Participating instruments and classes of shares

Learning objectives

• Explain the idea of a notional allocation of profit or loss between classes of equity instruments.L4

Normative references

• IAS 33 §6Ordinary shares participate in profit for the period only after other types of shares, such as preference shares, have participated.
• IAS 33 §A14Participating equity instruments and classes of ordinary shares with different rights (described in para. A13): for diluted earnings per share, conversion of convertible instruments is assumed if it is dilutive; for the others, profit or loss is allocated between classes according to their rights to dividends or to undistributed earnings: profit or loss attributable is first reduced by the dividends declared for the period and the contractual dividends required (for example unpaid cumulative dividends), and the remainder is then allocated as if all the profit for the period had been distributed; the total allocated to each class, divided by the number of instruments concerned, gives its earnings per share.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• Normand SA has ordinary shares and a class of participating preference shares, which receive a fixed dividend and then share the remaining profit with the ordinary shares. For basic earnings per share, the entity allocates the year's profit to the ordinary shares after the fixed dividend alone. Which analysis applies?L4