Earning Per Share Segment Reporting Flashcards
Basic EPS must be reported on the:
Face of the income statement for income from continuing operations and net income
Profit or loss test
Segment profit or loss is 10 percent or more of the greater (in absolute terms) of the combined reported profit of all profitable segments or the combined reported loss of all segments incurring a loss.
Formula for Basic Earnings Per Share (EPS)
Net Income Available to Common Shareholders—————Weighted Average Number of Common Shares Outstanding
Asset test
Segment assets are 10 percent or more of the combined assets of all operating segments.
Net Income Available to Common Shareholders
Net income less preferred dividends for declared non cumulative preferred stock.
10% Quantitative Threshold Tests
Once operating segments have been identified, three quantitative threshold tests are then applied to identify segments of sufficient size to warrant separate disclosure. Any segment meeting even one of these tests is separately reportable.
Weighted Average Number of Common Shares Outstanding
The number of shares outstanding during the period, weighted to reflect the portion of the period outstanding.
Information To Be Disclosed By Operating Segment
General Information, Segment Profit Or Loss, Total Segment Assets and the Following Related Items, Interim Period Items and some additional disclosures such as basis of accounting.
The purpose of Diluted EPS
Measure the performance of an entity over the reporting period while taking into account the effect of all dilutive potential common shares that we’re outstanding during the period.
Diluted EPS with Convertible Preferred Stock Formula
Net Income——————(Weighted Average Common Shares + Weighted Average Potential Shares)
ASC 260 states that if there is a loss from continuing operations, Diluted EPS would be ________ as Basic EPS.
The same
Diluted EPS with Convertible BondsFormula
Net Income + (Bond Interest - Tax Effect)————————(Weighted Average Common Shares + Weighted Average Potential Shares)
Diluted Earnings Per Share Formula
Net Income——————(Weighted Average Number of Common Shares Outstanding + Dilutive Potential Common Shares)
Diluted EPS with Stock Options of Warrants
Net Income——————(Weighted Average Common Shares + Weighted Average Potential Shares (Treasury Stock Method))
Computing Earnings Per Share using the Treasury Stock Method
Earnings per share is computed as if the funds obtained from the exercising of options and warrants at the beginning of the period (or at the time of issuance, if later) were used to purchase common stock (treasury stock), at the average market price during the period.
Sufficiency Test
If the total external revenue of the operating segment is less than 75% of consolidated revenue, additional operating segment are identified as reportable until 75% level is reached.
For each period for which a company presents an income statement, it must disclose (4 items)
1) A reconciliation of the numerators and denominators of basic and diluted EPS from continuing operations, including the individual income and per share effects of all securities used in the computations. 2) The effect of preferred dividends in arriving at income available to common stockholders in basic EPS3) The securities not included in the Diluted EPS computation (because they were antidilutive in the current period) that could potentially dilute Basic EPS in the future. 4) A description of any transaction that occurs after the end of the period but before the financial statements are issued that would materially change the number of common shares or potential shares.
IFRS: The difference is in the reporting of the EPS effect of discontinued operations and extraordinary items is?
US GAAPs requires the effects of each be reported as a part of EPS disclosure but IFRS does not require the EPS effect to be shown.
Objective of ASC 260
• Better understand enterprise performance• Better assess its prospects for future net cash flow• Make more informed judgements about the enterprise as a whole
IFRS Segment Reporting
Segment reporting is the same for IFRS and US GAAP
Identifying Reportable Operating Segment Management Approach
ASC 280 adopts a management approach to identifying segments in which segments are based on the way that management organized segments internally for making operating decisions and assessing performance.
Operating segments are components of an enterprise which meet these three criteria:
1) Engage in business activities and earn revenues and incur expenses. 2) Operating results are regularly reviewed by the chief operating decision-maker to assess performance and make resource allocation decisions.3) Discrete financial information is available from the internal reporting system.
Aggregation of Operating Segment
If two or more of the segments have essentially the same business activities in essentially the same economic environment, information for these individual segments may be combined (aggregated).
Requirement of ASC 260
Requires all public companies to disclose Basic EPS if they have a simple capital structure with no potential common shares from convertible securities, stock options, warrants, or contingent shares.
Revenue test
Segment revenue, both external and intersegment, are 10 percent or more of the combined revenue, external and intersegment, of all reported operations segments.
