Written put options

Learning objectives

• Calculate the incremental shares from a written put option whose exercise price exceeds the average market price.L4

Normative references

• IAS 33 §63Contracts that require the entity to repurchase its own shares (written put options, forward purchase contracts): reflected in diluted earnings per share if the effect is dilutive; when they are in the money (exercise or settlement price above the average market price for the period), it is assumed that at the beginning of the period sufficient ordinary shares are issued at the average market price to raise proceeds to satisfy the contract, that the proceeds are used to satisfy the contract, and the difference between the shares assumed issued and the shares received is added to the denominator. Appendix A (para. A10) gives a numerical illustration: 120 written put options at 35, average market price 28, i.e. 150 shares assumed issued for 4,200 and 30 incremental shares.

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

1 question

• During the year, Marly SA issued {number_of_puts} put options on its own shares, each obliging it to buy back one share at an exercise price of {exercise_price} (in euros). The average market price for the year is {average_price}, below the exercise price, and the options are outstanding all year. Calculate the repurchase obligation, the number of shares assumed issued at the average price to finance it, then the incremental shares for diluted earnings.L4