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CIMA F2 > Chapter 16 - Disclosure standards > Flashcards

Chapter 16 - Disclosure standards Flashcards

1
Q

EPS

A

Earnings Per Share - forms the denominator of the PE Ratio

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2
Q

IAS 33

A

The standard sets out the rules for consistent calculation and presentation of EPS

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3
Q

EPS Principle

A

To get a consistent and comparable ratio for measuring earnings

Measures performance by measuring earnings

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4
Q

IAS 33 - Net Profit Attributable to ordinary shareholders

A

Consolidated profit or loss after tax, NCI, appropriations for non-equity shares including profits from Associates and Joint Ventures

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5
Q

IAS 33 - Ordinary Share

A

An equity instrument subordinate to all other classes of equity instruments

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6
Q

IAS 33 - Weighted Average Number of Shares

A

This is the issues and repurchases of shares during the year, weighted on time

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7
Q

Shares issued in exchange for cash

A

Shares are added in th weighting when cash is receivable

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8
Q

Dividends are reinvested as shares

A

Shares are included at the date of payment of the dividends

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9
Q

Convertible debt and other financial instruments are used

A

The shares will be included when the interest ceases to accrue

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10
Q

Shares are issues for consideration in the acquisition of another entity

A

Shares will be included at the date of acquisition of the other entity

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11
Q

Equity Shares in issue

A

> issue at full market price
bonus issue (also known as capitalization issue or scrip issue
share exchange
rights issue

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12
Q

Equity Shares issue at full market price

A

Average number of shares in issue and ranking for dividend

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13
Q

> 4 Million shares issued at January 1
1 Million additional shares issued at September 30
Earnings at December 31, 500 thousand

Weighted average number of shares and EPS?

A

Weighted average shaures = 4,250 Million

EPS = 11.8c

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14
Q

Equity Shares Bonus Issue

A

No additional resources enter the business and no additional earnings are generated

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15
Q

Equity Shares Bonus Issue

A

Shares ranking for dividends after the bonus issue are used

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16
Q

Bonus Factor

A

If the bonus issue is 1 for 4

The bonus factor is 5/4, irrespective of the date of the bonus issue

17
Q

Equity Shares Bonus Issue

A

Corresponding figures for all previous periods are recalculated to include the bonus issue

By multiplying the EPS for earlier periods by the reciprocal of the bonus factor

18
Q

> 4 Million shares at January 1 2011
1 for 4 Bonus issue on September 30 2011
500k Earnings at December 31 2011
EPS in 2010 is 9c

What is the number of shares, EPS in 2011 and 2010?

A

Bonus Factor = 5/4

Number of shares = 4 Million x 5/4 => 5 Million

2011 EPS = 500k/5Million => 10c
2010 EPS = 9c x 4/5 => 7.2c

19
Q

Bonus fraction is…

A

Fair value before the exercise of rights / Theoretical ex-rights price

20
Q

Theoretical Ex-rights price

Price of the shares after the rights issue

A

(Value of Current shares + value of rights issue) / market value of all shares after rights issue

21
Q

In issue > 4 million shares
Rights issue > 1 for 4 at $0.5
Market price > $1

Whats the theoretical ex-rights price

A

$1 x 4 million
$0.5 x 1 million
= $4,500,000

$1 x 5 million
= $5,000,000

4,500,000/5,000,00 = $0,90

22
Q

Bonus Fraction from previous example

A

Fair value before the exercise of rights / Theoretical ex-rights price

$1,00/$0,90

=100/90

23
Q

What is the weighted average number of shares

A

Issued shares x bonus Fraction x time

4 Million x 100/90 x 9/12
5 million x 3/12

Weighted average shares after a rights issue

24
Q

Previous year EPS after a rights issue

A

Original EPS x Reciprocal of bonus Fraction

25
Q

Potential ordinary shares

A

> Convertible debt or equity instruments
Share warrants and options
Rights granted under employee share schemes
Contingently issuable shares

26
Q

Dilution of EPS

A

When rights to Ordinary shares are realised, number of ordinary shares increases lowering EPS

27
Q

IAS 33 - EPS dilution

A

Diluted EPS should be calculated using an adjusted profit figure

28
Q

Diluted EPS =

A

(Earning per EPS + Adjustment for dilutive potential ordinary shares) / (Number of shares per EPS + Adjustment for dilutive potential ordinary shares)

29
Q

IAS 33 - Disclosures

EPS

A

The basic and diluted EPS should be shown on the P&L

30
Q

IAS 33 - Disclosures

Weighted average number of shares

A

Disclosure of the calculation

31
Q

IAS 33 - Disclosures

Number of shares in the diluted EPS

A

Disclose number of shares used in diluted EPS

32
Q

TERP - Theoretical Ex-Rights Price

A

Price before rights = X
Price of rights share = Y
Total value of total shares = XY

TERP = XY/Number of total shares

CIMA F2 (16 decks)

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