Deck 26: Earnings Per Share

Question 1

If the conversion of potential ordinary shares to ordinary shares is mandatory they must be included in diluted earnings per share even if their inclusion does not dilute earnings per share.

Answer 1

True

Question 2

The requirement to apply AASB 133's definition of earnings and its definition of the number of shares means that the earnings per share figures for companies can be easily compared as they are not subject to the professional judgment involved in other areas of accounting.

Answer 2

False

Question 3

The conversion of potential ordinary shares has no flow-on effects.

Answer 3

False

Question 4

AASB 133 requires an entity to disclose basic earnings per share for discontinued operations on the face of the statement of comprehensive income.

Question 5

AASB 133 requires entities to disclose earnings per share and diluted earnings per share in the notes to the accounts.

Question 6

Basic EPS is determined by dividing the earnings of the entity for the reporting period by the average number of shares.

Question 7

AASB 133 Earnings per Share does not require an entity to restate diluted earnings per share of any prior period presented in a case of a stock split.

Question 8

AASB 133 requires disclosure of diluted EPS even when these numbers are equal.

Question 9

AASB 133 Earnings per Share requires entities to reflect in the diluted earnings per share all outstanding convertible instruments.

Question 10

In calculating earnings per share,as per AASB 133 Earnings per Share options issued by the entity are assumed exercised at the beginning of the period or,if later,the date of issue of the option.

Question 11

AASB 133 Earnings per Share does not require entities to restate diluted earnings per share of any prior period presented for changes in the assumptions used in earnings per share calculations or for the conversion of potential ordinary shares into ordinary shares.

Question 12

In ranking dilutive potential ordinary shares,options and warrants are generally included first because they do not affect the numerator of the calculation.

Question 13

Potential ordinary shares are considered dilutive when their conversion would result in earnings per incremental share being less than basic EPS.

Question 14

To maximise dilution of basic EPS,dilutive potential ordinary shares with the highest 'earnings per incremental share' are included in the diluted earnings per share calculation before those with a lower 'earnings per incremental share'.

Question 15

For the purpose of calculating diluted EPS,AASB 133 requires an entity to assume the exercise of all outstanding options.

Question 16

In calculating the weighted-average number of ordinary shares for use in earnings per share,it is necessary to adjust the number of shares for the ordinary share equivalents represented by the partly paid ordinary shares' rights to participate in voting at the annual general meeting.

Question 17

In the situation that a parent entity is presenting its own accounts and consolidated accounts in the annual report,AASB 133 requires earnings per share to be presented in accordance with its requirements for both the parent entity accounts and the consolidated financial statements.

Question 18

AASB 133 adopts a substance over form test in relation to the definition of earnings.

Question 19

Under AASB 133 an entity is not required to disclose earnings per share where a loss has been made for the period.

Question 20

If a bonus or rights issue is made at the prevailing market price of the shares then there is no bonus element in the issue.

Question 21

Cavendish Ltd has 2 000 000 ordinary shares on issue at the beginning of the year,1 July 2014.These shares were issued at $2.00 each and at the end of the period have a current market value of $4.50.On 1 August 2014,Cavendish Ltd bought back 300 000 ordinary shares originally issued at $2.50 for $3.00 each.On 1 November 2014,800 000 shares were issued fully paid up at the current market value of these shares.On 1 March 2015,300 000 partly paid-up ordinary shares were issued at an issue price of $3.50.These shares were partly paid to $2.00.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price. For the year ended 30 June 2015,the net income after tax was $1 050 000.
What are the basic earnings per share for Cavendish Ltd for the year ended 30 June 2015?

A) $0.24
B) $0.45
C) $0.46
D) $0.49

Question 22

Gaslight Ltd has earnings after tax of $1 260 000 for the year ended 30 June 2015.At the beginning of the period Gaslight had 570 000 fully paid-up ordinary shares on issue.On 30 December 2014 the company made a one-for-two bonus issue.The last sale price of the shares immediately prior to the bonus issue was $4.50 each.What are the earnings per share taking into account the bonus issue?

A) $3.32
B) $1.47
C) $1.87
D) $3.00

Question 23

The definition of earnings contained in AASB 133:

A) is net profit attributable to ordinary shareholders of the parent entity net of preference dividends.
B) is net profit excluding earnings attributable to minority interests and measured before the costs of servicing equity other than dividends on ordinary shares are deducted.
C) is net profit excluding earnings attributable to minority outside equity interests.
D) excludes any cumulative preference dividends not paid in the period and is measured before the costs of servicing equity other than dividends on ordinary shares are deducted.

