Example 8 – Convertible Bonds Settled in Shares or Cash at the Issuer's Option
Reference: IAS 33, paragraphs 31-33, 36, 58 and 59
An entity issues 2,000 convertible bonds at the beginning of Year 1. The bonds have a three-year term, and are issued at par with a face value of CU1,000 per bond, giving total proceeds of CU2,000,000. Interest is payable annually in arrears at a nominal annual interest rate of 6 per cent. Each bond is convertible at any time up to maturity into 250 common shares. The entity has an option to settle the principal amount of the convertible bonds in ordinary shares or in cash.
When the bonds are issued, the prevailing market interest rate for similar debt without a conversion option is 9 per cent. At the issue date, the market price of one common share is CU3. Income tax is ignored.

(e) Company A does not have year-to-date profit exceeding CU2,000,000 at 31 March 20X1. The Standard does not permit projecting future earnings levels and including the related contingent shares.

(f) [(CU2,300,000-CU2,000,000) ÷ 1,000]×1,000 shares = 300,000 shares.

(g) Year-to-date profit is less than CU2,000,000.

(h) [(CU2,900,000-CU2,000,000) ÷ 1,000]×1,000 shares = 900,000 shares.

(i) Because the loss during the third quarter is attributable to a loss from a discontinuing operation, the antidilution rules do not apply. The control number (ie profit or loss from continuing operations attributable to the equity holders of the parent entity) is positive. Accordingly, the effect of potential ordinary shares is included in the calculation of diluted earnings per share.

(a) 5,000 shares × 2/3

(b)5,000 shares + (5,000 shares × 1/3)

(c)(5,000 shares×8/12) + (5,000 shares× 4/12)

(d) The earnings contingency has no effect on basic earnings per share because it is not certain that the condition is satisfied until the end of the contingency period. The effect is negligible for the fourth-quarter and full-year calculations because it is not certain that the condition is met until the last day of the period.
Diluted earnings per share
     First quarter         Second quarter         Third quarter         Fourth quarter         Full year    
Numerator (CU)    1,100,000         1,200,000         (400,000)         1,000,000         2,900,000    
Denominator:                                                  
Ordinary shares outstanding    1,000,000         1,000,000         1,000,000         1,000,000         1,000,000    
Retail site contingency    --         5,000         10,000         10,000         10,000    
Earnings contingency    --    (e)    300,000    (f)    --    (g)    900,000    (h)    900,000    (h)
Total shares    1,000,000z         1,305,000z         1,010,000z         1,910,000z         1,910,000z    
Diluted earnings per share (CU)    1.10         0.92         (0.40)    (i)    0.52         1.52    

     First quarter    Second quarter         Third quarter         Fourth quarter    Full year    
Numerator (CU)    1,100,000    1,200,000         (400,000)         1,000,000    2,900,000    
Denominator:                                        
Ordinary shares outstanding    1,000,000    1,000,000         1,000,000         1,000,000    1,000,000    
Retail site contingency    --    3,333    (a)    6,667    (b)    10,000    5,000    (c)
Earnings contingency [(d)]    --    --         --         --    --    
Total shares    1,000,000    1,003,333         1,006,667         1,010,000    1,005,000    
Basic earnings per share (CU)    1.10    1.20         (0.40)         0.99    2.89    

Example 7 - Contingently Issuable Shares
Reference: IAS 33, paragraphs 19, 24, 36, 37, 41-43 and 52
Ordinary shares outstanding during 20X1    1,000,000 (there were no options, warrants or convertible instruments outstanding during the period)
An agreement related to a recent business combination provides for the issue of additional ordinary shares based on the following conditions:
     5,000 additional ordinary shares for each new retail site opened during 20X1
     1,000 additional ordinary shares for each CU1,000 of consolidated profit in excess of CU2,000,000 for the year ended 31 December 20X1
Retail sites opened during the year:    one on 1 May 20X1
     one on 1 September 20X1
Consolidated year-to-date profit attributable to ordinary equity holders of the parent entity:    CU1,100,000 as of 31 March 20X1
     CU2,300,000 as of 30 June 20X1
     CU1,900,000 as of 30 September 20X1 (including a CU450,000 loss from a discontinuing operation)
     CU2,900,000 as of 31 December 20X1
Basic earnings per share

