Strategic Business Reporting (International) · Presentation and disclosure in financial statements

IAS 33 Earnings Per Share: Basic and Diluted EPS

Updated 11 October 2026 · Fact-checked

IAS 33 requires listed entities to show basic EPS (profit for ordinary shareholders ÷ weighted average ordinary shares) and diluted EPS (which adds the effect of potential ordinary shares such as convertibles and options). Adjust the share count for bonus issues and rights issues, then present both figures on the face of the statement of profit or loss.

Understand IAS 33 Earnings Per Share

Earnings per share (EPS) tells an investor how much profit the entity earned for each ordinary share. It is the denominator of the price-earnings ratio, so it is one of the most watched figures in the financial statements. IAS 33 sets one method so that EPS is comparable across entities. It applies to entities whose ordinary shares are publicly traded, or that are in the process of issuing them. An entity that chooses to disclose EPS voluntarily must also follow IAS 33.

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

Diluted EPS asks: what would EPS be if all dilutive potential ordinary shares had been converted or exercised? Examples are convertible bonds, convertible preference shares, share options and warrants. You add back the after-tax saving on the finance cost of convertibles to earnings and add the extra shares to the denominator. Diluted EPS warns investors that their share of profit may fall in future.

Bonus issues and rights issues change the share count without a matching change in resources, or with a discount to market. A bonus issue is treated as if it had always happened, so you restate the earlier share count and the comparative EPS. A rights issue has a bonus element because the issue price is below market value. You adjust for that element using a bonus fraction. Exam questions often combine these with convertibles, so you need to keep the steps in order.

Key rules to remember

Basic EPS: Basic EPS = (Profit attributable to ordinary shareholders) ÷ (Weighted average number of ordinary shares); Earnings are after tax, non-controlling interest and preference dividends. Use continuing and total profit if the entity reports discontinued operations.
Weighted average shares: Σ (shares in issue × months outstanding ÷ 12); Shares issued at full market price count from the date consideration is receivable. Bonus issues are applied to the whole period and to comparatives.
Bonus issue: Multiply the shares in issue before the bonus by (total shares after ÷ shares before); For example, a 1 for 4 bonus issue gives a factor of 5/4. Restate all periods presented.
Theoretical ex-rights price (TERP): TERP = (Value of shares before + Cash raised) ÷ (Number of shares after the issue); Use the cum-rights price just before the issue for the value of existing shares.
Rights issue bonus fraction: Bonus fraction = Cum-rights price ÷ TERP; Apply it to shares in issue before the rights date. Shares issued in the rights issue are time-weighted from the issue date.
Restated prior-year EPS after a rights issue: Previous EPS × (TERP ÷ Cum-rights price); This is the inverse of the bonus fraction.
Diluted EPS with convertibles: Diluted EPS = (Earnings + after-tax interest saved) ÷ (Basic weighted shares + shares on conversion); Interest saved includes the effective interest charge on the liability component, not just the coupon. Tax-effect it.
Options and warrants: Free shares = Options × (Market price − Exercise price) ÷ Market price; Use the average market price for the period. Options are dilutive only when the exercise price is below the average market price. The shares matching the exercise-price proceeds are treated as issued at the average market price, so they have no dilutive effect. Only the free (no-consideration) shares are added to the diluted denominator.

How to solve IAS 33 Earnings Per Share questions

Use this order for any IAS 33 question. It stops you mixing up the adjustments to earnings and shares.

1Find the earnings figure. Start with profit attributable to the parent's owners, then deduct preference dividends as required by IAS 33.
2Build the share timeline. List the opening shares and every issue, buyback or conversion with its date.
3Adjust for bonus elements. Apply the bonus fraction for a rights issue, and the bonus factor for a bonus issue, to the shares in issue before the event. Do not apply them to shares issued at full market price.
4Time-weight each block of shares from the date it is issued, and total them to get the weighted average. Calculate basic EPS.
5Identify potential ordinary shares: convertibles, options, warrants, convertible preference shares. Test each for dilution.
6For each convertible, add back after-tax finance cost to earnings and add the conversion shares to the denominator. For options, add only the free shares.
7Calculate diluted EPS. Check that diluted EPS is not above basic EPS. Rank the instruments if there are several and include only the dilutive ones.
8Restate comparatives if needed. Present basic and diluted EPS on the face of the statement of profit or loss, with the reconciliation of earnings and shares in the notes.

Quickest way: Share timeline table and one-line adjustments

When to use it: Use it when you have limited time and the question has a rights issue or convertible with several dates.

Draw a three-column table: date or period, shares, time weighting. Fill in every share movement before calculating.
Mark which movements carry a bonus element. Only the shares before the bonus event get multiplied by the factor.
Calculate TERP in one line if a rights issue exists, then write the bonus fraction beside it.
Compute basic EPS first. This secures the marks even if diluted EPS goes wrong.
For diluted EPS, write the earnings add-back and the extra shares on one line: (earnings + interest × (1 − t)) ÷ (shares + conversion shares). Compare the result with basic EPS.
Give the answer in the units and decimal places requested, usually cents to one decimal place, and label it.

