IAS 33 Flashcards | Earnings Per Share Revision Questions
IFRS Revision
IAS 33 Earnings Per Share Flashcards
Use this expandable IAS 33 flashcard page to revise basic EPS, diluted EPS, weighted average shares, convertibles, options, treasury stock method, and disclosure requirements.
Table of contents
- Overview and scope (13 questions)
- Basic EPS (11 questions)
- Weighted average shares (11 questions)
- Diluted EPS (9 questions)
- Options and convertibles (6 questions)
- Presentation and disclosures (4 questions)
- Special cases (6 questions)
Overview and scope
What is the primary objective of IAS 33 Earnings Per Share?
To prescribe principles for determining and presenting EPS to improve performance comparisons between different entities and reporting periods.
To which types of entities does the mandatory application of IAS 33 apply?
Entities whose ordinary or potential ordinary shares are traded in a public market or those filing for the purpose of issuing shares in a public market.
How is an ordinary share defined under IAS 33?
An equity instrument that is subordinate to all other classes of equity instruments.
What is a 'potential ordinary share'?
A financial instrument or other contract that may entitle its holder to ordinary shares, such as convertible bonds or options.
Define 'Dilution' in the context of EPS.
A reduction in EPS or an increase in loss per share resulting from the assumption that potential ordinary shares are converted or exercised.
Define 'Antidilution' according to IAS 33.
An increase in EPS or a reduction in loss per share resulting from the assumption that potential ordinary shares are converted or exercised.
How does an entity treat potential ordinary shares that are antidilutive?
They are excluded from the calculation of diluted earnings per share.
What is the 'control number' used to establish whether potential ordinary shares are dilutive or antidilutive?
Profit or loss from continuing operations attributable to the parent entity.
In what sequence should potential ordinary shares be considered when calculating Diluted EPS?
From the most dilutive to the least dilutive (lowest earnings per incremental share to highest).
If a potential ordinary share is converted into actual shares during the period, how is it weighted for Diluted EPS?
It is included as a potential share from the start of the period until the conversion date.
How are instruments of a subsidiary convertible into the parent's shares treated in consolidated Diluted EPS?
They are included as potential ordinary shares of the reporting entity (parent).
What are 'participating equity instruments' in the context of EPS?
Instruments that participate in dividends with ordinary shares according to a predetermined formula.
What is the treatment of potential ordinary shares that lapse during the reporting period in Diluted EPS?
They are included only for the portion of the period during which they were outstanding.
Basic EPS
State the basic formula for calculating Basic Earnings Per Share.
Basic EPS = (Profit or Loss Attributable to Ordinary Equity Holders) / (Weighted Average Number of Ordinary Shares Outstanding
How are non-cumulative preference dividends treated when calculating the Basic EPS numerator?
The after-tax amount of dividends declared in respect of the period is deducted from profit or loss.
How are cumulative preference dividends treated in the Basic EPS numerator if they have not been declared?
The full after-tax amount required for the period must still be deducted from profit or loss.
At what point are ordinary shares issued for the settlement of a liability included in the Basic EPS calculation?
The settlement date.
From what date are mandatorily convertible instruments included in Basic EPS?
From the date the contract is entered into.
When are contingently issuable shares included in the Basic EPS calculation?
Only from the date when all necessary conditions are satisfied (i.e., the events have occurred).
How are convertible preference shares treated in the Diluted EPS numerator?
The preference dividends previously deducted for Basic EPS are added back (adjusted for tax effects).
What reconciliation is required for the EPS denominators?
A reconciliation of the weighted average number of ordinary shares used in the basic EPS calculation to those used in the diluted EPS calculation.
How is the excess of consideration paid over the carrying amount of repurchased preference shares handled in Basic EPS?
It is deducted from the profit or loss attributable to ordinary shareholders.
Which specific items are included in the numerator for Basic EPS calculations?
Profit or loss from continuing operations and total profit or loss attributable to the parent entity, adjusted for preference dividends.
How are contingently returnable shares (subject to recall) treated in Basic EPS?