Example 6 - Convertible Bonds [4]
Reference: IAS 33, paragraphs 33, 34, 36 and 49
Profit attributable to ordinary equity holders of the parent entity    CU1,004
Ordinary shares outstanding    1,000
Basic earnings per share    CU1.00
Convertible bonds    100
Each block of 10 bonds is convertible into three ordinary shares    
Interest expense for the current year relating to the liability component of the convertible bonds    CU10
Current and deferred tax relating to that interest expense    CU4
Note: the interest expense includes amortisation of the discount arising on initial recognition of the liability component (see IAS 32 Financial Instruments: Disclosure and Presentation).
Adjusted profit attributable to ordinary equity holders of the parent entity    CU1,004 + CU10-CU4 = CU1,010
Number of ordinary shares resulting from conversion of bonds    30
Number of ordinary shares used to calculate diluted earnings per share    1,000 + 30 = 1,030
Diluted earnings per share    CU1.010    = CU0.98
    1,030    
4 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.

Example 5A - Determining the Exercise Price of Employee Share Options
Editorial note: Inserted by IFRS 2 with effect for accounting periods beginning on or after 1 January 2005. If an entity applies IFRS 2 for an earlier period, these amendments shall be applied for that earlier period.
Weighted average number of unvested share options per employee 1,000
Weighted average amount per employee to be recognised over the remainder of the vesting period for employee services to be rendered as consideration for the share options, determined in accordance with IFRS 2 Share-based Payment CU1,200
Cash exercise price of unvested share options CU15
Calculation of adjusted exercise price
Fair value of services yet to be rendered per employee: CU1,200
Fair value of services yet to be rendered per option: (CU1,200 / 1,000) CU1.20
Total exercise price of share options: (CU15.00 + CU1.20) CU16.20

Calculation of earnings per share
     Earnings    Shares    Per share
Profit attributable to ordinary equity holders of the parent entity for year 20X1    CU1,200,000          
Weighted average shares outstanding during year 20X1         500,000    
Basic earnings per share              CU2.40
Weighted average number of shares under option         100,000    
Weighted average number of shares that would have been issued at average market price: (100,000×CU15.00) ÷ CU20.00*         (75,000)    
Diluted earnings per share    CU1,200,000    525,000    CU2.29
* Earnings have not increased because the total number of shares has increased only by the number of shares (25,000) deemed to have been issued for no consideration (see paragraph 46(b) of the Standard).

Reference: IAS 33, paragraphs 45-47
Profit attributable to ordinary equity holders of the parent entity for year 20X1    CU1,200,000
Weighted average number of ordinary shares outstanding during year 20X1    500,000 shares
Average market price of one ordinary share during year 20X1    CU20.00
Weighted average number of shares under option during year 20X1    100,000 shares
Exercise price for shares under option during year 20X1    CU15.00

Theoretical ex-rights value per share = CU10.00
Calculation of adjustment factor
Fair value per share before exercise of rights
Theoretical ex-rights value per share
Calculation of basic earnings per share
          20X0    20X1    20X2
20X0 basic EPS as originally reported:    CU1,100 ÷ 500 shares    CU2.20          
20X0 basic EPS restated for rights issue:    CU1,100    CU2.00          
    (500 shares x 1.1)            
20X1 basic EPS including effects of rights issue:    CU1,500         CU2.54    
    (500 x 1.1 x 2/12) + (600 x 10/12)            
20X2 basic EPS:    CU1,800 ÷ 600 shares              CU3.00
Example 5 - Effects of Share Options on Diluted Earnings per Share