in a decrease of three percent or more in earnings per share.
c. The share dividend should be weighted as if the additional shares were issued at the beginning
of the year.
d. The share dividend should be ignored since no additional capital was received.
4. In the computation of weighted average number of shares outstanding when there is a share split, the
a. Weighted by the number of days outstanding.
b. Weighted by the number of months outstanding.
c. Considered outstanding at the beginning of the year
d. Considered outstanding at the beginning of the earliest year reported
5. Earnings per share should be computed on the basis of
a. Preference shares
b. Voting ordinary share
c. Voting and nonvoting ordinary shares
d. Voting ordinary share and participating preference shares
6. Undeclared preference dividends are deducted from net income in the earnings per share computation for
which type of preference shares?
a. Noncumulative
b. Cumulative
c. Neither cumulative nor noncumulative
d. Both cumulative and noncumulative
7. Earnings per share should always be reported for
a. Gross profit
b. Income before tax
c. Income from continuing operations
d. Prior period error

CHAPTER 32
BASIC EARNINGS PER SHARE
Average Shares

## Problem 32-1 (AICPA Adapted)

Jet Company provided the following information for the current year:

## January 1 Shares outstanding 200,000

April 1 2-for-1 share split 200,000
July 1 Shares issued 100,000

a. 400,000
b. 450,000
c. 500,000
d. 540,000

## January 1 (200,000 x 2 x 12/12) 400,000

July 1 (100,000 x 6/12) 50,000
450,000

The share split is recognized retroactively, meaning, it is treated as a change from the date the original shares are
issued.

Thus, the balance of 200,000 shares on January 1 would become 400,000 as a result of a 2-for-1 share split.

## Problem 32-2 (AICPA Adapted)

Timp Company had the following transactions during the year:

## January 1 Ordinary shares outstanding 300,000

February 1 Issued a 10% share dividend 30,000
March 1 Issued ordinary shares in a business combination 90,000
July 1 Issued ordinary shares for cash 80,000
December 31 Ordinary shares outstanding 500,000

a. 400,000
b. 442,500
c. 445,000
d. 460,000

## January 1 300,000 x 1.10 x 12/12 330,000

March 1 90,000 x 10/12 75,000
July 1 80,000 x 6/12 40,000
Average number of shares 445,000
The share dividend is treated as a change from the date the original shares are issued. Thus, the balance of 300,000
on January 1 would become 330,000 shares.
Problem 32-3 (IAA)
Sharon Company provided the following information in relation to share capital for the current year:

## January 1 Shares outstanding 1250,000

April 1 Shares issued 200,000
October 1 Treasury shares purchased 100,000
December 1 Issued a 100% share dividend

a. 2,700,000
b. 2,775,000
c. 2,750,000
d. 1,350,000

## January 1 (1,250,000 x 200%) 2,500,000

April 1 (200,000 x 200% x 9/12) 300,000
October 1 (100,000 x 200% x 3/12) (50,000)
Average shares 2,750,000

## Problem 32-4 (IAA)

At the beginning of current year, Nissan Company had 100,000 ordinary shares outstanding. During the current
year, the following events occurred:

## March 1 2-for-1 share split

June 1 Issued 30,000 additional shares
September 1 20% share dividend

a. 276,000
b. 261,000
c. 230,000
d. 256,000

## January 1 (100,000 x 2 x 1.20 x 12/12) 240,000

June 1 (30,000 x 1.20 x 7/12) 21,000
Average number of shares 261,000

Problem 32-5
Shane Company had 100,000 ordinary shares issued and outstanding at the beginning of current year.

During the current year, the entity had the following ordinary share transactions:

## April 1 Issued 30,000 previously unissued shares

May 1 Split the share 2 for 1
June 30 Purchased 10,000 shares for the treasury
July 31 Distributed a 20% share dividend
December 31 Split the share 3 for 1

What is the weighted average number of shares that should be used in calculating earnings per share?
a. 288,000
b. 864,000
c. 882,000
d. 972,000

## January 1 (100,000 x 2 x 1.20 x 3 x 12/12) 720,000

April 1 (30,000 x 2 x 1.20 x 3 x 9/12) 162,000
June 30 (10,000 x 1.20 x 3 x 612) (18,000)
864,000

The January 1 balance is adjusted for the 2 for 1 split, 20% share dividend and 3 for 1 split.

The April 1 issue is adjusted for the 2 for 1 split, 20% share dividend and 3 for 1 split.

