Since 1977
THEORY OF ACCOUNTS
ToA.1827 Earnings Per Share
REVIEW QUESTIONS
1. Which statement is incorrect regarding the objective of
PAS 33?
a. The objective is to prescribe principles for the
determination and presentation of earnings per
share, so as to improve performance comparisons
between different entities in the same reporting
period and between different reporting periods for
the same entity.
b. Even though earnings per share data have
limitations because of the different accounting
policies that may be used for determining
earnings, a consistently determined denominator
enhances financial reporting.
c. The focus of PAS 33 is on the numerator of the
earnings per share calculation.
d. None of the above.
2. EPS disclosures are
a. Encouraged for all entities
b. Required for all entities
c. Encouraged for public entities and required for
nonpublic enterprises.
d. Required for public entities and encouraged for
nonpublic enterprises.
3. Dilution is
a. An increase in earnings per share resulting from
the assumption that convertible instruments are
converted, that options or warrants are exercised,
or that ordinary shares are issued upon the
satisfaction of specified conditions.
b. A reduction in loss per share resulting from the
assumption that convertible instruments are
converted, that options or warrants are exercised,
or that ordinary shares are issued upon the
satisfaction of specified conditions.
c. Either a or b.
d. Neither a nor b.
4. Which statement is incorrect regarding requirement to
present EPS?
a. An entity whose securities are publicly traded (or
that is in process of public issuance) must present,
in the statement of comprehensive income, basic
and diluted earnings per share.
b. Basic and diluted earnings per share must be
presented with equal prominence for all periods
presented.
c. Basic and diluted EPS must be presented even if
the amounts are negative.
d. If an entity reports a discontinued operation, basic
and diluted amounts per share must be disclosed
for the discontinued operation on the face of the
income statement.
5. Which statement is incorrect regarding presentation of
basic and diluted EPS?
a. Earnings per share is presented for every period
for which a statement of comprehensive income is
presented.
b. If diluted earnings per share is reported for at least
one period, it shall be reported for all periods
presented, even if it equals basic earnings per
share.
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c. If basic and diluted earnings per share are equal,
dual presentation can be accomplished in one line
in the statement of comprehensive income.
d. None of the above.
6. If an entity presents items of profit or loss in a
separate statement of profit or loss, it presents
earnings per share
a. Only in the statement of profit or loss.
b. Only in the statement of profit or loss and other
comprehensive income.
c. Only in the statement of changes in equity.
d. Only in the notes to the financial statements.
7. EPS should always be shown separately for
a. Net income and gross profit.
b. Net income and pretax income.
c. Income from continuing operations.
d. Discontinued operations and prior period
adjustments.
8. Which statement is incorrect regarding basic EPS?
a. An entity shall calculate basic earnings per share
amounts for profit or loss attributable to ordinary
equity holders of the parent entity and, if
presented, profit or loss from continuing operations
attributable to those equity holders.
b. Basic earnings per share shall be calculated by
dividing profit or loss attributable to ordinary
equity holders of the parent entity (the numerator)
by the number of ordinary shares outstanding (the
denominator) at the end of the period.
c. The objective of basic earnings per share
information is to provide a measure of the
interests of each ordinary share of a parent entity
in the performance of the entity over the reporting
period.
d. None of the above.
9. Earnings per share is calculated before accounting for
which of the following items?
a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest
10. For the purpose of calculating basic earnings per
share, the amounts attributable to ordinary equity
holders of the parent entity shall be adjusted for the
after-tax amounts of preference dividends. The after-
tax amount of preference dividends that is deducted
from profit or loss does not include:
a. The after-tax amount of any preference dividends
on non-cumulative preference shares declared in
respect of the period.
b. The after-tax amount of the preference dividends
for cumulative preference shares required for the
period, whether or not the dividends have been
declared.
c. The amount of any preference dividends for
cumulative preference shares paid or declared
during the current period in respect of previous
periods.
d. None of the above.
ToA.1827
EXCEL PROFESSIONAL SERVICES, INC.