Question 24

The effect of a bonus issue on the market value of an entity's equity is:

A) The number of shares is increased, meaning that each shareholder benefits from the conversion of retained earnings into additional shares. Each shareholder benefits proportionately equally, however, so their relative positions remain the same.
B) The total equity of the entity remains the same, apart from the reclassification of reserves used to make the bonus issue. Each shareholder benefits from the ability to sell off the additional shares provided, so the market value of the entity remains the same.
C) The market price is observed to drop as a result of the increased supply of shares for sale because shareholders often respond to a bonus issue by selling off the 'windfall' shares.
D) Theoretically it should have no effect, but empirical evidence suggests that a bonus issue is used to signal an increase in dividends, so the total market value of the entity does sometimes increase.

Question 25

Ordinary shares are defined by AASB 133 as including ownership interests that are:

A) fully paid up for the whole of the period.
B) redeemable in full or in part at the discretion of the management of the entity.
C) called an ordinary share.
D) part of an equity instrument that is subordinate to all other classes of equity instruments.

Question 26

Craven Ltd has 10 000 000 ordinary shares on issue at the beginning of the year,1 July 2013.These shares were issued at $0.50 each and have a current market value of $3.00.On 1 November 2013,Craven Ltd bought back 1 000 000 ordinary shares originally issued at $0.50 for $1.90 each.On 1 February 2014,1 500 000 shares were issued fully paid up at the current market value of these shares.Also during the period,500 000 partly paid-up ordinary shares were issued.They were issued on 1 April 2014 at an issue price of $2.90.These shares were partly paid to $1.80.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price. Craven Ltd has 3 000 000,$1.00 preference shares that provide cumulative dividends at a rate of 8%.
For the year ended 30 June 2014,the net income after tax was $20 000 000.
What are the basic earnings per share for Craven Ltd for the year ended 30 June 2014?

A) $1.99
B) $2.00
C) $1.96
D) $1.53

Question 27

The earnings per share figure is likely to be of interest to shareholders and potential investors because:

A) It calculates the relationship between the share price and the earnings of the entity so that it reflects the market's evaluation of the quality of earnings of the entity.
B) It may be a useful predictor of share price to the extent that earnings are linked to future cash flows and the market reacts to unexpected changes in earnings.
C) The relationship between dividends and earnings provides a useful prediction of the likely future cash flows to shareholders from their investment in the entity.
D) It calculates the return on the capital invested by each shareholder for the period and so is a key benchmark for evaluating the success of the entity.

Question 28

Benjy Ltd has 8 000 000 ordinary shares on issue at the beginning of the year,1 July 2015.These shares were issued at $1.00 each and have a current market value at the end of the period of $5.20.On 1 September 2015,Benjy Ltd bought back 1 000 000 ordinary shares originally issued at $1.50 for $4.00 each.On 1 February 2016,2 000 000 shares were issued at the current market value of these shares.On 1 March 2016,900 000 partly paid-up ordinary shares were issued at an issue price of $5.00.These shares were partly paid to $4.00.Shares are not granted proportionate rights to receive dividends.This right attaches only when the shares are fully paid.The shares,however,do provide a proportionate right to vote at annual general meetings.What is the weighted-average number of shares calculated in accordance with AASB 133?

A) 8 232 438
B) 8 083 333
C) 7 991 781
D) 8 803 333

Question 29

The calculation of the theoretical ex-rights price of a share may be expressed as:

A) aggregate market price per share immediately prior to exercise of rights plus dividends receivable on the shares divided by number of shares outstanding after the exercise of rights.
B) aggregate market price per share immediately prior to exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding after the exercise of rights.
C) aggregate market price per share immediately after the exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding before the exercise of rights.
D) aggregate market price per share immediately after the exercise of rights plus proceeds from the exercise of rights divided by number of shares outstanding after the exercise of rights.

Question 30

According to AASB 133,the number of shares included in the weighted-average number of shares is determined by:

A) the number of shares that meet the definition of ordinary shares as at the end of the reporting period.
B) the number of shares that are on issue as ordinary shares for part or all of the period.
C) the number of ordinary shares (that meet the definition of ordinary shares) at the beginning of the period plus any ordinary shares issued during the period less any reductions in ordinary shares during the period.
D) the number of ordinary shares (as defined) that are issued or partly paid up at the beginning of the period plus any shares issued during the period whether fully or partly paid up.

