Question 1

EPS refers to:

Accepted Answer

EPS stands for earnings per share, which is a financial metric used to calculate a company's profitability by dividing its net income by the number of outstanding shares. It provides investors with information on how much profit is generated per share of stock and is a key factor in determining a company's stock price. A is incorrect because equity per share is not a commonly used financial metric. B is incorrect because earnings per shareholder is not a standardized financial term. D is incorrect because earnings per subsidiary is not a commonly used financial metric.

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 ability of an entity to change the number of shares used in the denominator
IV different numbers of shareholders depending on the size of the entity

Accepted Answer

Earnings per share (EPS) is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average of ordinary shares outstanding during the period. However, the EPS disclosed by reporting entities can have limitations because of different accounting methods used to determine profit (I) and the ability of entities to change the number of shares used in the denominator for EPS (III). The size of the entity can also affect the amount of profit and the number of shareholders, but these factors do not directly affect the calculation of EPS. Therefore, the correct answer is D, which includes only options I and III.

Question 3

IAS 33 applies to the computation and presentation of earnings per share by:

Accepted Answer

IAS 33 applies to reporting entities whose shares are publicly traded and to entities that are in the process of issuing ordinary shares that will be traded in public markets.

Question 4

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

Accepted Answer

The number of shares used in the calculation of earnings per share is 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. This is because earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Question 5

Which of the following transactions are not related party transactions for an entity?
 I) An employee purchased the entity's products on normal trading terms.
II) The entity made an agreement with a trade union about increase in employee's wages.
III) A subsidiary of the entity supplied raw materials to the entity.
IV) The entity lent money to one of its directors.

Accepted Answer

I is not a related party transaction because the employee is not considered a related party by definition.
II is not a related party transaction because the trade union is an external third party and not a related party.
III and IV are related party transactions because a subsidiary is a related party as per the definition and lending money to a director is also a related party transaction.

Question 6

Harry is a non-executive director of Potter Limited and Hogwarts Limited. Harry's wife, Ginny, is a non-executive director of Weasley Limited. Which of the following statements is correct?

Accepted Answer

The answer of Harry is a non-executive director of Potter...

Question 7

Mary Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2016 as £720 000. The number of ordinary shares on issue up to 31 October 2015 was 50 000. Mary Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2015. Basic earnings per share at 30 June 2016 is:

Accepted Answer

The basic earnings per share (EPS) is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares during the period. Before the bonus issue, there were 50,000 shares. After the two-for-one bonus issue, for every share, two more were issued, effectively tripling the share count to 150,000 shares. Since the bonus issue was effective from 31 October 2015, and the reporting period ended on 30 June 2016, the weighted average number of shares would be considered as 150,000 for the entire period. Therefore, the basic EPS is £720,000 / 150,000 = £4.80.

Question 8

The contractually agreed sharing of control over an economic entity is known as:

Accepted Answer

Joint control refers to the sharing of control over an economic entity, where the parties involved have the right to participate in the decision-making process that ultimately determines the strategic direction and financial policies of the entity. Joint control is often formalized through a contractual agreement that specifies the respective rights and obligations of the parties involved, rather than through the acquisition of a controlling interest in the entity, as in the case of significant influence or significant control. A joint venture is a specific type of joint control arrangement that involves the creation of a new entity for a specific purpose or project.

Question 9

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

Accepted Answer

The profit or loss used in the calculation of basic earnings per share (EPS) is the net income available to common shareholders, which is calculated as profit before tax expense minus tax expense and preference dividends. Ordinary dividends are not subtracted in this calculation because EPS is concerned with the earnings available to common shareholders before the distribution of those earnings.

Question 10

Metro Limited is a subsidiary of Matrix Limited. Which of the followings is not a related party to Metro Limited?

Accepted Answer

A distributor of Metro Limited's products is a third party and not related to Metro Limited or its parent company, Matrix Limited. The pension scheme, the Managing Director of Matrix Limited, and an associate of Metro Limited are all related parties.

Question 11

Under paragraph 4, if an entity presents both consolidated and separate financial statements, the IAS 33 disclosures need only be determined on the basis of:

Accepted Answer

According to paragraph 4, when an entity presents both consolidated and separate financial statements, the IAS 33 disclosures need to be determined on the basis of consolidated information only. This means that the disclosures should relate to the group as a whole, rather than individual entities within the group. Therefore, option C is the best choice.

