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Ias 33 - Completed

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38 views8 pages

Ias 33 - Completed

AAAA notes

Uploaded by

phillip kimu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IAS 33 – EARNINGS PER SHARE

Basic EPS = Profit or Loss for the period attributable to equity


shareholders divided by the weighted average number of
ordinary shares outstanding in the period.
Bonus Issues
If an entity makes a bonus issues – then the share capital
increases
However, no cash has been received and therefore there is no
impact on the profit or loss for the period/earnings
This will result to EPS being reduced.
Bonus issues reduce EPS
For the purposes of calculating Basic EPS, the bonus issues are
treated as if there has always been in issue.
The easiest way to do this is by multiplying the number of shares
outstanding before the bonus issue by the bonus fraction.
Bonus Fraction = Number of Shares after bonus issue divided by
Number of Shares before bonus issue.

Rules
1. EPS for the comparative period must be restated.
2. EPS is restated by multiplying by the inverse of the bonus
fraction.
Example 1
An entity made a bonus issue of one new share for every five
existing shares held on 1 July 20X8.
Additional Information
Details 20X8 20X7
(000) (000)
Profit attributable to ordinary shares 550 460
for the year ended 31 December
Number of ord shares in issue at 31 1 200 1 000
December

Required
1. Calculate Basic EPS for the year ended 20X8
W1 – Weighted Average Number of Shares
20X7 = 1000 * 6/12* 6/5(W2) = 600 000
20X8 = 1200 * 6/12 = 600 000
Total = 1 200 000
EPS = 550 000 / 1 200 000 = 46 c per share
W2- Bonus Fraction
1200/1000 = 12/10= 6/5
2. Calculate the prior year comparative EPS Figure as it would
appear in the financial statements of 20X8.
Prior year EPS = 46c per share
Restated Comparative EPS = 46c * 5/6 = 38c per share
3. Advise the directors whether its worthwhile investing in this
particular entity.

Rights Issues
- This is an issue of shares at a price less than the market
price- The issue of shares at a discount.
Par value = $1. 00
Rights Issue = $0.85c- Full market Price
$0.15 - Bonus Element – Bonus Fraction
TERP - Theoretical Ex Right Price
Bonus Fraction for a rights issue
Market Price before rights issue divided by Theoretical market
price after rights issue

Rules
1.EPS for the comparative period must be restated.
2.EPS is restated by multiplying by the inverse of the bonus
fraction.
Example 3
An entity issued one for every two existing shares at $1.50 per
share on 1 July 20X8. The preissue market price was $3.00.
Additional Information
Details 20X8 20X7
(000) (000)
Profit attributable to ordinary shares 550 460
for the year ended 31 December
Number of ord shares in issue at 31 1 200 1 000
December

1.Calculate Basic EPS for the year ended 20X8


W1 – Weighted Average Number of Shares
20X7 = 1000 * 6/12* 12/11(W2) = 545 000
20X8 = 1200 * 6/12 = 600 000
Total = 1 145 000.
W2- Bonus Fraction
Market Price before rights issue divided by Theoretical market
price after rights issue(W3)
$3.00/$2.75(W3) = 12/11
W3
Number of Market Price Market
Shares Capitalization
1000 3.00 3 000
200 1.50 300
1 200 3 300

Theoretical Price = 3300/1200 = $2.75


2.Calculate the prior year comparative EPS Figure as it would
appear in the financial statements of 20X8.
Prior year EPS = 46c per share
Restating = 46c * 11/12 = 42c per share
3.Advise the directors whether its worthwhile investing in this
particular entity.
Diluted Earnings Per Share
EPS = 550 000 / 1 500 000 = 37 c per share
From 46c
Example 1
Coe, a public limited company, is preparing its consolidated financial
statements for the year ended 31 December 20X1. Coe has owned 75% of
the equity shares of Crace for a number of years. The following
accounting issues have yet to be finalised:

1. On 1 January 20X1, 1,000 of Coe’s managers were granted 500 share


options each. These will vest on 31 December 20X3 if the managers are
still employed by Coe. The fair value of one share option at the grant date
was $6. By 31 December 20X1, 50 of these managers had left the
business and another 80 were expected to leave by the vesting date.
The exercise price of the options is $3. The average price of one of Coe’s
equity shares over the year is $10. No entries have been posted in
relation to this share option scheme.
Remuneration Expense = (1000 – 50 – 80) * $6 * 500 * 1/3)

Dr Profit or Loss (Remuneration Expense) 870 000


Cr Equity 870 000

2. Freehold land is accounted for using the revaluation model in IAS 16


Property, Plant and Equipment. A revaluation has taken place in the
current year. However, one plot of land is still carried in Coe’s financial
statements at its purchase cost of $4 million. Similar plots of land have
sold for $5 million.
Highest and Best use
Replacement Cost = 5 000 000

Original Cost = 4 000 000


Gain = 1 000 000

Dr PPE 1 000 000


CR OCI 1 000 000 – Other Components of Equity

3. On 31 December 20X1, Crace made an interest-free loan of $3 million to


a charity and recognised this amount as a financial asset. The charity will
repay the money on 31 December 20X4.

Market rates of interest are 5%.


PV of Financial Asset = 2 857 143

Profit or Loss = 142 857


Dr Profit or Loss 142 857

Cr Financial Asset 142 857

Required:

(i) Explain, with calculations, how the above events should be corrected in
the consolidated financial statements for the year ended 31 December
20X1.
(ii) Discuss the impact of these corrections on basic and diluted earnings
per share. No calculations are required

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