Common mistakes in IAS 33 Earnings Per Share

Applying the bonus fraction to all shares, including the new shares issued in the rights issue.
Students remember that the fraction adjusts the share count but forget it applies only to shares existing before the rights issue.
Fix: Apply the fraction to the opening shares up to the rights date only. Time-weight the new shares from the issue date with no adjustment.
Forgetting to restate comparative EPS after a bonus or rights issue.
Students focus on the current-year answer and treat the prior year as a fixed figure.
Fix: Restate the comparative by dividing by the bonus factor, or multiplying by TERP ÷ cum-rights price. Say clearly that it is restated.
Adding back the coupon interest instead of the effective interest on a convertible bond, and ignoring tax.
The nominal rate is the number given most prominently in the question.
Fix: Use the finance cost recognised in profit or loss on the liability component (effective rate × carrying amount), then multiply by (1 − tax rate).
Including anti-dilutive instruments in diluted EPS.
Students assume every convertible or option reduces EPS.
Fix: Test each instrument. If it increases EPS, or the options are out of the money, exclude it. Diluted EPS must not exceed basic EPS.
Forgetting preference dividends or non-controlling interest when finding earnings.
Students start from profit for the year instead of profit attributable to ordinary shareholders of the parent.
Fix: Write the earnings reconciliation first: profit after tax, less non-controlling interest, less preference dividends.
Using the closing share count rather than the weighted average.
Closing shares are easy to find in the statement of financial position.
Fix: Always time-weight issues and buybacks by the months outstanding. Use closing shares only if no movement occurred.

Worked examples

Example 1

Arka Co had 4,000,000 ordinary shares in issue on 1 January 20X5. On 1 April 20X5 it made a 1 for 4 rights issue at $2.40 per share. The market price immediately before the issue was $3.00. Profit attributable to ordinary shareholders for the year ended 31 December 20X5 was $2,310,000. Reported basic EPS for 20X4 was 50 cents. Calculate basic EPS for 20X5 and the restated EPS for 20X4.

Show the solution

New shares issued = 4,000,000 ÷ 4 = 1,000,000. Cash raised = 1,000,000 × $2.40 = $2,400,000.
TERP = (4 shares × $3.00 + 1 share × $2.40) ÷ 5 = $14.40 ÷ 5 = $2.88.
Bonus fraction = $3.00 ÷ $2.88 = 1.0417 (that is, 25/24).
Shares before the rights issue, three months: 4,000,000 × 3/12 × 25/24 = 1,041,667.
Shares after the rights issue, nine months: 5,000,000 × 9/12 = 3,750,000.
Weighted average = 1,041,667 + 3,750,000 = 4,791,667.
Basic EPS 20X5 = $2,310,000 ÷ 4,791,667 = $0.482 per share, or 48.2 cents.
Restated 20X4 EPS = 50 cents × $2.88 ÷ $3.00 = 48 cents.

Answer: Basic EPS for 20X5 is 48.2 cents. The restated 20X4 EPS is 48.0 cents.

Example 2

Bexa Co had 2,000,000 ordinary shares in issue throughout the year ended 31 December 20X6, with no movements. Profit attributable to ordinary shareholders was $900,000, after charging the finance cost on the convertible bonds. It has $1,000,000 of 6% convertible bonds in issue. The liability component has a carrying amount of $900,000 and an effective interest rate of 8%. Each $100 of bonds converts into 40 ordinary shares. The tax rate is 25%. Calculate basic and diluted EPS.

Show the solution

Basic EPS = $900,000 ÷ 2,000,000 = $0.45 per share.
Finance cost on the liability component = $900,000 × 8% = $72,000. This is already deducted in the profit figure.
Tax saved on conversion = $72,000 × 25% = $18,000. Interest saved after tax = $72,000 − $18,000 = $54,000.
Shares on conversion = $1,000,000 ÷ $100 × 40 = 10,000 × 40 = 400,000 shares.
Adjusted earnings = $900,000 + $54,000 = $954,000. Adjusted shares = 2,000,000 + 400,000 = 2,400,000.
Diluted EPS = $954,000 ÷ 2,400,000 = $0.3975, which is 39.75 cents.
Dilution test: incremental EPS of the bonds = $54,000 ÷ 400,000 = $0.135, which is below basic EPS of $0.45, so the bonds are dilutive.

Answer: Basic EPS is 45.0 cents. Diluted EPS is 39.75 cents (about 39.8 cents).

Exam tips

Show the share timeline, TERP and bonus fraction as separate workings. Marks go for method even if one number is wrong.
In the SBR exam you may be asked to explain, not just calculate. Be ready to say why diluted EPS matters to investors, and why EPS can be manipulated, for example by buybacks.
Always test dilution. A one-line check of incremental EPS against basic EPS usually earns a mark.
Link to related standards in scenario questions. A convertible bond needs IAS 32 split accounting before you can get the effective interest for the add-back.
Mention the presentation requirements when asked: basic and diluted EPS on the face of the statement of profit or loss, for continuing and total operations where discontinued operations exist, plus a reconciliation in the notes.

Practice questions from Presentation and disclosure in financial statements

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 only the ordinary shares actually in issue, weighted over the period. Diluted EPS also assumes that dilutive potential ordinary shares, such as convertibles and options, have been converted or exercised. It shows the worst-case effect on each shareholder's share of profit.

How do I calculate diluted EPS with convertible bonds?

Add the after-tax finance cost of the bonds back to earnings. Add the number of shares that would be issued on conversion to the weighted average shares. Divide the adjusted earnings by the adjusted shares. Include the bonds only if the result is lower than basic EPS.

What is the bonus fraction in a rights issue?

It is the cum-rights price divided by the theoretical ex-rights price. You multiply the shares in issue before the rights issue by this fraction. It reflects the discount in the issue price, which acts like a free bonus to existing shareholders.

Do I need to restate previous year EPS?

Yes, if there is a bonus issue, share split or the bonus element of a rights issue. These are treated as if they had happened at the start of the earliest period presented. Issues at full market price do not lead to restatement.