Order of including instruments

Learning objectives

• Calculate the earnings per incremental share of each instrument and rank the instruments to determine diluted earnings per share.L3, L4
• Justify excluding antidilutive instruments in the sequence.L4

Normative references

• IAS 33 §44In determining whether potential ordinary shares are dilutive or antidilutive, each issue or series of potential ordinary shares is considered separately; the sequence in which they are considered may affect whether they are dilutive, and those with the lowest earnings per incremental share are included before those with a higher earnings per incremental share.

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

3 questions

• Argonne SA is considering two dilutive instruments. A convertible bond would remove {bond_adjustment} of interest after tax (in euros) and would give {bond_shares} shares. Options, under the treasury stock method, would give {option_shares} incremental shares with no effect on the numerator. Calculate the incremental earnings per share of each instrument, in order to establish the sequence in which they are taken into account.L3
• For the year, Rhodes SA has a profit attributable to ordinary equity holders of {earnings_ordinary} (in euros) and a weighted average number of shares of {weighted_shares}; all the potential shares below are outstanding all year and dilutive judged against basic earnings alone. In order of issue: a convertible bond (interest removed of {bond_adjustment} after tax, {bond_shares} shares), convertible preference shares (dividends removed of {pref_dividends}, {pref_shares} shares) and options ({option_shares} incremental shares with no effect on the numerator). Calculate the incremental earnings per share of the convertible preference shares, then diluted earnings per share by ranking the instruments by increasing incremental earnings. Round earnings per share to two decimals (case convention).L4
• The Cévennes group reports, for the year, a profit attributable to ordinary equity holders of {earnings_ordinary} (in euros) for a weighted average of {weighted_shares} shares. Three instruments, outstanding all year, are to be examined: convertible preference shares (dividends of {pref_dividends} removed, {pref_shares} shares), options ({option_shares} incremental shares, with no effect on the numerator) and a convertible bond (interest of {bond_adjustment} removed after tax, {bond_shares} shares). Calculate the incremental earnings per share of the convertible preference shares, then diluted earnings per share, the instruments being included by increasing incremental earnings. Round earnings per share to two decimals (case convention).L4