The June 30 treasury shares are adjusted for the 20% share dividend and 3 for 1 split.

## Problem 32-6 (IAA)

Helen Company provided the following share transactions for the current year:

## January 1 Shares outstanding 44,000

February 1 Issued for cash 56,000
May 1 Acquired treasury shares 25,000
August 1 25% share dividend
September 1 Resold treasury shares 10,000
November 1 Issued 3 for 1 share split

a. 305,000
b. 307,500
c. 103,750
d. 311,250

## January 1 (44,000 x 1.25 x 3 x 12/12) 165,000

February 1 (56,000 x 1.25 x 3 x 11/12) 192,500
May 1 (25,000 x 1.25 x 3 x 8/12) (62,500)
September 1 (10,000 x 3 x 4/12) 10,000
305,000

The January 1 balance is adjusted for the 25% share dividend and 3 for 1 split.

The February 1 issue is adjusted for the 25% share dividend and 3 for 1 split.

The May 1 treasury shares are adjusted for the 25% share dividend and 3 for 1 split.
The September 1 resale of treasury is adjusted for the 3 for 1 split.

## Problem 32-7 (IAA)

Wisconsin Company had 250,000 ordinary shares outstanding on January 1, 2018.

## During 2018 and 2019, the following transactions took place:

2018:
March 1 Sold 24,000 shares
July 1 Issued a 20% shares dividend
October 1 Sold 16,000 shares
December 1 Purchased 15,000 shares to be held in treasury

2019:
June 1 3 for 1 share split
September 1 Sold 60,000 shares

1. What is the weighted average number of shares for 2018 to be used in the earnings per share computation
for comparative financial statements of 2019?
a. 980,250
b. 329,800
c. 984,000
d. 969,000

2. What is the weighted number of shares for 2019 to be used in the earnings per share computation for
comparative financial statements of 2019?
a. 1,009,400
b. 1,049,400
c. 1,169,400
d. 989,400

Solution 32-7

Question 1 Answer a

2018
January 1 (250,000 x 1.20 x 3 x 12/12) 900,000
March 1 (24,000 x 1.20 x 3 x 10/12) 72,000
October 1 (16,000 x 3 x 3/12) 12,000
December 1 (15,000 x 3 x 1/12) (3,750)
980,250

## January 1, 2018 250,000

March 1, 2018 24,000
July 1, 2018 54,800
October 1, 2018 16,000
December 1, 2018 (15,000)
Outstanding shares – December 31, 2018 329,800
Solution 2 Answer a

2019
January 1 (329,800 x 3 x 12/12) 989,400
September 1 (60,000 x 4/12) 20,000
1,009,400

## Problem 32-8 (IFRS)

Precise Company had a net income of p15,000,000 for the current year. The following appropriation have not been
considered in this amount:

## Arrears of cumulative preference dividend for 2 years 4,000,000

Ordinary dividends 5,000,000
Preference share premium payable on redemption 1,000,000
Exceptional profit, net of tax 4,000,000

The entity had 3,000,000 ordinary shares of P1 par value outstanding at the beginning of the year. The following
share transactions occurred during the current year:

## January 1 Issued at P5 per share, P1 paid to date and entitled to participate

in dividends to the extent paid up 250,000
April 1 Full market price P3 per share issue 600,000
July 1 Purchase of own shares 400,000

a. 4.85
b. 4.57
c. 3.64
d. 3.94

## Net income per book 15,000,000

Exceptional profit 4,000,000
Adjusted net income 19,000,000
Preference dividend for current year (4,000,000/2) (2,000,000)
Preference share premium payable upon redemption (1,000,000)
Net income to ordinary shares 16,000,000

The preference share premium payable on redemption can be considered as dividend on participating preference
share.

## January 1 (3,000,000 x 12/12) 3,000,000

January 1 (250,000 x 1/5 x 12/12) 50,000
April 1 (600,000 x 9/12) 450,000
July 1 (400,000 x 6/12) (200,000)
Average shares 3,300,000

## Basic earnings per share

(16,000,000/3,300,000) 4.85
Problem 32-9 (AICPA adapted)
Strauch Company had one class of ordinary share capital outstanding and no other securities that are potentially
convertible into ordinary shares. During 2018, 100,000 shares were outstanding.

## April 1 – 20,000 treasury shares were sold.

July 1 – A 2-for-1 share split was issued.

The net income for 2019 was P4,100,000 and the net income for 2018 was P3,500,000.

