This article specifically covers the details / point in time when the contingently issuable ordinary shares shall be included in calculation of Basic and Diluted Earnings Per Share (EPS) :
Extract of Ind AS – 33
Definition :
1. Contingently issuable ordinary shares are ordinary shares issuable for little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement.
2. A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions.
3. A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.
Para 24 & 52 of Ind AS 33 – Contingently issuable shares are treated as outstanding and are included in the calculation of basic earnings per share only from the date when all necessary conditions are satisfied (i.e. the events have occurred). If the conditions are not satisfied, the number of contingently issuable shares included in the diluted earnings per share calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency period expires. Shares that are issuable solely after the passage of time are not contingently issuable shares, because the passage of time is a certainty.
Para 48 – Employee share options with fixed or determinable terms and non-vested ordinary shares are treated as options in the calculation of diluted earnings per share, even though they may be contingent on vesting. They are treated as outstanding on the grant date. Performance-based employee share options are treated as contingently issuable shares because their issue is contingent upon satisfying specified conditions in addition to the passage of time.
Illustration 1: Company A approves grant of 360,000 shares on 1 December 20 X 2 to the director with no exercise price, which shall vest equally in three years subject to the below conditions :
(i) Opening of 3 retail outlets / stores by the Company A
(ii) Company achieving profit attributable to equity holders of Rs. 2,200,000 at any point in time
Profit attributable to equity holders as at 31 March 20 X 3 – Rs. 2,000,000
Profit attributable to equity holders as at 31 March 20 X 4 – Rs. 2,500,000
No of shares outstanding at the beginning and end of the year i.e. at 31 March 20 X 3 are 600,000.
Note – Company has opened 3 retail outlets / stores on or before 31 March 20 X 3. Company has earned profit of Rs. 2,200,000 on 28 December 20 X 3.
Since, the options vests equally in three years, pls see below table :
| Particulars | Vesting date | No of shares |
| Tranche 1 | 1 December 20 X 2 | 120,000 |
| Tranche 2 | 1 December 20 X 3 | 120,000 |
| Tranche 3 | 1 December 20 X 4 | 120,000 |
| Total | 360,000 | |
Calculation of Basic Earnings Per Share :
| Particulars | 31 March 20 X 3 | 31 March 20 X 4 |
| Profit attributable to equity holders (Rs.) | 2,000,000 | 2,500,000 |
| Weighted average no of shares* (refer table below A) | 600,000 | 661,808 |
| Basic Earnings Per Share (Rs.) | 3.33 | 3.78 |
*Though one of the conditions being opening of number of retail outlet has been satisfied, shares are still contingently issuable as the second condition attached being targeted profit has not been fulfilled as at 31 March 20X3. Thus, these shares shall not be included in calculation of basic earnings per share until all the attached conditions are met.
Table A – Calculation of weighted average no of shares as at 31 March 20 X 4:
| Date | No of shares | No of days | Weighted Average no of shares |
| Opening shares | 600,000 | 365 | 600,000 |
| Tranche 1** | 120,000 | 94 | 30,904 |
| Tranche 2** | 120,000 | 94 | 30,904 |
| Total | 661,808 | ||
**Contingently issuable shares are included in the calculation of basic earnings per share only from the date when all necessary conditions are satisfied (i.e. the events have occurred). Hence, tranche 1 & tranche 2 has been considered from 28 December 20X3. Tranche 3 has not been vested and hence, these shares have not been included in calculation of basic earnings per share.
Calculation of Diluted Earnings Per Share :
| Particulars | 31 March 20 X 3 | 31 March 20 X 4 |
| Profit attributable to equity holders (Rs.) | 2,000,000 | 2,500,000 |
| Weighted average no of shares* (refer table below B & C) | 600,000 | 781,808 |
| Diluted Earnings Per Share (Rs.) | 3.33 | 3.20 |
Table B – Calculation of weighted average no of shares as at 31 March 20 X 3:
| Date | No of shares | No of days | Weighted Avg no of shares |
| Opening shares | 600,000 | 365 | 600,000 |
| Potential dilutive shares*** | — | — | — |
| Total | 600,000 | ||
*** Considering profitability condition has not been satisfied, we cannot project the future earnings and include this contingently issuable shares for calculation of dilutive earnings per share.
Table C – Calculation of weighted average no of shares as at 31 March 20 X 4:
| Date | No of shares | No of days | Weighted Avg no of shares |
| Opening shares | 600,000 | 365 | 600,000 |
| Tranche 1** | 120,000 | 94 | 30,904 |
| Tranche 2** | 120,000 | 94 | 30,904 |
| Tranche – 3 Potential dilutive shares**** | 120,000 | 365 | 120,000 |
| Total | 781,808 | ||
**** Contingently issuable shares are included in the calculation of basic earnings per share only from the date when all necessary conditions are satisfied (i.e. the events have occurred). Hence, tranche 1 & tranche 2 has been considered from 28 December 20X3. Further, since all conditions have been fulfilled, the non-vested options of tranche 3 are no longer contingently issuable (i.e. no uncertainty exists) and will be issued once passage of time lapses. Hence, the same has been included in computation of diluted earnings per share from the beginning of the year (cannot include on grant date as Ind AS does not permit retrospective adjustment).
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