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U.S. GAAP Codification of Accounting Standards |
| U.S. GAAP-Codification | IFRS International Standards | Accounting Standards, ASC |
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U.S. GAAP Codification of Accounting Standards |
| U.S. GAAP-Codification | IFRS International Standards | Accounting Standards, ASC |
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U.S. GAAP
Codification of Accounting Standards |
U.S. GAAP Codification,
Accounting Standards
ASC,
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IFRS
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Securities Law Library |
| Codification Topic 260 Earnings per Share
Earnings per ShareSFAS 128, February 1997 "Earnings per Share"
Earnings per Share (EPS)1. Basic Earnings per Share 2. Diluted Earnings per Share
Basic EPSBasic EPS = (A) / (B) (A) = income available for common stockholders (B) = weighted-average number of common shares outstanding
Diluted EPSDiluted EPS = (C) / (D) (C) = (A) + (A1) (D) = (B) + (B1) (A1) The effects of dilutive potential common shares (DPCS) on income (B1) The effects of dilutive potential common shares (DPCS) on number of shares DPCS = Dilutive Potential Common Shares
Potential common shares1. convertible securities 2. options 3. warrants 4. contingent stock agreements
Dilutive--> if the effect of potential common shares is --> a "decrease" in EPS
Antidilutive--> if the effect of potential common shares is --> an "increase" in EPS
(A1) The effects of DPCS on income--> add back (A2) and (A3) to income (A2) dividends to convertible preferred shares (A3) interest for convertible debt
(B1) The effects of DPCS on number of shares--> add (B2) to the number of shares (B2) net increase in common shares = (B3) - (B4) (B3) additional common shares assumed to be issued (B4) number of shares assumed to be bought back --> using the proceeds from the exercise of options and warrants
"If-converted method" for convertible securities1. It is assumed that convertible securities were converted --> at the beginning of the period --> or at the time of issuance if issued during the period 2. Add additional number of common shares --> that would have been issued if they were converted 3. For convertible preferred shares --> add back dividends to convertible preferred shares to income 4. For convertible debt --> add back interest for convertible debt to income
"Treasury stock method" for written call options and warrants1. It is assumed that call options were exercised --> at the beginning of the period 2. At the time of exercise --> option holders will pay exercise price per share --> to get common shares 3. It is assumed that the proceeds were used --> to buy back its own common shares in the market --> at the average market price during the period 4. Net increase in common shares will be the difference between (1) and (2) (1) number of shares issued due to assumed exercise of options and warrants (2) number of shares assumed to be purchased back in the market using the proceeds of (1)
An example of written call optionsEntity A sold call options for 600 shares of common stock --> exercise price = $100 --> average market price = $120 Proceeds from the assumed exercise = 600 shares x $100 = $60,000 Number of treasury shares assumed to be bought back = $60,000 / $120 = 500 shares Entity A is assumed to sell 600 shares and buy 500 shares Increase in the number of shares = 600 - 500 = 100 shares
"Reverse treasury stock method" for written put options1. When a put option is exercised --> option holder will ask the entity to buy back common shares 2. It is assumed that the entity will issue sufficient common shares --> to raise enough proceeds to buy back common shares from the holders of put option --> at the beginning of the period --> at the average market price during the period 3. It is assumed that the proceeds were used --> to buy back common shares from the holders of put option 4. Net increase in common shares will be the difference between (3) and (4) (3) number of shares assumed to be issued to raise enough proceeds (4) number of shares assumed to be purchased back from the holders of put option
An example of written put optionsEntity A sold put options for 400 shares of common stock --> exercise price = $100 --> average market price = $80 Proceeds required to purchase 400 shares at $100 = 400 shares x $100 = $40,000 Number of shares issued to raise $40,000 --> $40,000 / $80 = 500 shares Entity A is assumed to issue 500 shares at the beginning of the period at $80 per share Entity A is assumed to issue 500 shares and buy 400 shares Increase in the number of shares = 500 - 400 = 100 shares
Purchased call optionsOptions will be exercised only if EP < MP EP: Exercise Price MP: Market Price If EP < MP, the effect of purchased call option is antidilutive
An example of purchased call optionsEntity A purchased call options for 600 shares of common stock --> exercise price = $100 --> average market price = $120 Proceeds required to buy 600 shares --> 600 shares x $100 = $60,000 Number of shares issued to raise $60,000 --> $60,000 / $120 = 500 shares Entity A is assumed to issue 500 shares and buy 600 shares Number of shares decreases --> antidilutive
Purchased put optionsOptions will be exercised only if MP < EP If MP < EP, the effect of purchased put option is antidilutive
An example of purchased put optionsEntity A purchased put options for 400 shares of common stock --> exercise price = $100 --> average market price = $80 Proceeds from the assumed exercise = 400 shares x $100 = $40,000 Number of treasury shares assumed to be bought back = $40,000 / $80 = 500 shares Entity A is assumed to sell 400 shares and buy 500 shares Number of shares decreases --> antidilutive
International Financial Reporting Standards (IFRS)IAS 33: Earnings per Share |
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Codification Topic 260 Earnings per Share |
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Subtopics of Codification Topic 260 260-10 Overall |
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Accounting Terms of Codification Topic 260-10 Antidilution Basic earnings per share Call option Common stock Consolidated financial statements Consolidated group Contingent issuance Contingent stock agreement Contingently convertible instruments Contingently issuable shares Conversion rate Convertible security Diluted earnings per share Dilution Earnings per share Employee stock ownership plan Exercise price If-converted method Income available to common stockholders Noncontrolling interest Option Participating security Potential common stock Preferred stock Purchased call option Put option Reverse treasury stock method Rights issue Security Subsidiary Treasury stock method Warrant Weighted-average number of common shares outstanding |
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