IAS 33 Basic Earnings per Share: Weighted Average Shares, Bonus Issues and Rights Issues

An investor looking at a company’s profit wants to know what it means per share. A company that earns ₦20 million with 10 million shares is in a different position from one that earns the same with 100 million. Earnings per share is the figure most often quoted for listed companies, and it is the numerator of the price-earnings ratio.

International Accounting Standard (IAS) 33 Earnings per Share sets out how it is calculated, so that figures from different entities and different years can be compared. This topic covers who must present it, the earnings figure, the weighted average number of shares, bonus issues and rights issues, and the limitations of the ratio. The next topic covers diluted earnings per share.

The topic is examined directly. In November Diet, 2025, Question 2 asked for five features to be considered in calculating earnings per share (2½ marks) and for the effect of a 25% scrip dividend on the share price and on earnings per share (2½ marks each). In May Diet, 2023, Question 1(b) asked for the limitations of earnings per share and return on capital employed, and November Diet, 2023, Question 4 asked for basic earnings per share. Read presentation and disclosure of financial instruments first.

The basic earnings per share calculation

IAS 33 applies to entities whose ordinary shares or potential ordinary shares are traded in a public market, or that are filing to issue them. Such entities present basic and diluted earnings per share, on the face of the statement of profit or loss and other comprehensive income, for profit or loss from continuing operations and for profit or loss for the period attributable to ordinary equity holders. In consolidated statements the figures relate to the parent’s shareholders.

Basic earnings per share = earnings ÷ weighted average number of ordinary shares, expressed in kobo or in naira per share.

The earnings

Earnings are the profit or loss attributable to the ordinary equity holders of the parent, that is profit after tax, adjusted for:

• Non-controlling interests: their share of profit is deducted.
• Preference dividends: after-tax dividends on non-cumulative preference shares declared in respect of the period, and the full amount of the period’s dividends on cumulative preference shares, whether or not declared, are deducted. This applies to preference shares classified as equity. Preference dividends on shares classified as liabilities are already in finance costs.
• Any premium or discount on the settlement of preference shares, which may adjust the figure.

Ordinary shares

Only ordinary shares are counted: shares that rank behind all other classes in the participation in profits. Shares that are issued but not paid for are treated as partly paid ordinary shares only to the extent they participate in dividends.

The weighted average number of shares

The number of shares changes during the year, so each change is weighted by the fraction of the year the shares were outstanding. New shares are included from the date the consideration is receivable, which is usually the date of cash issue. Shares issued in a business combination are included from the acquisition date. Shares bought back are removed from the date of the buy-back.

For example, a company has 6,000,000 shares at 1 January, issues 1,200,000 shares at full market price on 1 April, and buys back 600,000 on 1 October. The year end is 31 December. The weighted average is 6,000,000 × 3/12 + 7,200,000 × 6/12 + 6,600,000 × 3/12 = 1,500,000 + 3,600,000 + 1,650,000 = 6,750,000. If profit after tax is ₦20,700,000 and there are preference dividends of ₦2,700,000, earnings are ₦18,000,000 and basic earnings per share is ₦18,000,000 ÷ 6,750,000 = ₦2.667, or 266.7 kobo.

Bonus issues and share splits

A bonus issue (capitalisation issue), a bonus element in another issue, or a share split changes the number of shares without changing the resources of the entity, so the number is adjusted as if the event had occurred at the beginning of the earliest period presented. It is not time-weighted from the date of the issue. Comparative earnings per share are restated.

For example, a company has 8,000,000 shares and makes a one-for-four bonus issue on 1 July, creating 2,000,000 new shares. This year’s weighted average is 10,000,000. With earnings of ₦25,000,000, earnings per share is 250 kobo. Last year earnings were ₦20,000,000 and, on 8,000,000 shares, earnings per share was reported as 250 kobo. It is restated on 10,000,000 shares as 200 kobo.

Scrip dividends follow the same logic. If a 25% scrip dividend is paid by issuing one new share for each four held, with no consideration, it works like a bonus issue. Suppose a company has 3,000,000 shares, a market price of ₦5.00 and profit after tax of ₦15,000,000. Earnings per share is ₦5.00 before the issue.

Afterwards there are 3,750,000 shares, so the market value of the company is spread over more shares and the price falls to ₦5.00 × 3,000,000 ÷ 3,750,000 = ₦4.00, other things equal. Earnings per share, restated for the new shares, is ₦15,000,000 ÷ 3,750,000 = ₦4.00. If a scrip dividend is instead issued at fair value in place of a cash dividend, it carries no bonus element and the shares are time-weighted from the issue date.

