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

     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    

(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    

(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.

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.

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.

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.

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

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

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