Question 1

A bonus issue will have an impact on:

Accepted Answer

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. 
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. D

Question 2

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

Accepted Answer

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. 
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. D

Question 3

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

Accepted Answer

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. 
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. C

Question 4

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

A) True 
 B)False

Question 5

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.

Accepted Answer

AASB 133 requires that,in determining th

Question 6

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?

Accepted Answer

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

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

The accounting standard requires for the

Question 9

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

A) True 
 B)False

Question 10

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.

Accepted Answer

Ranking the potential ordinary shares fr

Question 11

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

A) True 
 B)False

Question 12

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?

Accepted Answer

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

Question 13

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

Accepted Answer

There is a general rule that if a potent

Question 14

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

Accepted Answer

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 
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 15

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

Accepted Answer

If an entity has a discontinued operatio

Question 16

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?

Accepted Answer

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

Question 17

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?

Accepted Answer

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

Question 18

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

Accepted Answer

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. 
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 19

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

Accepted Answer

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. 
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 20

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?

Accepted Answer

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

Exam 26: Earnings Per Share

A bonus issue will have an impact on:

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

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

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.

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.

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

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.

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.

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.

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.

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

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

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

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

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

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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