Accounting Q&A · Financial Accounting · Topic 49
Work through the questions and reveal the answers to check your reasoning.
25 short-answer questions. Try each question before revealing its answer.
Worked example
Profit attributable to ordinary shareholders is 120,000. There are 100,000 shares for six months and 140,000 for six months. The weighted average is 120,000 shares and basic EPS is 1.00.
Core concepts
1. What does basic EPS measure?
Earnings attributable to ordinary shareholders per weighted-average ordinary share outstanding.
2. Which entities are within IAS 33’s main scope?
Entities with publicly traded ordinary or potential ordinary shares, or filing for a public issue. Voluntary EPS presenters also apply IAS 33.
3. What is the basic EPS numerator for a group?
Profit or loss attributable to ordinary equity holders of the parent after applicable adjustments.
4. What is the basic EPS denominator?
The weighted-average number of ordinary shares outstanding during the period.
5. Why weight shares by time?
Shares issued partway through the period were outstanding for only part of it.
6. What is EPS if earnings are 60,000 and weighted shares are 100,000?
0.60 per share.
7. What if the result is a 20,000 loss on 100,000 shares?
A loss of 0.20 per share.
8. How are treasury shares handled in the denominator?
Exclude them while held by the entity.
Applying the rules
9. What does diluted EPS show?
The effect of dilutive potential ordinary shares on earnings per share.
10. What is a potential ordinary share?
An instrument or contract that may entitle its holder to ordinary shares.
11. Give examples of potential ordinary shares.
Convertible debt, options and warrants are common examples.
12. What does antidilutive mean?
The assumed change increases EPS or reduces loss per share from continuing operations. Exclude antidilutive instruments.
13. What is the weighted average if 100,000 shares are outstanding for nine months and 140,000 for three?
110,000 shares, assuming those month weights approximate the period.
14. What is EPS on profit of 88,000 with 110,000 weighted shares?
0.80.
15. How does a bonus issue affect comparative EPS?
Adjust share numbers retrospectively for the bonus element as required.
16. What effect does a two-for-one split have on the share count used for EPS?
Double the relevant share count for periods presented, applying IAS 33 retrospective treatment.
17. Why can a rights issue affect comparative EPS?
A below-market rights issue can include a bonus element requiring adjustment.
Review and exam practice
18. How does assumed conversion of debt affect the numerator?
Add back applicable after-tax interest and other income or expense changes that conversion would avoid.
19. Profit is 100,000 and after-tax convertible interest is 5,000. What is the assumed-conversion numerator?
105,000, assuming no other effects.
20. If conversion adds 25,000 shares to 100,000, what EPS does that imply?
0.84, calculated as 105,000 divided by 125,000, before assessing inclusion.
21. How are dilutive options reflected in the denominator?
Include incremental shares after assuming exercise proceeds buy shares at the average market price.
22. Why use continuing operations to assess dilution?
IAS 33 uses earnings from continuing operations attributable to the parent’s ordinary equity holders as the control number.
23. How prominently are basic and diluted EPS presented?
Present them with equal prominence as required by IAS 33.
24. What reconciliations should accompany EPS disclosures?
Reconcile the earnings numerators and weighted-average share denominators as required.
25. What should you check before finalising EPS?
Verify share dates, treasury shares, bonus adjustments, earnings attributable to ordinary holders and dilution.