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Question 31c
ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - IAS 33 Diluted EPS - Past Papers 11 / 12
Specimen
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MC Question 7
On 1 October 20X4, Hoy Co had $2·5 million of equity share capital (shares of 50 cents each) in issue.
No new shares were issued during the year ended 30 September 20X5, but on that date there were outstanding share options which had a dilutive effect equivalent to issuing 1·2 million shares for no consideration.
Hoy’s profit after tax for the year ended 30 September 20X5 was $1,550,000.
In accordance with IAS 33 Earnings Per Share, what is Hoy’s diluted earnings per share for the year ended 30 September 20X5?
A $0·25
B $0·41
C $0·31
D $0·42
Sample
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Question 3d
The following trial balance relates to Downing Co as at 31 March 2016:
| $’000 | $’000 | |
|---|---|---|
| Equity shares of $1 each | 25,000 | |
| Other equity | 11,800 | |
| Retained earnings at 1 April 2015 | 8,000 | |
| 5% convertible loan notes (note (iii)) | 30,000 | |
| Land and buildings at cost (land element $14 million) (note (iv)) | 64,000 | |
| Plant and equipment at cost (note (iv)) | 82,700 | |
| Patent at cost (ten-year life) (note (iv)) | 7,500 | |
| Accumulated depreciation/amortisation at 1 April 2015: | ||
| buildings | 5,000 | |
| plant and equipment | 36,700 | |
| patent | 3,000 | |
| Inventory at 31 March 2016 | 32,100 | |
| Trade receivables | 38,500 | |
| Bank | 2,700 | |
| Current tax (note (v)) | 1,550 | |
| Deferred tax (note (v)) | 4,800 | |
| Revenue (note (i)) | 267,900 | |
| Cost of sales | 166,600 | |
| Distribution costs | 20,000 | |
| Administrative expenses | 22,000 | |
| Contract asset (note (ii)) | 5,000 | |
| Loan note interest paid (note (iii)) | 1,500 | |
| Bank interest | 150 | |
| Other operating income from royalties | 300 | |
| Trade payables | 46,400 | |
| 441,600 | 441,600 |
The following notes are relevant:
| (iii) | Downing Co issued 300,000 $100 5% convertible loan notes on 1 April 2015. The loan notes can be converted to equity shares on the basis of 25 shares for each $100 loan note on 31 March 2018 or redeemed at par for cash on the same date. An equivalent loan note without the conversion rights would have required an interest rate of 8%. The present value of $1 receivable at the end of each year, based on discount rates of 5% and 8%, are: |
|---|
| 5% | 8% | |
|---|---|---|
| End of year 1 | 0·95 | 0·93 |
| 2 | 0·91 | 0·86 |
| 3 | 0·86 | 0·79 |
Required:
| (d) | The finance director of Downing Co has correctly calculated the company’s basic and diluted earnings per share (EPS) to be disclosed in the financial statements for the year ended 31 March 2016 at 148·2 cents and 119·4 cents respectively. On seeing these figures, the chief executive officer (CEO) is concerned that the market will react badly knowing that the company’s EPS in the near future will be only 119·4 cents, a fall of over 19% on the current year’s basic EPS. Required: |
|---|
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MC Question 2
Aqua has correctly calculated its basic earnings per share (EPS) for the current year.
Which of the following items need to be additionally considered when calculating Aqua’s diluted EPS for the year?
| (i) | A 1 for 5 rights issue of equity shares during the year at $1·20 when the market price of the equity shares was $2·00 |
|---|---|
| (ii) | The issue during the year of a convertible (to equity shares) loan note |
| (iii) | The granting during the year of directors’ share options exercisable in three years’ time |
| (iv) | Equity shares issued during the year as the purchase consideration for the acquisition of a new subsidiary company |
A All four
B (i) and (ii) only
C (ii) and (iii) only
D (iii) and (iv) only
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MC Question 13
Many commentators believe that the trend of earnings per share (EPS) is a more reliable indicator of underlying performance than the trend of the net profit for the year.
Which of the following statements supports this view?
| A | Net profit can be manipulated by the choice of accounting policies but EPS cannot be manipulated in this way |
|---|---|
| B | EPS takes into account the additional resources made available to earn profit when new shares are issued for cash, whereas net profit does not |
| C | The disclosure of a diluted EPS figure is a forecast of the future trend of profit |
| D | The comparative EPS is restated where a change in accounting policy affects the previous year’s profits |
Specimen
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MC Question 14
On 1 October 2013, Hoy had $2·5 million of equity shares of 50 cents each in issue.
No new shares were issued during the year ended 30 September 2014, but on that date there were outstanding share
options to purchase 2 million equity shares at $1·20 each.
The average market value of Hoy’s equity shares during the year ended 30 September 2014 was $3 per share.
Hoy’s profit after tax for the year ended 30 September 2014 was $1,550,000.
In accordance with IAS 33 Earnings per Share, what is Hoy’s diluted earnings per share for the year ended 30 September 2014?
A 25·0 cents
B 22·1 cents
C 31·0 cents
D 41·9 cents