Earnings per share and distributable profits Flashcards
What is IAS 33?
All publicly traded companies must disclose EPS on face of SPL and OCI
Must disclose basic and diluted EPS
How is basic EPS calculated?
Profit after tax/weighted average number of ordinary shares
What is the best way to calculate weighted average?
Create a table
Dates, no. of shares, months/12, bonus fraction, weighted avg
How is the weighted average of an issue at full market price calculated?
Number of shares x months/12
Done for each period until next issue
How is the weighted average of a bonus issue calculated?
Assume bonus issue always been in issue
Bonus fraction = new number of shares/old shares
Apply to method of full price, bonus fraction only added into table for lines above bonus issue period
Multiply prev. year EPS by reciprocal of bonus fraction to get new EPS
How is the weighted average of a rights issue calculated?
RI bonus fraction = share price before rights issue/ TERP
x for y issue at Zp, market price Ap
TERP = (xZ+yA)/(x+y)
Apply table, bonus fraction only added to line above rights issue period
What are distributable profits?
Profits under Companies Act 2006 an entity is legally entitled to distribute to equity holders
What is the rule for private companies distributable profits?
Measured as accumulated realised profits - accumulated realised losses
Retained earnings balance
What is the rule for public companies distributable profits?
Cannot make a distribution if net assets will fall below the total of called-up share capital and undistributable reserves (share premium, revaluation surplus)
What is the specific guidance in Companies Act 2006?
Provision is realised loss
Revaluation surplus is unrealised profit
Additional depn on revalued NCA can be added back to profits by determining distributable amounts
Revalued asset disposed, unrealised surplus/loss on reval now realised
Exchange gains/losses realised
Amortisation of goodwill in single entity is realised loss
What is the UK GAAP comparison for earnings per share?
IAS 33
FRS 101 - no exemptions from IAS 33