Question 31

According to AASB 133,the weighting applied to calculate the weighted-average number of shares is:

A) the number of days that the shares are outstanding as a proportion of the total number of days in the period.
B) to weight the total number of shares by the market capitalisation value of each share.
C) to weight the total number of shares on issue for the period by the proportion of the total number of shares or other equity instruments on issue during the period.
D) to weight the number of shares calculated in accordance with AASB 133 by their issue price regardless of the period in which the shares were issued or their current market value.

Question 32

AASB 133 requires a bonus issue made during a period to be treated by:

A) removing the effect of the bonus issue by deflating the number of shares to the equivalent of the weighted-average number of ordinary shares that would have been on issue in the period if the bonus issue had not taken place.
B) no adjustment required; the calculation of the weighted-average number of shares issued during the period automatically takes into account the effect of issuing more shares.
C) increasing the number of shares issued before the bonus issue as if the bonus issue had been made at the beginning of the period. Previous period's earnings per share reported for comparative purposes should also be adjusted for the effect of the bonus issue.
D) calculating the earnings per share both by deflating the number of shares issued to pre-bonus issue numbers so that the earnings per share may be compared to previous periods and also calculating the 'post-bonus issue' earnings per share as a basis for continuing comparison in future periods.

Question 33

Beuno Ltd has 3 000 000 ordinary shares on issue at the beginning of the year,1 July 2014.These shares were issued at $2.00 each and at the end of the period have a current market value of $4.50.On 1 August 2014,Beuno Ltd bought back 600 000 ordinary shares originally issued at $2.50 for $3.00 each.On 1 November 2014,500 000 shares were issued fully paid up at the current market value of these shares.On 1 March 2015,200 000 partly paid-up ordinary shares were issued at an issue price of $3.50.These shares were partly paid to $2.00.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price.What is the weighted-average number of shares calculated in accordance with AASB 133?

A) 2 782 466
B) 2 797 613
C) 2 799 918
D) 2 820 665

Question 34

Which of the following equity instruments would be considered to be ordinary shares for the purposes of AASB 133?

A) ordinary shares that receive a dividend at the discretion of the ownership group or its representatives
B) preference shares that are entitled to a fixed low rate of dividends and an additional dividend when the rate of dividend to other classes of shares exceeds that fixed rate
C) ordinary shares that have the right to a cumulative fixed rate of dividends
D) ordinary shares that receive a dividend at the discretion of the ownership group or its representatives and preference shares that are entitled to a fixed low rate of dividends and an additional dividend when the rate of dividend to other classes of shares exceeds that fixed rate

Question 35

Which of the following entities is not in the scope of AASB 133 Earnings per Share?

A) partnerships
B) reporting entities in the process of listing on the Australian Stock Exchange
C) entities that voluntarily disclose earnings per share
D) reporting entities with listed ordinary shares

Question 36

AASB 133 requires partly paid ordinary shares to be accounted for in the calculation of earnings per share by:

A) including in the number of ordinary shares the partly paid ordinary share equivalents weighted by the proportion of the total issue value of the share that was paid up at the end of the reporting period.
B) including in the number of ordinary shares the partly paid ordinary share equivalents calculated as a proportionate weighted average of the total market capitalisation of the fully paid-up shares defined as ordinary according to AASB 133.
C) including in the number of ordinary shares the ordinary share equivalents represented by the proportionate rights of partly paid shares to participate in dividends, weighted by the proportion of the total number of days in the period that the partly paid shares were entitled to those rights.
D) excluding them from the calculation completely.

Question 37

Cooren Ltd has 1 520 000 ordinary shares on issue at the beginning of the year,1 July 2014.These shares were issued at $2.00 each and have a current market value of $3.50.On 1 October 2014,400 000 ordinary fully paid shares were issued for at the current market value of these shares.On 1 March 2015 Cooren Ltd bought back 100 000 shares originally issued at $2.50 for $3.25 each.What is the weighted-average number of shares calculated in accordance with AASB 133?

A) 1 515 178
B) 1 785 753
C) 1 751 707
D) 1 820 000

Question 38

Bates Ltd has 6 000 000 ordinary shares on issue at the beginning of the year,1 July 2013.These shares were issued at $4.00 each and have a current market value of $6.25.On 1 February 2014,Bates Ltd bought back 300 000 ordinary shares originally issued at $4.50 for $5.60 each.On 1 May 2014,1 000 000 fully paid-up shares were issued at the current market value.What is the weighted-average number of shares calculated in accordance with AASB 133?

