IAS 33 - Earnings per Share Flashcards
How should the profit or loss attributable to ordinary equity holders of the parent be calculated where there are preference shares?
REDEEMABLE PREFERENCE SHARES - No adjustment is needed to the profit figure
IRREDEEMABLE PREFERENCE SHARES - Should be deducted from the profit figure.
What is the basic calculation for Earnings Per Share?
Weighted average No of ordinary shares in issue
What is the treatment for cumulative dividends on irredeemable preference shares?
> If the dividend is not paid in the year, then it should still be deducted from profit
When the arrears of dividend is subsequently paid, it should be excluded from the EPS calculation
How is the weighted average number of shares calculated where a new issue of shares has been made for cash in the current period?
> Start with the number of shares in issue at the start of the year and time apportion it for the period up to the date the new issues are shared.
> Take the number of shares in issue after the new shares were issued and time apportion it for the period after the date of issue.
> The total of these two is the weighted average number of shares in issue over the year.
How is the weighted average number of shares calculated where a bonus issue of shares has been made in the current period?
For a bonus issue the treatment for the weighted average number of shares is to assume that the SHARES HAVE ALWAYS BEEN IN ISSUE. This means that they should be treated as having been issued at the start of the earliest period for which results are reported, usually the comparative figures.
What is a rights issue?
> An issue of shares for cash to the existing shareholders in proportion to their current shareholdings
At a discount to the current market price
What is TERP and how is it calculated?
The TERP is the theoretical price at which the shares would trade after the rights issue.
It is calculated as :
Number of shares ex-rights issue
What is the adjustment to the EPS calculation where there has been a rights issue?
Adjustment = (apply to the weighted average No of shares)
Theoretical ex-rights price
- Where a rights issue has been made during the current period the above adjustment should be applied to the prior period for comparatives reasons.
In the current period the adjustment should be applied up until the point in the year that the rights issue is made. After the rights issue the normal EPS calc is applied.
What is a diluted EPS and how should it be calculated?
Diluted EPS shows how basic EPS will change if potential ordinary shares (convertible debt) become actual ordinary shares.
The normal basic EPS calc will need to be adjusted as follows :
> The profit figure needs to be adjusted to account for the additional corp tax as the interest is no longer being paid.
£ Earnings for basic EPS x Convertible loan stock x interest rate x (100 - T) x
----- Earnings for diluted EPS x
> The number of shares needs to be adjusted to include the diluted shares.
How should the EPS be presented in the financial statements?
> Present in the Statement of Comprehensive Income both the basic and diluted EPS based on profit/loss from both continuing operations and total operations (ie. continuing and discontinued operations)
> Both basic and diluted EPS must be presented with equal prominence for the current and comparative year
What judgement are required with IAS 33?
> Few judgements are required in the calculation of the weighted average number of shares.
> All the judgements required of management relate to the earnings figure used, because that is dependent on the accounting policies adopted by management and the accounting estimates made in line with those policies.
