Strategic Business Reporting (International) · Other reporting issues

IAS 33 Earnings per Share: Basic and Diluted EPS for ACCA SBR

Updated 11 October 2026 · Fact-checked

IAS 33 requires listed entities to report basic EPS: profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares. Diluted EPS adjusts both figures for potential ordinary shares, such as convertibles and options, but only where they reduce EPS. Bonus and rights issues need adjusted share numbers.

Understand IAS 33 Earnings per Share

Earnings per share (EPS) tells investors how much profit belongs to each ordinary share. IAS 33 applies to entities whose ordinary shares trade in a public market, or that are filing to do so. It is used in the P/E ratio, so errors matter.

Basic EPS uses profit for the year attributable to ordinary equity holders of the parent. Start from profit after tax and non-controlling interest. Then deduct preference dividends on non-cumulative preference shares declared, and the full-year dividend on cumulative preference shares, whether declared or not. Divide by the weighted average number of ordinary shares in issue during the period.

Shares are weighted by time outstanding. A bonus issue gives shares for no cash, so it changes the number of shares but not the resources. IAS 33 treats it as if it had always happened, so you restate earlier numbers. A rights issue at a discount contains a bonus element, which you adjust for with a bonus fraction. The comparative EPS is also restated.

Diluted EPS shows what EPS would be if potential ordinary shares were converted or exercised. Examples are convertible bonds, convertible preference shares, share options and warrants. For convertibles you add back the after-tax interest saved to earnings and add the new shares to the denominator. For options with an exercise price below average market price, only the free (bonus) shares count.

Potential shares are included only if they are dilutive, meaning they reduce EPS from continuing operations. Anti-dilutive items are ignored. Diluted EPS is never shown higher than basic EPS because of this rule.

Key rules to remember

Basic EPS: Basic EPS = (Profit attributable to ordinary shareholders) ÷ (Weighted average ordinary shares); Earnings are after tax, non-controlling interest and preference dividends.
Bonus issue: Restate earlier shares by multiplying by the bonus ratio, e.g. 1 for 4 means × 5/4; Apply to all shares in issue before the bonus, as if issued at the start of the earliest period shown.
Rights issue bonus fraction: Bonus fraction = Cum-rights price ÷ Theoretical ex-rights price (TERP); Apply to shares in issue before the rights date, for the period before the rights issue.
TERP: TERP = (Value of existing shares at cum-rights price + Cash raised) ÷ Total shares after the issue; Use the market price immediately before the rights are exercised.
Prior year EPS restated for rights issue: Restated prior EPS = Original EPS × (TERP ÷ Cum-rights price); This is the reverse of the bonus fraction.
Diluted EPS for convertibles: Diluted EPS = (Earnings + after-tax interest saved) ÷ (Basic shares + shares on conversion); Interest saved is net of tax. Include only if dilutive.
Options and warrants: Free shares = Options × (Average market price − Exercise price) ÷ Average market price; Only the free shares are added to the diluted denominator. Options are dilutive only when the exercise price is below average market price.
Test for dilution: Incremental EPS = Extra earnings ÷ Extra shares; If this is below basic EPS, the item is dilutive. Rank items from lowest incremental EPS and add in that order.

How to solve IAS 33 Earnings per Share questions

Use this order for any IAS 33 question. Write each stage on its own line so the marker can follow it.

1Find the earnings: profit after tax, less non-controlling interest, less preference dividends that apply.
2List share movements by date: issues at full price, bonus issues, rights issues, buy-backs.
3Adjust for bonus elements. For a rights issue calculate TERP and the bonus fraction. Apply a bonus issue to all prior shares.
4Compute the weighted average shares using time fractions in months.
5Calculate basic EPS and, if required, restate the comparative.
6List potential ordinary shares. Calculate the incremental EPS of each (extra earnings after tax ÷ extra shares).
7Add potential shares in order of lowest incremental EPS and stop once EPS would rise. Calculate diluted EPS.
8State the result and add a comment on the implications for investors if asked.

Quickest way: Shares table with a bonus column

When to use it: Use for rights issue and mixed-share-movement questions where time is short.

Set up columns: dates, shares, bonus fraction, time fraction, weighted shares.
Put the pre-rights shares on the first row with the bonus fraction (cum price ÷ TERP) and the months before the rights date.
Put the post-rights shares on the second row with no bonus fraction and the months remaining.
Total the weighted shares and divide into earnings.
For convertibles compute interest × (1 − tax rate) and divide by the new shares. Compare to basic EPS before adding.

