Mandatorily convertible instruments

Learning objectives

• Explain why the shares issuable on conversion of a mandatorily convertible instrument are included in the basic number of shares from the date the contract is entered into.L2, L3

Normative references

• IAS 33 §23Ordinary shares that will be issued upon the conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per share from the date the contract is entered into (they are then also in the diluted denominator, which starts from the basic weighted average number).

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

2 questions

• The management accountant of Boréal SA describes in a note the treatment of an instrument mandatorily convertible into ordinary shares. Which sentence of this note is incorrect?L2
• On 1 October, Brenne SA enters into a contract for a mandatorily convertible instrument: it will be converted on 30 June of the following year into 400,000 ordinary shares. The year ends on 31 December (weighting in months for the case). How many shares under the contract enter the weighted average number for basic earnings per share for the year?L3