A) 6 059 452
B) 6 196 552
C) 6 041 096
D) 6 627 397

Question 39

BI Ltd has 7 000 000 ordinary shares on issue at the beginning of the year,1 July 2014.These shares were issued at $4.50 each and have a current market value of $8.00.On 1 September 2014,BI Ltd bought back 500 000 ordinary shares originally issued at $4.50 for $6.50 each.On 1 December 2014,1 000 000 shares were issued fully paid up at the current market value of these shares.Also during the period,800 000 partly paid-up ordinary shares were issued.They were issued on 1 February 2015 at an issue price of $7.20.These shares were partly paid to $4.50.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price. BI Ltd has 1 000 000,$1.00 preference shares that provide non-cumulative dividends at a rate of 10%.The dividends were not paid this period.
For the year ended 30 June 2014,the net loss after tax was $1 000 000.
What are the basic earnings per share for BI Ltd for the year ended 30 June 2015?

A) none required because the company made a loss
B) ($0.15)
C) $0.20
D) ($0.14)

Question 40

For the purpose of calculating earnings per share,the denominator is:

A) outstanding ordinary shares at balance date.
B) weighted-average number of fully paid ordinary shares.
C) weighted-average number of the sum fully paid ordinary shares and partly paid equivalents.
D) outstanding ordinary shares at balance date and weighted-average number of fully paid ordinary shares.

Question 41

On a 1 July 2014,Mayorga Ltd has 3 000 000 ordinary shares on issue at the beginning of the year.During the year the movements in the company's outstanding ordinary shares are as follows:
On 1 August 2014,a rights issue of 600 000 ordinary shares at current market price of $2.50
On 1 March 2015,200 000 partly paid-up ordinary shares were issued at an issue price of $3.50.These shares were partly paid to $2.00.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price.
What is the weighted-average number of shares for Mayorga Ltd for the year ending 30 June 2015 that is in accordance with AASB 133 Earnings per Share?

A) 3 549 042
B) 3 587 242
C) 3 614 286
D) 3 800 000
E) None of the given answers.

Question 42

Phlox Ltd has a profit after tax of $6 590 000 for the period ended 30 June 2015.Phlox Ltd also has $1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. As at 1 July 2014 there were 3 000 000 fully paid ordinary shares issued.Phlox Ltd also has $1 500 000 in convertible debentures issued for the full year.It pays interest of 5% per annum and could be converted to 300 000 ordinary shares at the option of the debenture-holders.There are also 100 000 share options currently on issue with an exercise price of $1.30.The average market price for ordinary shares during the year was $2.70.The tax rate is 33%.What are the diluted earnings per share for Phlox Ltd in accordance with AASB 133?

A) $1.92
B) $1.95
C) $1.97
D) $2.20

Question 43

Under which of the following situations would the potential ordinary shares be included in the calculation of diluted earnings per share?

A) Conversion of the potential ordinary shares would increase the loss from continuing ordinary operations per share.
B) Conversion of the potential ordinary shares would increase earnings per share.
C) Earnings per incremental share are greater than basic earnings per share.
D) out-of-the money options

Question 44

Jackie Ltd has a profit after tax of $6 590 000 for the period ended 30 June 2013.In addition it has $1 000 000 of 6% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. Jackie Ltd has 3 000 000 ordinary shares on issue at the beginning of the year 1 July 2012.On 1 November 2012,there was a 1for 6 rights issue with a subscription price of $4.00 each.The current market value of these shares is $4.50.
On 1 March 2013,200 000 partly paid-up ordinary shares were issued at an issue price of $4.50.These shares were partly paid to $2.25.The partly paid shares are permitted proportionate rights to vote and receive dividends based on the relationship between the amount paid up and the issue price.
What is the basic EPS for Jackie Ltd for the year ending 30 June 2013 that is in accordance with AASB 133 Earnings per Share?

A) $1.91
B) $1.93
C) $1.94
D) $1.95

Question 45

Navajo Ltd have the following options on issue as at 30 June 2009: $$\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { I: } \\\text { Option issued } \\1 \text { July } 2006\end{array} & \begin{array} { l } \text { II: } \\\text { Option issued } \\1 \text { July } 2007\end{array} & \begin{array} { l } \text { III: } \\\text { Option issued } \\1 \text { July } 2008\end{array} \\\hline \text { Number of options } & 100000 & 200000 & 300000 \\\hline \text { Exercise price } & \$ 2.60 & \$ 3.30 & \$ 4.50 \\\hline \text { Expiry date } & 30 \text { June } 2010 & 30 \text { June } 2012 & 30 \text { June 2013 } \\\hline\end{array}$$ The close price for Navajo Ltd shares was $3.35 and the average market price for the period was $3.20.
In relation to Option 1 issued on 1 July 2006,how many shares are deemed to be issued for no consideration?

