Consolidated earnings per share
Basic EPS    CU1.63    calculated:    CU12,000(g) + CU4,300 (h)
            10,000 (i)
                
Diluted EPS    CU1.61    calculated:    CU12,000 + CU2,928 (j) + CU55 (k) + CU1,098 (l)
            10,000
(g) Parent's profit attributable to ordinary equity holders of the parent entity.

(h) Portion of subsidiary's profit to be included in consolidated basic earnings per share, calculated: (800×CU5.00) + (300×CU1.00).

(i) Parent's ordinary shares outstanding.

(j) Parent's proportionate interest in subsidiary's earnings attributable to ordinary shares, calculated: (800 ÷ 1,000)×(1,000 shares×CU3.66 per share).

(k) Parent's proportionate interest in subsidiary's earnings attributable to warrants, calculated: (30 ÷ 150)×(75 incremental shares×CU3.66 per share).

(l) Parent's proportionate interest in subsidiary's earnings attributable to convertible preference shares, calculated: (300 ÷ 400)×(400 shares from conversion×CU3.66 per share).

No inter-company eliminations or adjustments were necessary except for dividends.
For the purposes of this illustration, income taxes have been ignored.
Subsidiary's earnings per share
Basic EPS    CU5.00    calculated:    CU5,400 (a) - CU400 (b)
               1,000 (c)
                
Diluted EPS    CU3.66    calculated:    CU5,400 (d)
            (1,000 + 75 (e) + 400 (f))
(a) Subsidiary's profit attributable to ordinary equity holders.

(b) Dividends paid by subsidiary on convertible preference shares.

(c) Subsidiary's ordinary shares outstanding.

(d) Subsidiary's profit attributable to ordinary equity holders (CU5,000) increased by CU400 preference dividends for the purpose of calculating diluted earnings per share.

(e) Incremental shares from warrants, calculated: [(CU20-CU10) ÷ CU20]×150.

(f) Subsidiary's ordinary shares assumed outstanding from conversion of convertible preference shares, calculated: 400 convertible preference shares × conversion factor of 1.

Example 10 - Instruments of a Subsidiary: Calculation of Basic and Diluted Earnings per Share [7]
Reference: IAS 33, paragraphs 40, A11 and A12
7 This example does not illustrate the classification of the components of convertible financial instruments as liabilities and equity or the classification of related interest and dividends as expenses and equity as required by IAS 32.
Parent:
Profit attributable to ordinary equity holders of the parent entity    CU12,000 (excluding any earnings of, or dividends paid by, the subsidiary)
Ordinary shares outstanding    10,000
Instruments of subsidiary owned by the parent    800 ordinary shares
     30 warrants exercisable to purchase ordinary shares of subsidiary
     300 convertible preference shares
Subsidiary:
Profit    CU5,400
Ordinary shares outstanding    1,000
Warrants    150, exercisable to purchase ordinary shares of the subsidiary
Exercise price    CU10
Average market price of one ordinary share    CU20
Convertible preference shares    400, each convertible into one ordinary share
Dividends on preference shares    CU1 per share

Because diluted earnings per share is increased when taking the convertible preference shares into account (from CU3.23 to CU3.45), the convertible preference shares are antidilutive and are ignored in the calculation of diluted earnings per share. Therefore, diluted earnings per share for profit from continuing operations is CU3.23:
     Basic EPS         Diluted EPS    
     CU         CU    
Profit from continuing operations attributable to ordinary equity holders of the parent entity    5.00         3.23    
Loss from discontinuing operations attributable to ordinary equity holders of the parent entity    (2.00)    (a)    (0.99)    [(b)]
Profit attributable to ordinary equity holders of the parent entity    3.00    (c)    2.24    (d)
(a)(CU4,000,000)÷2,000,000 = (CU2.00)

(b) (CU4,000,000)÷4,020,000 = (CU0.99)