Common mistakes in IAS 33 Earnings per Share

Using the cash raised in a rights issue as if it were a full-price issue, with no bonus fraction.
Students treat any share issue as an issue at market price.
Fix: If the rights price is below market price, calculate TERP and use the bonus fraction on the pre-issue shares.
Adding back gross interest rather than after-tax interest for a convertible.
The interest figure is given and the tax step is forgotten.
Fix: Always multiply the interest by (1 − tax rate) before adding it back to earnings.
Including anti-dilutive items in diluted EPS.
Students assume all potential shares must be included.
Fix: Calculate incremental EPS and include an item only if it is below basic EPS.
Not restating the comparative EPS for a bonus issue or rights issue.
Only the current year is calculated.
Fix: Restate prior-year EPS by the bonus factor, or by TERP ÷ cum-rights price for a rights issue.
Ignoring preference dividends or non-controlling interest in earnings.
Students start from profit before tax or from total profit.
Fix: Use profit attributable to the ordinary equity holders of the parent.
Weighting a bonus issue from its date.
Students copy the treatment of a full-price issue.
Fix: Treat a bonus issue as if it happened at the start of the earliest period presented, so no time weighting applies.

Worked examples

Example 1

Year ended 31 December 20X5: profit attributable to ordinary shareholders is $2,400,000. At 1 January 20X5, 4,000,000 ordinary shares were in issue. On 1 April 20X5 the company made a 1 for 4 rights issue at $2.00. The market price before the issue was $3.00. Calculate basic EPS for 20X5 and restate 20X4 basic EPS if it was reported as $0.50.

Show the solution

Rights shares: 4,000,000 × 1/4 = 1,000,000 shares. Cash raised = $2,000,000.
TERP = (4 × $3.00 + 1 × $2.00) ÷ 5 = $14.00 ÷ 5 = $2.80.
Bonus fraction = 3.00 ÷ 2.80.
Weighted shares: 4,000,000 × 3/12 × (3.00/2.80) = 1,000,000 × 1.071429 = 1,071,429.
Then 5,000,000 × 9/12 = 3,750,000.
Total weighted shares = 1,071,429 + 3,750,000 = 4,821,429.
Basic EPS = 2,400,000 ÷ 4,821,429 = $0.498.
Restated 20X4 EPS = 0.50 × 2.80 ÷ 3.00 = $0.467.

Answer: Basic EPS for 20X5 is about $0.50 ($0.498). Restated 20X4 EPS is about $0.47 ($0.467).

Example 2

A company has profit attributable to ordinary shareholders of $900,000 and 3,000,000 weighted ordinary shares. It also has $2,000,000 of 5% convertible bonds, convertible into 400,000 ordinary shares. The tax rate is 25%. Calculate basic and diluted EPS.

Show the solution

Basic EPS = 900,000 ÷ 3,000,000 = $0.30.
Interest = 2,000,000 × 5% = $100,000.
After-tax interest = 100,000 × (1 − 0.25) = $75,000.
Incremental EPS = 75,000 ÷ 400,000 = $0.1875.
This is below $0.30, so the bonds are dilutive.
Diluted earnings = 900,000 + 75,000 = $975,000.
Diluted shares = 3,000,000 + 400,000 = 3,400,000.
Diluted EPS = 975,000 ÷ 3,400,000 = $0.287.

Answer: Basic EPS is $0.30 and diluted EPS is $0.287 (about $0.29).

Exam tips

Show the TERP calculation and bonus fraction explicitly. Marks go for method even when arithmetic slips.
Always test each potential share for dilution and state the result in one sentence.
In SBR, expect a comment requirement: explain what EPS tells investors and its limits, such as exposure to accounting policy choices or earnings management.
Read the question for when the rights issue or conversion happens. Time fractions drive the weighting.
If the question gives a group, check that earnings exclude non-controlling interest before dividing.

Practice questions from Other reporting issues

IAS 33 Earnings per Share in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IAS 33 Earnings per Share: frequently asked questions

What is the difference between basic and diluted EPS?

Basic EPS uses profit attributable to ordinary shareholders and the weighted average ordinary shares in issue. Diluted EPS also assumes potential ordinary shares, such as convertibles and options, are converted or exercised, if that reduces EPS. It shows the possible effect on current shareholders.

How do I calculate the bonus fraction for a rights issue?

First find TERP: the value of the shares before the issue plus cash raised, divided by the total shares after. The bonus fraction is the cum-rights price divided by TERP. Apply it to shares in issue before the rights date.

Do I always include convertibles in diluted EPS?

No. Include them only if they are dilutive. Divide the after-tax interest saved by the extra shares and compare to basic EPS. If the result is higher than basic EPS, ignore it.

Do bonus issues affect the weighted average shares by date?

No. A bonus issue is treated as if it had happened at the start of the earliest period presented. You multiply earlier shares by the bonus ratio and restate comparatives.