A) Nil
B) 18 750
C) 22 388
D) 100 000

Question 46

Sedona Ltd historically makes a profit and would like to reward its shareholders by declaring a bonus issue next year but is not sure what effects it may have on the company's basic and diluted EPS.As accountant to Sedona Ltd which advice do you think would best describe the effects of a bonus issue?

A)
$$\begin{array} { | l | l | } \hline \text { Basic EPS } & \text { Diluted EPS } \\\hline \text { No effect } & \text { No effect } \\\hline\end{array}$$
B)
$$\begin{array} { | l | l | } \hline \text { Basic EPS } & \text { Diluted EPS } \\\hline \text { Decrease } & \text { Decrease } \\\hline\end{array}$$
C)
$$\begin{array} { | l | l | } \hline \text { Basic EPS } & \text { Diluted EPS } \\\hline \text { Decrease } & \text { No effect } \\\hline\end{array}$$
D)
$$\begin{array} { | l | l | } \hline \text { Basic EPS } & \text { Diluted EPS } \\\hline \text { Increase } & \text { Increase } \\\hline\end{array}$$

Question 47

In order to determine whether or not potential ordinary shares are dilutive,AASB 133 requires:

A) each issue to be considered separately and ranked from greatest dilution to least dilution.
B) each issue to be included in the calculation on the basis of date of issue, i.e. earliest to the latest issue.
C) each issue to be considered separately and included in the calculation in the order of the number of ordinary shares to be potentially issued, from highest to lowest.
D) each issue to be considered separately the number of ordinary shares on issue, from highest to lowest.

Question 48

Navajo Ltd have the following options on issue as at 30 June 2009: $$\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { I: } \\\text { Option issued } \\1 \text { July } 2006\end{array} & \begin{array} { l } \text { II: } \\\text { Option issued } \\1 \text { July } 2007\end{array} & \begin{array} { l } \text { III: } \\\text { Option issued } \\\text { 1 July 2008 }\end{array} \\\hline \text { Number of options } & 100000 & 200000 & 300000 \\\hline \text { Exercise price } & \$ 2.60 & \$ 3.30 & \$ 4.50 \\\hline \text { Expiry date } & 30 \text { June } 2010 & 30 \text { June 2012 } & 30 \text { June 2013 } \\\hline\end{array}$$ The close price for Navajo Ltd shares was $3.35 and the average market price for the period was $3.20.
In accordance with AASB 113,which of the options in the table is/are potentially diluting for Navajo Ltd for the year ended 30 June 2009?

A) I, II and III
B) I and II
C) II and III
D) I only

Question 49

In accordance with AASB 133,which of the following is required to be presented on the face of the statement of comprehensive income?
I: basic and diluted EPS from continuing operations attributable to ordinary shareholders of the parent entity
II: basic and diluted EPS for discontinued operations
III: basic and diluted loss per share

A) I and III
B) I and II
C) I only
D) all of the given answers

Question 50

Awake Ltd has a net income after tax of $5 620 000 for the year ended 30 June 2016.At the beginning of the period Awake Ltd has 1 000 000 fully paid-up ordinary shares on issue.On 1 February 2016,Awake Ltd makes a rights issue of 1 fully paid share for every 4 shares held.The required payment for the rights issue shares was $3.00.The last cum rights price was $3.80.Awake Ltd also has 2 000 000,$1.00,cumulative,7 per cent preference shares on issue for the whole period.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. What are the basic earnings per share for the period ended 30 June 2015 in accordance with AASB 133?

A) $4.39
B) $4.61
C) $4.97
D) $5.22

Question 51

Which of the following statements is true in accordance with AASB 133?

A) If a bonus or rights issue is made at the prevailing market price of the shares, then there is no bonus element in the issue.
B) An entity is required to disclose earnings per share even though a loss has been made for the period.
C) All reporting entities are required to disclose earnings per share and diluted earnings per share in the notes to the accounts.
D) An entity is required to disclose earnings per share on the face of the statement of comprehensive income.

