Impact of Bonus Issue, Right Issue, and Early Redemption of Preference Share on Basic Earning Per Share

To calculate basic earnings per share profit or loss attributable to ordinary equity holders of the parent entity (the numerator) shall be divided by the weighted average number of ordinary shares outstanding (the denominator) during the period.

In this regard, the amounts attributable to ordinary equity holders of the parent entity in respect of profit or loss from continuing operations attributable to the parent entity; and profit or loss attributable to the parent entity shall be the amounts adjusted for the after-tax amounts of preference dividends, differences arising on the settlement of preference shares, and other similar effects of preference shares classified as equity.

Furthermore, if any item of income or expense that is otherwise required to be recognized in profit or loss in accordance with Ind AS is debited or credited to securities premium account/other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic earnings per share.

But, in some cases, it may be observed that there is no change in the resources of the company but the number of ordinary equity shares may be increased or decreased. This can happen in the case where the company has issued bonus shares, Right issue, share split, and reverse share split.

In this story, we have discussed the treatment of a premium paid on the early redemption of preference shares where the company has charged such premium to retained earnings and the impact of the issue of bonus shares and right shares in the calculation of earnings per share according to Ind AS 33.

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