computation, presentation, and disclosure requirements for earnings per
share for entities with publicly held common stock or potential common
Objective: to simplify the computation of earnings per share and to make the U.S. standard more compatible with the EPS standards of other countries and with the International Accounting Standards Committee.
|6||Requires presentation of earnings per share by all entities that have issued common stock or potential common stock (securities such as option, warrants, convertible securities, or contingent stock agreements) if those securities trade in a public securities market.|
Objective: measure the
of an entity over the reporting period.
a) income available to common stockholders (numerator)
b) the weighted-average number of
of common stock outstanding
Shares issued during the period shall be weighted for the portion of the period that they were outstanding.
|9||income available to common
Deduct both the dividends declared in the period on preferred stock (whether or not paid) and the dividends accumulated for the period on cumulative preferred stock (whether or not earned) from the income from continuing operations and also from net income.
If there is a loss from continuing operations or a net loss, the amount of the loss shall be increased by those preferred dividends.
Objective: to measure performance of an entity over the reporting period- while giving effect to all dilutive potential common shares that were outstanding during the period.
Increase the denominator to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.
In computing dilutive effect of convertible securities, the numerator is adjusted to add back:
a. any convertible preferred dividends, and
b. the after-tax amount of interest
during the period associated with any convertible debt.
|12||Diluted EPS is based on the most
advantageous conversion rate or exercise price from the standpoint of
the security holder. Previously reported diluted EPS data is not
retroactively adjusted for subsequent conversions or subsequent changes
in the market price of the
The computation of diluted EPS shall not assume conversion or exercise of securities that would have an antidilutive effect on EPS.
In determining whether a security is dilutive or antidilutive, each issue of potential common shares shall be considered separately rather than in the aggregate.
|14||Convertible securities may be
their own but antidilutive when included with other potential common
in computing diluted EPS.
To reflect maximum potential dilution, each issue or series of issues of potential common shares shall be considered in sequence from the most dilutive to the least dilutive.
|15||An entity that reports a discontinued operation, an extraordinary item, or the cumulative effect of an accounting change in a period shall use income from continuing operations (adjusted for preferred dividends) as the control number in determining whether those potential common shares are dilutive or antidilutive. That is, the same number of potential common shares used in computing the diluted per share amount for income from continuing operations shall be used in computing all other reported diluted per share amounts even if those amounts will be antidilutive to their respective basic per share amounts.|
|16||Including potential common shares in the denominator of a diluted per share computation for continuing operations always will result in an antidilutive per share amount when an entity has a loss from continuing operations or a loss from continuing operations available to common stockholders That is, after any preferred dividend deductions). Although including those potential common shares in the other diluted per-share computations may be dilutive to their comparable basic per-share amounts, no potential common shares shall be included in the computation of any diluted per-share amount when a loss from continuing operations exists, even if the entity reports net income.|
|17||Options and Warrants and Their
The dilutive effect of outstanding options and warrants issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method.
Under the treasury stock method:
a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall assumed to be issued.
b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period.
c. The incremental shares (the difference between the number of shares assumed issued and the number assumed purchased) shall be included in the denominator of the diluted EPS computation.
|18||Options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants.|
|19||Dilutive options and warrants that are issued during a period or that expire or are canceled during a period shall be included in the denominator of diluted EPS for the period that they were outstanding.|
The dilutive effect of convertible securities shall be reflected in the diluted EPS by application of the if-converted method.
Under this method:
a. if an entity has convertible preferred outstanding, the preferred dividends applicable to convertible preferred stock shall be added back to the numerator.
b. if an entity has convertible debt outstanding, interest charges applicable to the convertible debt shall be added back to the numerator, adjusted for the income tax effect.
c. the convertible preferred stock or convertible debt shall be assumed to have been converted at the beginning of the period (or at time of issuance, if later), and the resulting common shares shall be included in the denominator.
|27||Conversion should not be assumed
of computing diluted EPS if the effects would be antidilutive.
Convertible preferred stock is antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion exceeds basic EPS.
Convertible debt is antidilutive whenever its interest (net of tax) per common share obtainable on conversion exceeds basic EPS.
|36||Presentation on Face of Income
entities with simple capital structures, that is, those with only common stock outstanding, shall present basic per-share amounts for income from continuing operations and for net income on the face of the income statement.
All other entities shall present basic and diluted per share amounts for income from continuing operations and for net income on the face of the income statement with equal prominence.
|37||An entity that reports a discontinued operation, an extraordinary item, or the cumulative effect of an accounting change in a period shall present basic and diluted per-share amounts for those line items either on the face of the income statement or in the notes to the financial statements.|
EPS data shall be presented for all periods for which an income statement or summary of earnings is presented.
If diluted EPS data are reported for at least one period, they shall be reported for all periods presented, even if they are the same amounts of basic EPS.
If basic and diluted EPS are the same amount, dual presentation can be accomplished in one line on the income statement.
The terms basic EPS and diluted EPS are used in this Statement to identify EPS data to be presented and are not required to be captions used in the income statement. There are no explicit requirements for the terms to be used in the presentation of basic and diluted EPS.
For each period for which an income statement is presented, an entity shall disclose the following:
a. A reconciliation of the numerators an denominators of the basic and diluted per-share computations for income from continuing operations. The reconciliation shall include the individual income and share amount effects of all securities that affect earnings per share.
b. The effect that has been given to preferred dividends in arriving at income available to common stockholders in computing EPS.
c. Securities that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period(s) presented.
|41||For the latest period for which an income statement is presented, an entity shall provide a description of any transaction that occurs after the end of the most recent period but before the financial statements are issued that would have changed materially the number of common shares or potential common shares outstanding at the end of the period if the transaction had occurred before the end of the period.|
|54||If a stock dividend or stock split
the number of common shares outstanding or if a reverse stock
decreases the number of commons shares outstanding, basic and diluted
shall be adjusted retroactively for all periods presented to reflect
change in capital structure.
If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before issuance of the financial statements, the per-share computations for those and any prior-period financial statements presented shall be based on the new number of shares.
If per-share computations reflect such changes in the number of shares, that fact shall be disclosed.
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