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

Question

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

Quizplus · 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.

Earnings Per Share Disclosed by Reporting Entities Have Limitations Because