11. Which statement is incorrect regarding increasing rate
preference shares?
a. Increasing rate preference shares provide for a low
initial dividend to compensate an entity for selling
the preference shares at a discount.
b. Increasing rate preference shares provide for an
above-market dividend in later periods to
compensate investors for purchasing preference
shares at a premium.
c. Any original issue discount or premium on
increasing rate preference shares is amortized to
profit or loss using the effective interest method.
d. Any original issue discount or premium on
increasing rate preference shares is treated as a
preference dividend for the purposes of calculating
earnings per share.
12. The following are deducted in calculating profit or loss
attributable to ordinary equity holders of the parent,
except
a. The after-tax amount of preference dividends.
b. The excess of the fair value of the consideration
paid to the preference shareholders over the
carrying amount of the repurchased preference
shares.
c. The excess of the fair value of the ordinary shares
or other consideration paid over the fair value of
the ordinary shares issuable under the original
conversion terms in relation to induced early
conversion of convertible preference shares.
d. Any excess of the carrying amount of preference
shares over the fair value of the consideration paid
to settle them.
13. Which of the following is incorrect regarding inclusion
of shares in the weighted average number of shares?
a. Ordinary shares issued as a result of the
conversion of a debt instrument to ordinary shares
are included from the date that interest ceases to
accrue.
b. Ordinary shares issued in exchange for the
settlement of a liability of the entity are included
from the settlement date.
c. Ordinary shares issued for the rendering of
services to the entity are included as the services
are rendered.
d. Ordinary shares issued in exchange for cash are
included when cash is received.
14. Ordinary shares issued as part of a business
combination are included in the EPS calculation in the
case of the "purchase" method from
a. The beginning of the accounting period.
b. The date of acquisition
c. The end of the accounting period.
d. The midpoint of the accounting year.
15. At what point are dilutive potential shares deemed to
have been converted into ordinary shares?
a. At the start of the period.
b. At the end of the period.
c. The date of the issue of the dilutive shares.
d. At the start of the period or, if later, the date of
the issue of the potential shares.
16. If a stock option is converted on March 31, 2014, then
a. The potential ordinary shares (stock option) are
included in diluted EPS up to March 31, 2014, and
in basic EPS from the date converted to the year-
end (both weighted accordingly).
b. The ordinary shares are not included in the diluted
EPS calculation but are included in basic EPS.
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c. The ordinary shares are not included in the basic
EPS but are included in diluted EPS.
d. The effects of the stock option are included only in
previous year's EPS calculation.
17. Entity A has an ordinary "A" class, non- voting share,
which is entitled to a fixed dividend of 6% per annum.
The "A" class ordinary share will
a. Be included in the "per share" calculation after
adjustment for the fixed dividend.
b. Be included in the "per share" calculation for EPS
without adjustment for the fixed dividend.
c. Not be included in the "per share" calculation for
EPS.
d. Be included in the calculation of diluted EPS.
18. The weighted average number of ordinary shares
outstanding during the period and for all periods
presented shall be adjusted for events that have
changed the number of ordinary shares outstanding
without a corresponding change in resources.
Examples include, except
a. Capitalization or bonus issue (sometimes referred
to as a stock dividend)
b. Bonus element in a rights issue to existing
shareholders
c. Share split
d. Conversion of potential ordinary shares
19. Potential ordinary shares do not include
a. Share warrants and options
b. Employee plans that allow employees to receive
common shares as part of their renumeration and
other share purchase plans
c. Shares which would be issued upon the satisfaction
of certain conditions resulting from contractual
arrangements, such as the purchase of a business
or other assets
d. Debt or equity instruments, including preference
shares, that are not convertible into ordinary
shares
20. When an enterprise makes a bonus issue/stock
split/stock dividend or a rights issue, then
a. The previous year's EPS is not adjusted for the
issue.
b. The previous year's EPS is adjusted for the issue.
c. Only a note of the effect on the previous year's
EPS is made.
d. Only the diluted EPS for the previous year is
adjusted.
