Deck 19: Earnings Per Share

Question 1

A company issues bonus shares for no consideration on 1 August 2014. For the reporting period ended 30 June 2015, 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 must be adjusted retrospectively for all periods that are presented in the financial statements.
D) 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.

Answer 1

C

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.

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

Answer 2

D

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

Answer 3

B

Question 4

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

A) the basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income.
B) the basic earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
C) the diluted earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income.
D) the 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 5

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

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

Question 6

Earnings per share is calculated by:

A) 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.
B) 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.
C) 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.
D) 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.

Question 7

Under paragraph 4, if an entity presents both consolidated and separate financial statements, the AASB 133 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 8

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

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

Question 9

EPS refers to:

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

Question 10

Harry Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2014 as $960 000. The average market price of the entity's shares during the period is $4.00 per share. The weighted average number of ordinary shares on issue during the period is 1 000 000. The weighted average number of shares under share options arrangements during the year is 200 000 and the exercise price of shares under option is $3.50.
The basic earnings per share at 30 June 2014 is:

A) $0.80.
B) $0.96.
C) $3.50.
D) $4.00.

Question 11

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

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

Question 12

Mary Ltd determined its profit attributable to ordinary shareholders for the reporting period ended 30 June 2014 as $720 000. The number of ordinary shares on issue up to 31 October 2013 was 50 000. Mary Ltd announced a two-for-one bonus issue of shares effective for each ordinary share outstanding at 31 October 2013.
Basic earnings per share at 30 June 2014 is:

A) $4.80.
B) $6.17.
C) $7.20.
D) $9.60.

Question 13

ABC Ltd has 21 000 ordinary shares on issue at 1 January 2015, which is the beginning of its reporting period. On 30 June 2015, it issued a further 2000 ordinary shares for cash. On 1 November 2015, 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:

A) 21 000 shares.
B) 21 700 shares.
C) 21 900 shares.
D) 22 400 shares.

Question 14

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:

A) 10 000 shares.
B) 10 333 shares.
C) 11 000 shares.
D) 12 000 shares.

Question 15

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 - 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.
III - The number of ordinary shares outstanding at the end of the financial year.
IV - The weighted average number of ordinary shares used as the denominator in the ratios.

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

Question 16

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

A) 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.
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 average of the number of ordinary shares outstanding at the beginning and end of the reporting 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 17

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

Question 18

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

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

Question 19

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

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