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.

Accepted Answer

This is because the conversion of potential ordinary shares to ordinary shares is considered a dilutive factor in the calculation of diluted earnings per share, regardless of whether it actually dilutes earnings per share or not. Therefore, it must be included in the calculation.

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.

Accepted Answer

Earnings per share (EPS) calculations under AASB 133 do standardize some aspects, but they still involve professional judgment in areas such as the determination of complex financial instruments as potential ordinary shares, adjustments for changes in capital structure, and the treatment of potential ordinary shares in diluted EPS calculations.

Question 3

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

Accepted Answer

The conversion of potential ordinary shares can have flow-on effects, such as dilution of ownership and earnings per share.

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.

Accepted Answer

AASB 133 requires an entity to disclose basic earnings per share (EPS) figures for both continuing and discontinued operations, but it specifies that these disclosures should be made in the notes to the financial statements, not 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.

Accepted Answer

The answer of AASB 133 requires entities to disclose earnings...

Question 6

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

Accepted Answer

The answer of Basic EPS is determined by dividing the...

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.

Accepted Answer

AASB 133 requires an entity to adjust all prior period diluted earnings per share data presented for changes in the capital structure, such as stock splits, to make them comparable to the current period's calculation.

Question 8

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

Accepted Answer

AASB 133 requires disclosure of diluted EPS even when these numbers are equal. This is because diluted EPS represents a theoretical projection of earnings per share in the future, assuming that all potentially dilutive instruments are exercised or converted. Being a theoretical projection, it is important for investors to have access to this information, even if it may be the same as basic EPS.

Question 9

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

Accepted Answer

The answer of AASB 133 Earnings per Share requires entities...

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.

Accepted Answer

The answer of In calculating earnings per share,as per AASB...

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.

Accepted Answer

AASB 133 does not require restatement of diluted earnings per share for changes in assumptions or conversion of potential ordinary shares into ordinary shares for any prior period presented. This is stated in paragraph 60 of the standard.

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.

Accepted Answer

Options and warrants are included first in the calculation of diluted earnings per share because they typically only affect the denominator (number of shares) and not the numerator (earnings), making them potentially dilutive to the earnings per share calculation.

Question 13

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

Accepted Answer

Dilutive potential ordinary shares are those that can affect the calculation of earnings per share (EPS) by increasing the number of outstanding shares. They are considered dilutive when their conversion would result in a decrease in EPS or in a higher amount of dilution of existing shareholders. In such cases, the diluted EPS is usually presented along with the basic EPS to provide a more accurate picture of the company's earnings per share.

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'.

Accepted Answer

To maximize dilution of basic EPS, dilutive potential ordinary shares with the lowest 'earnings per incremental share' are included first in the diluted earnings per share calculation, not those with the highest. This approach ensures that the calculation captures the most significant potential dilution effect.

Question 15

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

Accepted Answer

AASB 133 requires an entity to calculate diluted EPS by assuming the conversion of all dilutive potential ordinary shares, but not all outstanding options are considered dilutive; only those that would decrease earnings per share or increase loss per share if exercised are considered.

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.

Accepted Answer

In calculating the weighted-average number of ordinary shares for earnings per share (EPS) calculations, adjustments are made for changes in the number of shares over the period (due to events such as stock splits or dividends) and for the dilutive effects of potential ordinary shares (like stock options or convertible securities). The rights of partly paid shares to participate in voting do not affect the calculation of the weighted-average number of shares for EPS.

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.

Accepted Answer

AASB 133 requires earnings per share to be presented only for the consolidated financial statements, not for the parent entity's separate financial statements.

Question 18

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

Accepted Answer

AASB 133, which deals with Earnings Per Share, does not specifically adopt a substance over form test in relation to the definition of earnings. It focuses on the calculation and presentation of earnings per share.

Question 19

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

Accepted Answer

Under AASB 133, an entity is still required to disclose earnings per share even if a loss has been made for the period. However, the disclosure should show a negative figure.

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.

Accepted Answer

If a bonus or rights issue is made at the prevailing market price of the shares, then there is no bonus element as the issue is made at market value. A bonus issue involves the distribution of additional shares to existing shareholders free of cost, which would increase the total number of shares outstanding without changing the value of the company. However, if the bonus issue is made at a price below the prevailing market price, it would be considered a bonus element. Similarly, a rights issue allows existing shareholders to purchase additional shares at a discounted price, which could be considered a bonus element if the discount is significant.

Quiz 26: Earnings Per Share