21. If a bonus issue occurs between the year-end and the
date that the financial statements are authorized, then
a. EPS both for the current and the previous year are
adjusted
b. EPS for the current year only is adjusted
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted
22. In determining earnings per share, interest expense,
net of applicable income taxes, on convertible debt
which is dilutive should be
a. Ignored for diluted earnings per share.
b. Added back to net income for diluted earnings per
share.
c. Deducted from net income for diluted earnings per
share.
d. None of the above.
- now do the DIY drill -
ToA.1827
EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. Are the following statements true or false, according to 7. The weighted-average number of shares outstanding
PAS33 Earnings per share? during the period for all periods (other than the
(1) Earnings per share amounts should not be conversion of potential ordinary shares) shall be
presented if they are negative, i.e. losses per adjusted for
share. a. Any change in the number of ordinary shares
(2) Earnings per share amounts calculated for without a change in resources.
discontinued operations should be presented. b. Any prior-year adjustment.
Statement (1) Statement (2) c. Any new issue of shares for cash.
a. False False d. Any convertible instruments settled in cash.
b. False True
c. True False 8. Where ordinary shares are issued but not fully paid,
d. True True then the ordinary shares are treated in the calculation
of basic EPS
2. Are the following statements in relation to the term a. In the same way as fully paid ordinary shares.
'dilution' true or false, according to PAS33 Earnings per b. As a fraction of an ordinary share to the extent
share? that they are entitled to participate in dividends.
(1) A reduction in earnings per share is an example of c. In the same way as warrants or options and are
dilution. included only in diluted EPS.
(2) A reduction in loss per share is an example of d. Are ignored for the purposes of basic and diluted
dilution. EPS.
Statement (1) Statement (2)
a. False False 9. Which of the following best describes how convertible
b. False True financial instruments affect earnings per share (EPS)
c. True False calculations?
d. True True a. Convertible financial instruments have the
potential to dilute earnings per share, and should
3. Are the following statements true or false, according to be taken into account in calculating diluted EPS.
PAS33 Earnings per share? b. Convertible financial instruments have the
(1) Potential ordinary shares issued by a subsidiary potential to dilute earnings per share, and should
should be included in the diluted EPS calculation as be taken into account in calculating basic EPS.
they could potentially have an impact on the net c. Convertible financial instruments may be anti-
profit for the period and the number of shares to dilutive or dilutive, and should be taken into
be included in the calculation. account in calculating basic EPS.
(2) An enterprise needs to disclose diluted EPS only if d. Convertible financial instruments should be
it differs from basic EPS by a material amount. separated into their components, and reported
Statement (1) Statement (2) according to their separate components.
a. False False
b. False True 10. Which of the following is not an example of potential
c. True False ordinary shares?
d. True True a. Financial liabilities that are convertible into
ordinary shares.
4. In calculating whether potential ordinary shares are b. Share options.
dilutive, the profit figure used as the "control number" c. Contingently issuable shares.
is d. Cancelled treasury shares.
a. Net profit after taxation (including discontinued
operations). 11. For the purpose of calculating diluted earnings per
b. Net profit from continuing operations. share, which of the following will not require an after-
c. Net profit before tax (including discontinued tax adjustment:
operations). a. Any dividends relating to dilutive potential shares,
d. Retained profit for the year after dividends. deducted in arriving at profit.
b. Any interest recognized in the period, related to
5. Undeclared dividends are deducted from net income in dilutive potential shares.
the earnings per share computation for which type of c. Any dividends, which are proposed on existing
preference shares? shares after the period end.
a. Non-cumulative only. d. Any other changes in income (or expense) that
b. Cumulative only. would result from the conversion of the dilutive
c. Neither non-cumulative nor cumulative. potential shares.
d. Both non-cumulative and cumulative
12. When an entity issues both consolidated and separate
6. If a new issue of shares for cash is made between the financial statements, the EPS information disclosed
year-end and the date that the financial statements under PAS 33 is required
are authorized, then a. For both sets of financial statements.
a. EPS for both the current and the previous year are b. In neither set of statements.
adjusted. c. Only for the consolidated information.
b. EPS for the current year only is adjusted d. Only for the separate financial statements.
c. No adjustment is made to EPS.
d. Diluted EPS only is adjusted. - end of ToA.1827 -
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