Question 52

Tucson Ltd reported a net income after tax of $2 850 000 for the year ended 30 June 2012.The capital structure of Tucson Ltd follows: $$\begin{array} { | l | r | r | } \hline & \text { 30 June 2011 } & 30 \text { June 2012 } \\\hline \text { Ordinary shares } & 500000 & 500000 \\\hline \begin{array} { l } \text { Convertible preferred shares (\$3 dividend per share; convertible } \\\text { to } 10000 \text { ordinary shares ) }\end{array} & 10000 & 10000 \\\hline 8 \% \text { Convertible notes (convertible to } 30000 \text { ordinary shares) } & \$ 1000000 & \$ 1000000 \\\hline\end{array}$$ Tucson Ltd paid its preference shareholders during the year and there are non-dividends in arrears.All potential ordinary shares were outstanding on 1 July 2011.
The company's tax rate is 30%.
In accordance with AASB 133,what should the basic earnings per share and diluted earnings per share for Tucson Ltd should be?

A) $5.64; $5.48
B) $5.64; $5.44
C) $5.70; $5.44
D) $5.70; $5.48

Question 53

Daisy Ltd has a net income after tax of $2 000 000 for the year ended 30 June 2013.At the beginning of the period Daisy Ltd has 900 000 fully paid-up ordinary shares on issue.On 1 December 2012 Daisy Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00.On 1 March 2013 Daisy Ltd made a one-for-six bonus issue of ordinary shares out of retained earnings.The last sale price of an ordinary share before the bonus issue was $2.50.At the beginning of the current period Daisy Ltd also had 500 000,$1.00,5% cumulative preference shares on issue.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. The basic earnings per share for the period ended 30 June 2012 was $1.50 per share.What are the earnings per share figure for the period ended 30 June 2013 and what are the comparative earnings per share for the previous year to be reported in the 2013 financial reports according to AASB 133?

A) current period (2013) $1.58; previous period (2012) $1.29
B) current period (2013) $1.60; previous period (2012) $1.75
C) current period (2013) $1.73; previous period (2012) $1.29
D) current period (2013) $1.75; previous period (2012) $1.75

Question 54

Rose Ltd has a net income after tax of $3 400 000 for the year ended 30 June 2015.At the beginning of the period Rose Ltd has 1 800 000 fully paid-up ordinary shares on issue.On 1 October 2014 Rose had issued a further 200 000 fully paid-up ordinary shares at an issue price of $5.00.On 1 May 2015 Rose Ltd made a one-for-four bonus issue of ordinary shares out of retained earnings.The last sale price of an ordinary share before the bonus issue was $5.50.The basic earnings per share for the period ended 30 June 2014 was $2.00 per share.What is the earnings per share figure for the period ended 30 June 2015 and the comparative earnings per share for the previous year to be reported in the 2015 financial reports according to AASB 133?

A) current period (2015) $1.67; previous period (2014) $2.00
B) current period (2015) $1.34; previous period (2014) $2.50
C) current period (2015) $1.83; previous period (2014) $1.50
D) current period (2015) $1.40; previous period (2014) $1.60

Question 55

Gimlet Ltd has earnings after tax of $930 000 for the year ended 30 June 2015.At the beginning of the period Gimlet had 250 000 fully paid-up ordinary shares on issue.On 30 December 2014 the company made a one-for-six bonus issue.The last sale price of the shares immediately prior to the bonus issue was $1.35 each.What are the earnings per share taking into account the bonus issue?

A) $3.72
B) $4.13
C) $4.34
D) $3.19

Question 56

For the purpose of calculating dilutive earnings per share,options on issue are:

A) assumed exercised and converted at the beginning of the period or the date of issue, whichever is latest.
B) assumed dilutive only when it results in an issue of ordinary shares for less than the average market price during the period.
C) assumed dilutive only when it results to an issue of ordinary shares for less than the end-of-period market price.
D) treated similar to a bonus issue.

Question 57

Nogales Ltd is planning to raise $100 million to finance its research and development program in the lucrative biotechnology division of the company.The company's internal forecasts for the year ended 30 June 2014 for selected accounts follow: $$\begin{array} { | l | l | } \hline \text { Total liabilities } & \$ 250 \text { million } \\\hline \text { Total shareholders' equity } & \$ 150 \text { million } \\\hline \text { Net income after tax } & \$ 10 \text { million } \\\hline\end{array}$$ There are 10 000 000 ordinary shares on issue.The entity has a debt covenant that debt-to-equity ratio be kept at less than two.
Three alternatives for funding the projects were considered by the board of directors:
Issue of ordinary shares equivalent to $100 million (equivalent to 5 million ordinary shares)
Issue of 10%,10-year non-convertible notes
Issue of 6%,preference shares (redeemable on 30 June 2024)
Which of the following statements made by a director is correct with respect to the three funding alternatives?

