IAS 33 *Earnings Per Share* applies to entities whose ordinary shares or potential ordinary shares are publicly traded, or that are in the process of issuing such instruments in public markets (IAS 33.2). Both basic and diluted EPS must be presented with equal prominence on the face of the statement of profit or loss (IAS 33.66).

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Basic EPS

Basic EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period (IAS 33.10).

*Earnings (numerator):*

• Start with profit or loss from continuing operations attributable to the parent entity.
• Deduct post-tax preference dividends, differences arising on settlement of preference shares, and similar items relating to non-ordinary equity instruments (IAS 33.12–14).
• The result is the earnings figure attributable to ordinary shareholders.

*Shares (denominator):*

• Shares are weighted by the proportion of the period they were outstanding (IAS 33.20).
• Shares issued for cash are included from the date cash is receivable (IAS 33.21).
• Bonus issues, share splits, and share consolidations are applied retrospectively to all periods presented, as if they occurred at the beginning of the earliest period reported (IAS 33.26–28).
• Treasury shares are excluded from the weighted average (IAS 33.20).

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Diluted EPS

Diluted EPS adjusts both numerator and denominator to reflect the *maximum potential dilution* from all dilutive potential ordinary shares (IAS 33.31). The objective is to show the worst-case scenario for existing shareholders.

*Adjusted earnings (numerator):*

• Add back any after-tax interest or other charges related to dilutive instruments (e.g., convertible bonds) (IAS 33.33).
• Add back preference dividends that would not be paid if conversion occurred.

*Adjusted shares (denominator):*

• Add the weighted average number of additional ordinary shares that would be issued on conversion of all dilutive potential ordinary shares (IAS 33.36).
• Options and warrants are treated using the treasury share method: only the incremental shares (proceeds below average market price) are added (IAS 33.45–47).
• Convertible instruments assume conversion at the beginning of the period, or the date of issuance if later (IAS 33.36).

*Anti-dilutive instruments:*

• Potential ordinary shares that would *increase* EPS are ignored — only instruments that decrease EPS are included (IAS 33.41). Anti-dilution is assessed instrument by instrument, ranking from most to least dilutive.

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Disclosure Requirements

Entities must present on the face of the income statement (IAS 33.66–73):

• Basic and diluted EPS for profit or loss from continuing operations.
• Basic and diluted EPS for total profit or loss (if different).
• The numerators and denominators used, including reconciliations.
• Instruments that could dilute EPS in the future but were anti-dilutive in the current period (IAS 33.70(b)).

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Key Practical Points

• When an entity reports a loss, potential ordinary shares are always anti-dilutive, so diluted EPS equals basic EPS (IAS 33.43).
• Contingently issuable shares are included in diluted EPS only if all necessary conditions are satisfied by the period end (IAS 33.52).
• Rights issues with a bonus element require a theoretical ex-rights price adjustment factor applied retrospectively (IAS 33.27).