Deck 19: Earnings Per Share

Question 1

A company issues bonus shares for no consideration on 1 August 2021. For the reporting period ended 30 June 2022, the calculation of:

A) only basic earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements.
B) only the diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements.
C) both basic earnings per share and diluted earnings per share may be adjusted retrospectively at the option of the entity for all periods that are presented in the financial statements.
D) both basic earnings per share and diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements.

Answer 1

D

Question 2

Earnings per share disclosed by reporting entities have limitations because of the:
I. Different accounting methods that can be used in the determination of profit.
II. Different amounts of profit depending on the size of the entity.
III. Different numbers of shareholders depending on the size of the entity.
IV. Ability of an entity to change the number of shares used in the denominator.

A) I and IV.
B) II and III.
C) II and IV.
D) I and III.

Answer 2

I and IV.

Question 3

The basic earnings per share and diluted earnings per share ratios must be presented in an entity's:

A) statement of financial position even if the amounts are negative.
B) statement of changes in equity even if the amounts are negative.
C) statement of profit or loss and other comprehensive income even if the amounts are negative.
D) statement of profit or loss and other comprehensive income only if the amounts are positive.

Answer 3

C

Question 4

Margaret Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2022 as $840 000. The number of ordinary shares on issue up to 31 October 2022 was 50 000. Margaret Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2022. Basic earnings per share at 30 June 2023 is:

A) $5.60
B) $7.20
C) $8.40
D) $16.80

Question 5

Earnings per share is calculated by:

A) dividing profit or loss attributable to preference shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period.
B) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the end of the reporting period.
C) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the beginning of the reporting period.
D) dividing profit or loss attributable to ordinary shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period.

Question 6

For the purposes of calculating diluted earnings per share, an entity shall adjust the profit attributable to ordinary shareholders by the after-tax effect of the following item(s) related to dilutive potential ordinary shares:

A) dividends only.
B) interest only.
C) other income or expenses only.
D) dividends, interest, other income or expenses.

Question 7

Any errors or adjustments resulting from changes in accounting policies that are accounted for retrospectively requires:

A) no retrospective adjustment to either basic or diluted earnings per share.
B) a retrospective adjustment to both basic and diluted earnings per share.
C) a retrospective adjustment to basic earnings per share only.
D) a retrospective adjustment to diluted earnings per share only.

Question 8

Murray Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2022 as $630 000. The average market price of the entity's shares during the period is $3.00 per share. The weighted average number of ordinary shares on issue during the period is 100 000. The weighted average number of shares under share options arrangements during the year is 20 000 and the exercise price of shares under option is $1.50. Murray Ltd's basic earnings per share at 30 June 2022 is:

A) $0.63
B) $6.30
C) $5.25
D) $2.10

Question 9

AASB 133 applies to the computation and presentation of earnings per share by:

A) both reporting and non-reporting entities.
B) only reporting entities whose shares are publicly traded.
C) only those entities that are in the process of issuing ordinary shares that will be traded in public markets.
D) reporting entities whose shares are publicly traded, or of entities that are in the process of issuing ordinary shares that will be traded in public markets.

Question 10

The number of shares used in the calculation of earnings per share is:

A) the average of the number of ordinary shares outstanding at the beginning and end of the reporting period.
B) the number of preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period.
C) the number of ordinary and preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period.
D) the number of ordinary shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period.

Question 11

If the entity has a discontinued operation, then it must also calculate and disclose the:

A) basic earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
B) diluted earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
C) basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income.
D) basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income only if the discontinued operation contributed a profit in the current reporting period.

Question 12

Paragraphs 70-73 of AASB 133 prescribe various disclosures relating to earnings per share. The disclosures include:
I. The amounts used as the numerators (earnings) in the ratios.
II. The number of ordinary shares outstanding at the end of the financial year.
III. The weighted average number of ordinary shares used as the denominator in the ratios.
IV. A reconciliation of the earnings amounts to the profit or loss attributable to the parent entity. for the period including the individual effect of each class of instruments that affects earnings per share.

A) I, II and III.
B) I, III and IV.
C) II, III and IV.
D) I, II and IV.

Question 13

Under AASB 133, if an entity presents both consolidated and separate financial statements, the necessary disclosures need only be determined on the basis of:

A) parent entity only.
B) subsidiary entities only.
C) consolidated information.
D) the entity has choice of either parent entity or consolidation.

Question 14

On 1 January 2021, the beginning of the reporting period, Jupiter Ltd has 50 000 ordinary shares on issue. On 30 June 2021, Jupiter Ltd issued a further 20 000 ordinary shares for cash. On 1 November 2021, Jupiter Ltd repurchased 2 400 shares at fair value in a market transaction. The weighted average number of shares for use in the earnings per share calculation is:

A) 60 000 shares.
B) 70 000 shares.
C) 60 400 shares.
D) 72 400 shares.

Question 15

On 1 July 2021, the beginning of the reporting period, Arthur Ltd has 40 000 ordinary shares on issue. On 1 April 2022, Arthur Ltd issued a further 10 000 ordinary shares for cash. The weighted average number of shares for use in the earnings per share calculation is:

A) 42 500 shares.
B) 40 000 shares.
C) 50 000 shares.
D) 45 000 shares.

Question 16

If all of the dilutive securities were converted into ordinary shares, the diluted earnings per share ratio:

A) must include an adjustment to increase the number of ordinary shares that would be outstanding.
B) may include an adjustment to increase the weighted average number of ordinary shares that would be outstanding.
C) must include an adjustment to increase the weighted average number of ordinary shares that would be outstanding.
D) must include an adjustment to decrease the weighted average number of ordinary shares that would be outstanding.

Question 17

Earnings per share is calculated by comparing an entity's (profit or revenue) with the :

A) profit; number of shareholders.
B) revenue; number of shareholders.
C) profit; number of ordinary shares it has on issue.
D) revenue; number of ordinary shares it has on issue.

Question 18

The profit or loss that is used in the calculation of basic earnings per share is calculated as:

A) profit before tax expense - tax expense - ordinary dividends.
B) profit before tax expense - tax expense - preference dividends.
C) profit before tax expense - tax expense.
D) profit before tax expense.

Question 19

EPS refers to:

A) equity per share.
B) earnings per share.
C) earnings per shareholder.
D) earnings per subsidiary.