Rights issues

A rights issue offers shares to existing shareholders at a price below the market price, so it has two parts: an issue at fair value and a bonus element. The bonus element is recognised by adjusting the shares in issue before the rights issue, using the theoretical ex-rights price (TERP):

1. TERP = (aggregate value before the issue + proceeds) ÷ shares after the issue.
2. Adjustment factor = fair value per share immediately before the rights are exercised (cum-rights price) ÷ TERP.
3. Shares before the issue are multiplied by the factor, then weighted for the period before the issue. Shares after the issue are weighted for the period after it.
4. Comparative earnings per share is multiplied by TERP ÷ the cum-rights price.

For example, a company has 10,000,000 shares and makes a one-for-five rights issue at ₦1.50 on 1 April. The market price before the issue is ₦2.10. TERP = (5 × ₦2.10 + 1 × ₦1.50) ÷ 6 = ₦2.00 and the factor is 2.10 ÷ 2.00 = 1.05. After the issue there are 12,000,000 shares. The weighted average is 10,000,000 × 1.05 × 3/12 + 12,000,000 × 9/12 = 2,625,000 + 9,000,000 = 11,625,000. With earnings of ₦23,250,000, earnings per share is 200 kobo. If last year’s was reported as 220 kobo, it is restated as 220 × 2.00 ÷ 2.10 = 209.5 kobo.

Limitations of earnings per share

• Accounting policies differ between entities, so comparisons may not be meaningful.
• It ignores inflation, so growth over time may mislead.
• It measures profit, but cash flow may be just as important to survival.
• It says nothing about the capital employed or efficiency of use of resources.
• Diluted earnings per share is based on current, not forecast, earnings, so it may not predict future earnings.
• As the main target, it encourages short-term decisions and creative accounting, and changes in the number of shares, such as buy-backs, can alter it without any change in performance.

The ideas in more depth

Why bonus issues are applied retrospectively

A bonus issue gives shareholders no new resources. If it were weighted from its date, earnings per share would appear to fall in the year of the issue, for no reason except the number of shares. Restating from the start makes the years comparable.

Why rights issues need the TERP

Part of a rights issue is a free gift of shares, because the price is below market. The bonus element is spread by scaling the earlier shares, and the cash part is weighted from the date of issue as normal.

Sources and references

• IAS 33 Earnings per Share: scope, measurement of basic earnings per share, bonus issues and rights issues, presentation.

These points are stated as at 5 November 2026.

Worked examples

1. Earnings.
   ₦20,700,000 − ₦2,700,000 = ₦18,000,000.
2. Weighted average.
   1,500,000 + 3,600,000 + 1,650,000 = 6,750,000.
3. Basic earnings per share.
   ₦18,000,000 ÷ 6,750,000 = ₦2.667, 266.7 kobo.

1. Shares.
   8,000,000 + 2,000,000 = 10,000,000 for the whole year.
2. This year.
   ₦25,000,000 ÷ 10,000,000 = 250 kobo.
3. Restated prior year.
   ₦20,000,000 ÷ 10,000,000 = 200 kobo.

1. TERP.
   (5 × ₦2.10 + ₦1.50) ÷ 6 = ₦2.00.
   Factor 2.10 ÷ 2.00 = 1.05.
2. Weighted average.
   10,000,000 × 1.05 × 3/12 = 2,625,000; 12,000,000 × 9/12 = 9,000,000; total 11,625,000.
3. Earnings per share.
   ₦23,250,000 ÷ 11,625,000 = 200 kobo.

How to answer in the exam

• Earnings first. Profit after tax, less non-controlling interest and preference dividends.
• Draw a timeline. Number of shares, months, product. Add them up and check against the year-end number.
• Treat bonus and rights separately. Bonus: restate from the start. Rights: TERP, factor, then weighting.
• Restate comparatives for any bonus element.

Common mistakes in the exam

• Time-weighting a bonus issue from its date.
• Using the year-end shares instead of the weighted average.
• Forgetting to deduct preference dividends on cumulative preference shares, or deducting dividends on ordinary shares.
• Not deducting the non-controlling interest in group earnings.
• Using the issue price instead of the TERP in the adjustment factor.
• Not restating the comparative.

Quick revision

• Basic earnings per share = earnings to ordinary holders ÷ weighted average ordinary shares.
• Earnings: after tax, non-controlling interests and preference dividends.
• Weight by time from the date consideration is receivable; buy-backs from their date.
• Bonus: from the start, restate. Rights: TERP, factor = cum price ÷ TERP.
• Limitations: policies, inflation, cash flow, capital employed, forecasts, manipulation.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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