PAS 33 Flashcards
What is PAS 33?
Earnings per share
a computation made for ordinary shares. It is a form of profitability ratio which represents how much was earned by each ordinary share during the period.
Earnings per share (EPS)
True or false
No EPS is not presented for preference shares because these shares have a fixed return represented by their dividend rates.
present (false)
Types of Earnings per share
- Basic earnings per share
- Diluted earnings per share
Basic Earnings Per Share formula:
Profit or loss less Preferred dividends / Weighted average number of outstanding shares
Considerations in computing “Profit or loss”
a. Profit or loss should be net of income tax expense
b. Profit or loss should be adjusted for the after-tax amounts of preference dividends, differences arising on the settlement of preference shares, and other similar effects of preference shares classified as equity.
Adjustments for preference dividends
a. If the preference shares are cumulative, one-year dividend is deducted from profit or loss whether declared or not.
b. If the preference shares are non-cumulative, only the dividend declared is deducted from profit or loss.
Shares are usually time-weighted from the date consideration is receivable (which is generally the date of their issue). Thus:
a.Shares issued outright are averaged from the issuance date.
b.Subscribed shares are averaged from the subscription date.
c.Treasury shares are averaged
i. as reduction to the number of outstanding shares from the reacquisition date; or
ii. as addition to the number of outstanding shares from the issuance date
EPS in previous periods are adjusted ____________ when an entity issues any of the following:
retrospectively
a. A capitalization or bonus issue (e.g., share dividend);
b. A bonus element in any other issue, for example a bonus element in a
rights issue to existing shareholders (also referred to as preemptive
stock rights);
c. A share split (increase in number of shares with corresponding
decrease in par value); and
d. A reverse share split (consolidation of shares or decrease in number of
shares with corresponding increase in par value).
Rights issue
Adjustment factor=
Fair value of stocks immediately before the exercise of rights/ Theoretical ex-rights fair value per share
the amount of profit for the period per share, reflecting the maximum dilutions that would have resulted from conversions, exercises, and other contingent issuances that individually would have decreased earnings per share and in the aggregate would have had a dilutive effect.
Diluted earnings per share
True or false?
Only basic earnings per share is presented if an entity has no dilutive potential ordinary shares (i.e., simple capital structure).
True
The computation of diluted earnings per share is based on the assumption that the dilutive potential ordinary shares were converted or exercised. It is:
- “As if” the convertible preference shares or convertible bonds have been converted; or
- “As if” the options or warrants have been exercised
True or false?
The conversion or exercise is not assumed to have taken place on the date the potential ordinary shares became outstanding, regardless of the date of actual conversion or exercise.
false- assumed
Diluted EPS =
Profit or loss plus after tax interest expense on convertible bonds/ Weighted average number of outstanding ordinary shares plus incremental shares arising from the assumed conversion or exercise of dilutive potential ordinary shares.
When computing for diluted earnings per share, the “treasury share method” shall be used in computing for the incremental shares. This method assumes that:
- The options or warrants are exercised and
- The proceeds received from the exercise are used to purchase treasury shares at the average market price.
- The difference between the treasury shares assumed to have been purchased and the option shares represents the incremental shares.
Treasury share method formula:
Option shares
Multiply by : Total exercise price
Proceeds from assumed exercise of options
Divide by: Average market price
Treasury shares assumed to have been purchased
*Total exercise price is computed as follows:
Exercise price
Fair value of each share option
Total exercise price
Basic and Diluted earnings per share are computed on the following:
- Profit or loss from continuing operations
- Profit or loss from discontinued operations, if the entity reports a discontinued operation.
- Profit or loss for the year
True or false?
EPS is computed on other comprehensive income and total comprehensive income.
false- computed
EPS computed on _________________ from continuing operations and profit or loss for the year are presented on the face of the statement of profit or loss and other comprehensive income.
profit or loss
True or false?
If the entity uses a two-statement presentation, EPS is presented only on the separate income statement.
True