A) The 10-year non-convertible notes issue will have no dilution effect and no impact on the company's debt covenant.
B) Earnings per share will decline by one third with the issue of ordinary shares.
C) The issue of preference shares will have no dilution effect and no impact on the company's debt covenant.
D) Earnings per share will decline by one third with the issue of ordinary shares and the issue of preference shares will have no dilution effect and no impact on the company's debt covenant.

Question 58

Dormant Ltd has a net income after tax of $2 540 000 for the year ended 30 June 2015.At the beginning of the period Dormant Ltd had 3 000 000 fully paid-up ordinary shares on issue.On 1 November 2014,Dormant Ltd makes a rights issue of 1 fully paid share for every 6 shares held.The required payment for the rights issue shares was $2.00.The last cum rights price was $3.00.What are the basic earnings per share for the period ended 30 June 2015 in accordance with AASB 133?

A) $0.73
B) $0.75
C) $0.76
D) $0.78

Question 59

Flagstaff Ltd has the following potentially diluting securities outstanding for the year ended 30 June 2014:
$200 000,6.5%,convertible note (10 000 ordinary shares)
$200 000,6.5%,convertible preference shares (10 000 ordinary shares)
10 000 employee options convertible to one ordinary share (exercise price $2.50; average market price during the year was $2.70)
50 000 executive options convertible to one ordinary share (exercise price $4.50)
Basic EPS for the year ended 30 June 2014 is calculated at $1.20 per share.
Rank the above securities in the order of most dilutive to least dilutive potential ordinary shares that is in accordance with AASB 133

A) executive options, employee options, convertible preference shares, convertible notes
B) executive options, employee options, convertible notes, convertible preference shares
C) employee options, convertible notes
D) employee options, convertible notes, convertible preference shares

Question 60

Pilbarra Ltd has a profit after tax of $20 220 000 for the period ended 30 June 2015.Pilbarra Ltd also has $15 000 000 of 5% cumulative preference shares.The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. As at 1 July 2014 there were 12 000 000 fully paid ordinary shares issued.Pilbarra Ltd also has $6 000 000 in convertible debentures issued for the full year.It pays interest of 4.5% per annum and could be converted to 3 000 000 ordinary shares at the option of the debenture-holders.There are also 900 000 share options currently on issue with an exercise price of $4.50.The average market price for ordinary shares during the year was $6.90.In addition to the preference shares mentioned above,Pilbarra Ltd also has 1 000 000,$1.00,4% cumulative convertible preference shares that are convertible at the option of the entity.It is probable that these preference shares will be converted some time in the next period.The tax rate is 33%.What are the diluted earnings per share for Pilbarra Ltd in accordance with AASB 133?

A) $1.17
B) $1.21
C) $1.26
D) $2.20

Question 61

What are the effects of discontinued operations in the reporting of earnings per share?

Question 62

Fitzroy Ltd has the following potential ordinary shares on issue as at 30 June 2009: $$\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { Executive options } \\\text { issued 1 July 2006 }\end{array} & \begin{array} { l } \text { Employees options } \\\text { issued 1 July 2007 }\end{array} & \begin{array} { l } \text { Employees options } \\\text { issued 1 July 2008 }\end{array} \\\hline \text { No. of options } & 100000 & 200000 & 150000 \\\hline \text { Exercise price } & \$ 2.80 & \$ 3.10 & \$ 3.30 \\\hline \text { Expiry date } & 30 \text { June 2010 } & 30 \text { June 2012 } & \text { 30 June 2013 } \\\hline\end{array}$$ The closing price for Fitzroy Ltd shares on 30 June 2009 was $3.35 and the average share price for the period was $3.20.
Which of following statements is correct with respect to the determination of a dilutive security that is in accordance with AASB 133 Earnings per Share?

A) Executive options (issued on 1 July 2006) and employee options (issued on 1 July 2007) are both dilutive.
B) Executive options (issued on 1 July 2006) and employee options (issued on 1 July 2008) are both dilutive.
C) Employee options (issued on 1 July 2007) and employee options (issued on 1 July 2008) are both dilutive.
D) All the potential ordinary shares are dilutive.

Question 63

Describe how the calculation of a basic EPS will be affected by a bonus issue that is in accordance with AASB 133 Earnings per Share.

Question 64

Discuss what is referred to in AASB 133 Earnings per Share as antidilutive security and illustrate a potential ordinary share that is considered to be antidilutive.