1. What amount should be reported as basic earnings per share for 2019 in the comparative income statement
for 2019?

a. 20.50
b. 17.83
c. 23.43
d. 17.08

2. What amount should be reported as basic earnings per share for 2018 in the comparative income statement
for 2019?

a. 35.00
b. 17.50
c. 15.22
d. 14.58

Solution:
Question 1 Answer B

## January 1, 2019 (200,000 x 12/12) 200,000

April 1, 2019 (20,000 x 2x9/12) 30,000
Average number of shares 230,000

## 2019 basic ESP (4,100,000/230,000) 17.83

Question 2 Answer B

## December 31, 2018 – balance 100,000

July 1, 2019 – 2-for-1 share split 100,000
Total ordinary shares – Dec. 31, 2018 200,000

## 2018 basic ESP (3,500,000/200,000) 17.50

Problem 32-10 (IAA)
On January 1, 2018, Shane Company had 100,000 ordinary shares outstanding. The following transactions occurred
during 2018:

## Mar. 1 reacquired 3,000 shares accounted for as treasury

Sept. 1 sold all treasury shares
Dec. 1 sold 66,000 new shares for cash
Dec. 31 reported a net income of P2,600,000.

## Jan. 15 declared and issued a 25% share dividend

Dec. 31 reported a net income of P4,000,000

1. What amount should be reported as basic earnings per share for 2018 for presentation in comparative
financial statements on December 31, 2019?

a. 15.88
b. 20.00
c. 20.80
d. 19.90

2. What amount should be reported as basic earnings per share for 2019 for presentation in comparative
financial statements on December 31, 2019?

a. 24.10
b. 19.28
c. 30.77
d. 32.00

Solution
Question 1 Answer B
2018

## Jan. 1 (100,000 x 1.25 x 12/12) 125,000

Mar. 1 (3,000 x 1.25 x 10/12) (3,125)
Sept. 1 (3,000 x 1.25 x 4/12) 1,250
Dec. 1 (66,000 x 1.25 x 1/12) 6,875
Average shares outstanding 130,000

## Basic EPS for 2018 (2,600,000/130,000) 20.00

Question 2 Answer B

2018
Jan. 1 Outstanding 100,000
Mar. 1 treasury shares purchased (3,000)
Sept. 1 Resale of treasury shares 3,000
Dec. 1 new issue 66,000
Outstanding shares – December 31, 2018 166,000
Average shares outstanding for 2019 (166,000x1.25) 207,500

QUESTIONS:

Question 60-1

## What is the meaning of earnings per share?

The term Earnings per share means the amount expected to be received by a shareholder each year as a
return on investment.

It is the amount if income attributable to each ordinary share. Thus, the EPS information pertains only to ordinary
share. It is not necessary for preference share because there is a definite rate of return if such share.

The presentation of EPS is required for entities whose ordinary shares or potential ordinary shares are publicly
traded and for entities that are in the process of issuing ordinary shares or potential ordinary shares in the public
securities market.

An entity shall present on the face of the income statement basic and diluted earnings per share for incoe or loss
from continuing operations.

As entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the
discontinued operation either on the face of the income statement of in the notes to the statements.

When an entity presents both consolidated financial statements and separate financial statements, the disclosures
require need be presented only on the basis of the consolidated information.

Question 60-2

## Net income/Ordinary shares outstanding

The earnings should be the net income after deducting the annual preference dividend

The annual cumulative preference dividend is deducted form net income, whether such dividend is declared or not,
while noncumulative preference dividend is deducted from net income only when declared.

The ordinary shares outstanding should be the weighted average ordinary shares outstanding.
Question 60-3

## Explain the treatment of “subscribed ordinary shares” in computing EPS

Under Application Guidance 15 of IFRS 33, subscribed ordinary shares or partly paid ordinary shares are included
in EPS to the extend that they are entitled to participate in dividends.

Under the Philippine Corporation Code, subscribed shares are entitled to participate fully in dividends.

Thus, the full subscribed shares are included in EPS computation under Philippine Jurisdiction.

Question 60-4

## Define a potential ordinary share.

A Potential ordinary share is a financial instrument or other contract that may entitle the holder to ordinary
shares.

In other words, a potential ordinary share is a financial instrument that represents future issuance of ordinary
shares.

## Major types of potential ordinary shares:

a. Convertible bond payable
b. Convertible preference share
c. Share option and warrant

Question 60-5