Question 12

ABC Ltd has 21 000 ordinary shares on issue at 1 January 2016 which is the beginning of its reporting period. On 30 June 2016, it issued a further 2000 ordinary shares for cash. On 1 November 2016, ABC Ltd repurchased 600 shares at fair value in a market transaction. The weighted average number of shares for use in the earnings per share calculation is:

Accepted Answer

The weighted average number of shares is calculated by multiplying the number of shares outstanding by the fraction of the year that they were outstanding. In this case, the shares were outstanding for the following periods:* 21,000 shares for 6 months (January 1 to June 30)* 23,000 shares (21,000 + 2,000) for 5 months (July 1 to November 1)* 22,400 shares (23,000 - 600) for 1 month (November 1 to December 31)The weighted average number of shares is therefore:(21,000 x 6/12) + (23,000 x 5/12) + (22,400 x 1/12) = 21,900 shares

Question 13

The minimum disclosures for related party transactions include the followings, except:

Accepted Answer

The key management personnel of the related party is not considered a minimum disclosure requirement for related party transactions under most accounting standards, such as IFRS or US GAAP. The focus is typically on the nature of the relationship, the amount of the transactions, outstanding balances, and any provisions for doubtful debts, rather than specific individuals involved.

Question 14

Earnings per share is calculated by comparing an entity's:

Accepted Answer

Earnings per share is a financial ratio that measures the amount of profit earned by each share of an entity's common stock. It is calculated by dividing the entity's net profit after taxes by the number of ordinary shares it has on issue. Therefore, the correct choice is C - profit with the number of ordinary shares it has on issue.

Question 15

David is the general manager of Awesome Limited and is considered to be the member of key management personnel. The following transactions occurred between David and Awesome Limited: 
F1F1F1S1?F1F1F10David purchased a product of Awesome Limited on normal trading terms;
F1F1F1S1?F1F1F10David received remuneration from Awesome Limited amounting to £100 000;
F1F1F1S1?F1F1F10Awesome Limited issued 20 000 options to David, which can be converted into Awesome Limited's shares if target profit margin of 25% is achieved in the next three years.
Which of the above transactions must be disclosed as related party transactions?

Accepted Answer

Related party transactions occur when a company engages in transactions with individuals or entities that are considered related parties, such as key management personnel. David is a member of key management personnel, and therefore any transactions between him and Awesome Limited must be disclosed as related party transactions. The purchase of a product on normal trading terms does not necessarily constitute a related party transaction, but David's remuneration and the grant of options are considered related party transactions and must be disclosed as such. Therefore, option B is the correct answer.

Question 16

VicEd is a government agency that controls Science Limited. Science Limited has two subsidiaries: Bio Limited and Chem Limited. To which entities can Bio Limited apply the disclosure exemption in paragraph 25 of IAS 24?

Accepted Answer

Under IAS 24, an entity can apply the disclosure exemption to its parent, subsidiaries, and fellow subsidiaries. Therefore, Bio Limited can apply the exemption to VicEd (the government agency controlling Science Limited, its parent), Science Limited (its immediate parent), and Chem Limited (its fellow subsidiary).

Question 17

If an entity chooses to apply the disclosure exemption in paragraph 25 of IAS 24, it is still required to do the followings, except:

Accepted Answer

Even if an entity chooses to apply the disclosure exemption in paragraph 25 of IAS 24, it is still required to disclose the nature of the relationship with the government-related entities, identify the government to which it is related, and provide a qualitative or a quantitative indication of the extent of other transactions that are collectively significant. However, it is not required to disclose the nature and amount of every transaction with government-related entities.

Question 18

Earnings per share is calculated by:

Accepted Answer

Earnings per share is calculated by dividing the 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. This is because the weighted average number of shares takes into account any changes in the number of shares outstanding during the period, which may affect the accuracy of the calculation if only the number of shares at the beginning or end of the period is used. Choice A and D are incorrect because they only use the number of shares at a specific point in time, which does not account for any changes during the period. Choice C is incorrect because it refers to preference shareholders, rather than ordinary shareholders.

Question 19

XYZ Ltd has 10 000 ordinary shares on issue at 1 July 2015 which is the beginning of its reporting period. On 1 May 2016, it issued a further 2000 ordinary shares for cash. The weighted average number of shares for use in the earnings per share calculation is:

Accepted Answer

To calculate the weighted average number of shares, we need to consider the number of shares outstanding for each part of the reporting period.

Number of shares outstanding for the first 10 months (July 2015 to April 2016) = 10,000
Number of shares outstanding for the last 2 months (May 2016 to June 2016) = 12,000 (2000 shares issued on 1 May 2016)

Weighted average number of shares = [(10,000 x 10) + (12,000 x 2)] / 12 = 10,333.33

Therefore, the best choice is B.

Question 20

Drew is one of the directors of Mellor Limited. In the current financial year, Mellor Limited paid £50 000 to Advice Agency, where Drew's brother works, for the consultancy services it provided. In addition, Mellor Limited also paid £2000 to Drew for a once-off consultancy he provided on a specific project. Which of the following statements describes the relationship between Drew, Mellor Limited, and Advice Agency?

Accepted Answer

The answer of Drew is one of the directors of...

Quiz 15: Other Key Notes Disclosures