IAS 33 Earnings per Share
IAS 33 Convertible bonds at issuer’s options
Example 8 Convertible bonds settled in shares or cash at the issuer’s options
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 ordinary 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 ordinary share is CU3. Income tax is ignored.
|
Profit attributable to ordinary equity holders of the parent entity Year 1 |
CU1,000,000 |
|
Ordinary shares outstanding |
1,200,000 |
|
Convertible bonds outstanding |
2,000 |
|
Allocation of proceeds of the bond issue: Liability component Equity component |
CU1,848,122* CU151,878 CU2,000,000 |
The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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.
* 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.
Basic earnings per share Year 1:
| CU1,000,000 | = CU83 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 x 9%) of the liability because of the passage of time.
(b) 500,000 ordinary shares = 250 ordinary shares x 2,000 convertible bonds.
Source EU rules on financial information disclosed by companies
Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Individual jurisdictions around the world may require or permit the use of (locally authorised and/or amended) IFRS Standards for all or some publicly listed companies. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. The specific status of IFRS Standards should be checked in each individual jurisdiction. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.
IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options IAS 33 Convertible bonds at issuer’s options
The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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. The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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.
The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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. The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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.
The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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. The liability and equity components would be determined in accordance with IAS 32 Financial Instruments: 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.