They are excluded from the calculation until the date they are no longer subject to recall.
Diluted EPS
How is the numerator adjusted for convertible bonds when calculating Diluted EPS?
It is increased by the after-tax amount of interest recognised in the period related to those bonds.
How are written put options on the entity's own shares reflected in Diluted EPS if they are 'in the money'?
The entity assumes it issues enough shares at the average market price to raise the cash needed to satisfy the put obligation.
Why are purchased put or call options excluded from Diluted EPS calculations?
Including them would be antidilutive (they would increase EPS or decrease loss per share).
Where must an entity present Basic and Diluted EPS for continuing operations?
In the Statement of Comprehensive Income (or the separate income statement if presented).
How should Basic and Diluted EPS be presented if they are equal in value?
They may be presented in a single line on the Statement of Comprehensive Income.
Must an entity present EPS if the result is a loss per share?
Yes, Basic and Diluted EPS must be presented even if the amounts are negative.
How are partly paid shares that do not participate in dividends treated in Diluted EPS?
They are treated as the equivalent of warrants or options, with the unpaid balance assumed to be proceeds used to buy shares.
How are contracts that may be settled in shares or cash at the entity's option treated for Diluted EPS?
The entity presumes the contract will be settled in ordinary shares if the effect is dilutive.
How are contracts that may be settled in shares or cash at the holder's option treated for Diluted EPS?
The calculation must use the more dilutive of the two settlement options (cash or shares).
Options and convertibles
What is the 'Treasury Stock Method' used for options and warrants?
A method assuming the exercise of options and that the proceeds are used to repurchase shares at the average market price.
When are options or warrants considered dilutive?
When the average market price of the ordinary shares during the period exceeds the exercise price of the options (i.e., they are 'in the money').
How are 'incremental shares' calculated for options under the Treasury Stock Method?
Incremental Shares = Total Options - (Total Options × Exercise Price) / (Average Market Price
For share-based payments (IFRS 2), what must be included in the 'exercise price' for the Treasury Stock Method?
The exercise price plus the fair value of any goods or services to be supplied to the entity in the future under the arrangement.
What is the 'if-converted' method for convertible instruments?
An approach assuming conversion at the beginning of the period (or date of issue) and adjusting numerator for avoided interest/dividends.
How does the 'If-Converted' method account for non-discretionary employee profit-sharing plans?
The numerator is adjusted for any consequential changes in expenses (like increased profit-sharing) resulting from assumed conversion.
Presentation and disclosures
What are the disclosure requirements for discontinued operations regarding EPS?
Basic and diluted amounts per share for the discontinued operation must be disclosed in the statement of comprehensive income or the notes.
What must be disclosed regarding instruments that could potentially dilute EPS but were excluded as antidilutive?
A description of those instruments must be disclosed in the notes.
Must an entity disclose EPS based on separate financial statements in the consolidated financial statements?
No, an entity shall not present separate EPS information in the consolidated financial statements.
What must be disclosed regarding share transactions occurring after the reporting period end?
A description of transactions that would have significantly changed the number of shares outstanding if they occurred before year-end.
Special cases
How should an entity treat 'increasing rate preference shares' for EPS purposes?
Any original issue discount or premium is amortised using the effective interest method and treated as a preference dividend.
When calculating the average market price, what approach is generally considered adequate?
A simple average of weekly or monthly closing prices.
If share prices fluctuate widely, what method for calculating the average market price is preferred?
An average of the high and low market prices for the period.
What is the formula for the 'theoretical ex-rights fair value per share'?
(Fair Value of Shares Pre-Exercise + Proceeds from Exercise) / (Total Shares Outstanding Post-Exercise
How is profit allocated for two-class ordinary shares to calculate EPS?
Profit is allocated to each class based on their dividend rights and participation in undistributed earnings as if all profit were distributed.
What is the effect of an induced early conversion of preference shares on the EPS numerator?
The excess fair value of shares/consideration paid over the original terms is deducted as a return to preference shareholders.
