Page 12 - 21. COMPILER QB - INDAS 33

Q9. (MARCH 21 – 5 Marks)

ABC Ltd. has 1,000,000 Rs. 1 ordinary shares and 1,000 Rs. 100 10% convertible bonds (issued at par), each

convertible into 20 ordinary shares on demand, all of which have been in issue for the whole of the reporting
period.

ABC Ltd.’s share price is Rs. 4.50 per share and earnings for the period are Rs. 500,000. The tax rate
applicable to the entity is 21%.

Calculate basic EPS, earnings per incremental share for the convertible bonds and diluted EPS

SOLUTION

Basic EPS is Rs. 0.50 per share (ie 500,000/1,000,000)
The earnings per incremental share for the convertible bonds is calculated as follows:

Earnings effect = No. of bonds x nominal value x interest cost x (1 – applicable tax rate)
= 1,000 x 100 x 10% x (1- 0.21) = Rs. 7,900.

(interest saved, net of tax)

Incremental shares calculation
Assume all bonds are converted to shares, even though this converts Rs. 100 worth of bonds into 20 shares

worth only Rs. 90 and is therefore not economically rational.
This gives 1000 x 20 = 20,000 additional shares.

Earnings per incremental share = Rs. 7,900 / 20,000 = Rs. 0.395
Diluted EPS = (Rs. 500,000 + Rs. 7,900) / (1,000,000 + 20,000) = Rs. 0.498 per share.

Q10. (OCTOBER 21 – 7 Marks)

Sohan has been recently hired in Zio Life Limited. Since he is facing difficulty in computation of EPS as per

Ind AS 33, guide him by discussing the steps for the calculation of Basic EPS and Diluted EPS alongwith the
necessary computations for EPS of Year 1.

The following basic facts relate to Company Zio Life Limited.
● Net profit for Year 1 is Rs. 46,00,000.

● The number of ordinary shares outstanding on 1st April Year 1 is 30,00,000.
The following facts are also relevant for Year 1.

● On 1st April, Zio Life Limited issues 20,00,000 three-year term convertible bonds for Rs. 1 each.
● Zio Life Limited has an option to settle the principal amount in ordinary shares (every 10 bonds are

convertible into one ordinary share) or cash on settlement date.
● The principal amount of the bonds is classified as an equity instrument and the interest is classified as a

financial liability.

● The interest expense relating to the liability component of the bonds is Rs. 1,800.
● The interest expense is tax-deductible. The applicable income tax rate is 40%.
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