IAS 33

Question 1

Basic EPS calculation?

Answer 1

Profit attributable to ordinary shareholders of parent (PFY) / Weighted average number of shares (Number of equtiy shares in issue)

Question 2

Issue of shares example?

Answer 2

Rights issue, new issue

Question 3

Is there cash for a bonus issue?

Answer 3

No

Question 4

How to write EPS answer?

Answer 4

$ per share

Question 5

Full price issue treatment?

Answer 5

Normal weighted average calculation. Based on number of months

Question 6

Full price issue calculation? (50m new shares after one month)

Answer 6

500m shares * 1/12 months = 42m
550m shares * 11/12 months = 504m

504m + 42m = 546m

250 PFY/546 = 45.8 cents

Question 7

A 1 for 4 bonus issue treatment?

Answer 7

Assume bonus shares have always been in issue (at start of year), as no cash has been received.

Question 8

Effect on profit if no cash has been received?

Answer 8

No effect

Question 9

A 1 for 4 bonus issue calculation?

Answer 9

Number of shares:
1 for 4 bonus issue
old: 500
new : (500/4) = 150

500 + 125 = 625

250/625 = 40 cents per share

Question 10

A 1 for 5 rights issue treatment?

Answer 10

Assume shares issued are a mix of bonus and full price shares

Question 11

What is diluted earnings per share?

Answer 11

Where ordinary shares have been outstanding during period which would cause EPS to fall if exercised

Question 12

Convertible instruments adjustment?

Answer 12

Adding maximum number of shares issued in the future

Question 13

Options adjustment?

Answer 13

Adding number of effectively “free” shares to be issued when options are exercised

Question 14

How should earnings be adjusted when diluted?

Answer 14

Adding back any costs that aren’t incurred once dilutive instruments have been exercised (e.g. interest, conversion)

Question 15

How is convertible debt calculated?

Answer 15

Extra earnings = post-tax interest saved. Added to PFY

Extra shares = maximum additional number of shares (e.g. convertible loan stock)

Question 16

Are options always dilutive?

Answer 16

Yes

Question 17

Calculate options

Answer 17

Shares under option - Shares @ market value

Question 18

Shares @ market value meaning?

Answer 18

Options granted * (Option price / FV of a share)

Question 19

What happens with post-tax interest saved?

Answer 19

Added to extra earnings

Question 20

Why is EPS considered more reliable than net profit?

Answer 20

EPS takes into account additional resources made available

Question 21

TERP calculation? 1 for 5 rights issue

Answer 21

5 * market price = 9
1 * rights price = 1.5

10.5/6 = $1.75

Question 22

Extra shares in rights issue?

Answer 22

Original shares * pro-rata * market price/TERP

Question 23

Calculate post-tax interest saved?

Answer 23

Convertible loan stock * % * (1 - tax rate)

Question 24

Calculate maximum additional number of shares?

Answer 24

Convertible loan stock * number of ordinary shares/loan stock convertible

Question 25

Share premium price calculation?

Answer 25

issue price - equity share price

Question 26

Calculate restated EPS when bonus issue?

Answer 26

EPS at year end * (Equity shares / (Equity shares + bonus issue))

Question 27

Convertible loan shares correct order?

Answer 27

Ordinary shares / $ in loan stock

Question 28

Earnings on dilution?

Answer 28

Shares in issue + interest

Question 29

Shares on dilution?

Answer 29

Shares in issue + conversion * e.g. 4/$5

Question 30

Fully subscribed rights issue of one new share for every four in issue of 42 cents each in April 20X2

Equity shares of 20c each: $50000
Share premium: $15000

Balances at 30 Sep 20X2

What is amount at 30 Sep 20X1?

Answer 30

Equity shares: 50000-(50000*0.2)

Share premium: 50000-(50000*0.22)

Question 31

Shares under option calculation?

Answer 31

Equivalent at fair value

Question 32

Calculate restated EPS?

Answer 32

EPS * original number of shares/ending number of shares