Question 65

Tucson Ltd reported basic EPS was $5.70 for the year ended 30 June 2014.It also has the following potential ordinary shares outstanding for the entire period. $$\begin{array} { | l | r | } \hline { \text { Type of potential ordinary shares } } & \text { Incremental EPS } \\\hline \text { Convertible preferred shares (convertible to } 10000 \text { ordinary shares) } & \$ 3.00 \\\hline \text { Convertible notes (convertible to } 30000 \text { ordinary shares) } & \$ 2.00 \\\hline \text { Executive options (exercise price } \$ 20 \text {, average share price } \$ 17 \text { ) } & \text { NA } \\\hline \text { Employee options (exercise price } \$ 15 \text {, average share price } \$ 17 \text { ) } & \text { NA } \\\hline\end{array}$$ The share price on 30 June 2014 is $21.00. Which of the above potential ordinary shares is the most dilutive and least dilutive POS in accordance with AASB 133 Earnings per Share,respectively?

A) employee options; convertible preference shares
B) employee options; convertible notes
C) executive options; convertible preference shares
D) executive options; convertible notes

Question 66

ABC Ltd's basic earnings per share is $1.25 for the year ended 2012.The company has the following outstanding potential ordinary shares at the start of the year with the following information: $$\begin{array} { | l | r | r | } \hline { \text { Potential ordinary shares (POS) } } & \text { Number of POS } & \text { Incremental EPS } \\\hline \text { Preference shares } & 50000 & \$ 0.17 \\\hline \text { Convertible notes } & 50000 & \$ 0.20 \\\hline \text { Executive options(exercise price } - \$ 2.20 \text {; expiry date 30/06/16) } & 100000 & \text { NA } \\\hline \text { Employee options (exercise price } - \$ 1.70 \text {; expiry date 30/06/14) } & 100000 & \text { NA } \\\hline\end{array}$$ Average share price for ABC Ltd during the year is $1.80.
Which of the above potential ordinary shares is the most dilutive and least dilutive POS in accordance with AASB 133 Earnings per Share,respectively?

A) convertible notes, employee options
B) executive options, convertible notes
C) employee options, convertible notes
D) preference shares, executive options

Question 67

Discuss when potential ordinary shares are excluded from the calculation of diluted EPS?

Question 68

Describe the AASB 133 EPS disclosure requirements.

Question 69

To maximise the dilution of basic earnings per share,discuss the requirements of AASB 133 Earnings per Share in determining whether potential ordinary shares are dilutive or antidilutive.

Question 70

Why is the EPS number that important in financial reporting that there is one accounting standard devoted to this calculation process?

Question 71

According to AASB 133 for shares to be considered as being issued for no consideration,the price paid for the shares would need to be:

A) greater than the market price.
B) greater than the issued price.
C) less than the market price.
D) less than the issued price.

Question 72

When the exercise price of a rights issue is lower than the market price of the shares,this is known as a:

A) premium element.
B) bonus element.
C) discount element.
D) reduced element.

Question 73

A bonus issue will have an impact on:

A) the number of issued preference shares.
B) the overall debt of the entity.
C) the overall value of the owners' equity.
D) the weighted-average number of ordinary shares.

Question 74

According to AASB 133 the two factors that must be considered when calculating the earnings per share include how earning are defined and:

A) how preference dividends have affected the profit.
B) how the market capitalises the value of each share.
C) how the number of shares are determined.
D) how the shares were issued.

Question 75

If an entity has both convertible preference shares and convertible notes outstanding at year-end paying the same amount of cash payment and convertible to equal numbers of ordinary shares,which security will cause the greater reduction in diluted EPS when converted and why?

Question 76

Richmond Ltd has the following potential ordinary shares on issue as at 30 June 2009: $$\begin{array} { | l | l | l | l | } \hline & \begin{array} { l } \text { Executive options } \\\text { issued 1 July 2006 }\end{array} & \begin{array} { l } \text { Employees options } \\\text { issued 1 July 2007 }\end{array} & \begin{array} { l } \text { Employees options } \\\text { issued 1 July 2008 }\end{array} \\\hline \text { No. of options } & 100000 & 200000 & 150000 \\\hline \text { Exercise price } & \$ 2.80 & \$ 3.10 & \$ 3.30 \\\hline \text { Expiry date } & 30 \text { June } 2010 & 30 \text { June } 2012 & 30 \text { June } 2013 \\\hline\end{array}$$ The closing price for Richmond Ltd shares on 30 June 2009 was $3.35 and the average share price for the period was $3.20.
What is the total number of shares deemed issued for no consideration for all of above potential ordinary shares that is in accordance with AASB 133 Earnings per Share?

A) 14 063
B) 18 750
C) 31 343
D) 33 582