(c) CU6,000,000÷2,000,000 = CU3.00

(d) (CU6,000,000 + CU3,000,000)÷4,020,000 = CU2.24

The order in which to include the dilutive instruments is therefore:
(1) Options
(2) 5% convertible bonds
(3) Convertible preference shares
Calculation of Diluted Earnings per Share
     Profit from continuing operations attributable to ordinary equity holders of the parent entity (control number)    Ordinary shares    Per share    
     CU         CU    
As reported    10,000,000    2,000,000    5.00    
Options    -    20,000          
     10,000,000    2,020,000    4.95    Dilutive
5% convertible bonds    3,000,000    2,000,000          
     13,000,000    4,020,000    3.23    Dilutive
Convertible preference shares    6,400,000    1,600,000          
     19,400,000    5,620,000    3.45    Antidilutive

Convertible preference shares
Increase in profit     CU800,000 × 100 ×0.08    6,400,000          
Incremental shares    2 × 800,000         1,600,000    4.00
5% convertible bonds
Increase in profit    CU100,000,000 × 0.05 × (1 - 0.40)    3,000,000          
Incremental shares    100,000 × 20         2,000,000    1.50

Options    100,000 with exercise price of CU60
Convertible preference shares    800,000 shares with a par value of CU100 entitled to a cumulative dividend of CU8 per share. Each preference share is convertible to two ordinary shares.
5% convertible bonds    Nominal amount CU100,000,000. Each CU1,000 bond is convertible to 20 ordinary shares. There is no amortisation of premium or discount affecting the determination of interest expense.
Tax rate    40%
Increase in Earnings Attributable to Ordinary Equity Holders on Conversion of Potential Ordinary Shares
        Increase in earnings    Increase in number of ordinary shares    Earnings per incremental share
    CU         CU
Options
Increase in earnings    Nil          
Incremental shares issued for no consideration    100,000 × (CU75 - CU60) ÷ CU75         20,000    Nil

Example 9 – Calculation of Weighted Average Number of Shares: Determining the Order in Which to Include Dilutive Instruments [6]
Primary reference: IAS 33, paragraph 44
Secondary reference: IAS 33, paragraphs 10, 12, 19, 31-33, 36, 41-47, 49 and 50
6 This example does not illustrate the classification of the components of convertible financial instruments as liabilities and equity or the classification of related interest and dividends as expenses and equity as required by IAS 32.
Earnings
     CU
Profit from continuing operations attributable to the parent entity    16,400,000
Less dividends on preference shares    (6,400,000)
Profit from continuing operations attributable to ordinary equity holders of the parent entity    10,000,000
Loss from discontinuing operations attributable to the parent entity    (4,000,000)
Profit attributable to ordinary equity holders of the parent entity     6,000,000
Ordinary shares outstanding    2,000,000
Average market price of one ordinary share during year    CU75.00
Potential Ordinary Shares

The liability and equity components would be determined in accordance with IAS32 Financial Instruments: Disclosure and Presentation. These amounts are recognised as the initial carrying amounts of the liability and equity components. The amount assigned to the issuer conversion option equity element is an addition to equity and is not adjusted.
Basic earnings per share Year 1:
CU1,000,000    = CU0.83 per ordinary share
1,200,000    
Diluted earnings per share Year 1:
It is presumed that the issuer will settle the contract by the issue of ordinary shares. The dilutive effect is therefore calculated in accordance with paragraph 59 of the Standard.
CU1,000,000 + CU166,331 (a)    = CU0.69 per ordinary share
1,200,000 + 500,000 (b)    
(a) Profit is adjusted for the accretion of CU166,331 (CU1,848,122×9%) of the liability because of the passage of time.

(b) 500,000 ordinary shares = 250 ordinary shares×2,000 convertible bonds.

Profit attributable to ordinary equity holders of the parent entity Year 1    CU1,000,000    1,000,000
Ordinary shares outstanding    1,200,000    
Convertible bonds outstanding         2,000
Allocation of proceeds of the bond issue:          
Liability component    CU1,848,122    [5]
Equity component    CU151,878    
     CU2,000,000    
5 This represents the present value of the principal and interest discounted at 9%-CU2,000,000 payable at the end of three years; CU120,000 payable annually in arrears for three years.