Question Tag: IAS 33

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  • 20 Marks

CR – Nov 2016 – L1 – SB – Q2 – Earnings Per Share (IAS 33)

Evaluate the significance, shortcomings, and calculations of EPS for Soar Plc.

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc had sought your professional advice on the application of IAS 33.

a. You are required to advise the management of Soar Plc on the:
i. Significance of earnings per share. (5 marks)
ii. Shortcomings of earnings per share. (5 marks)

b. The directors of Soar Plc have decided to replace most of the existing plant and machinery which are now obsolete during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.

In order to improve liquidity, the directors decided to make a new issue of 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and a further N600,000 4% convertible loan notes on June 1, 2015. The terms of issue would provide for conversion into ordinary shares as stated below:

On September 30 Number of shares per N100 of loan stock
2015 120
2016 125
2017 118
2018 122

The ordinary shares issued would rank for dividend in the current year. The following relates to the company for the period ended September 30, 2015:

  • Profit before interest and tax is N850,000.
  • Effective rate of company tax on profit is 30% and the basic EPS for the year ended September 30, 2014, was 48 kobo.
  • The company had issued as at September 30, 2014, the following:
    • 2,000,000 ordinary shares of 50 kobo each fully paid.
    • 400,000 12% irredeemable preference shares of N1 each fully paid.
    • 300,000 10% redeemable preference shares of N1 each fully paid.
    • N700,000 8% redeemable debenture (non-convertible).

Required:
Calculate for Soar Plc for the year ended September 30, 2015:
i. Basic earnings per share (5 marks).
ii. Fully diluted earnings per share (5 marks).

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  • 10 Marks

CR – Nov 2016 – L3 – Q2b – Earnings Per Share (IAS 33)

Calculation of Soar Plc’s basic and fully diluted earnings per share considering new shares, convertible loans, and associated financing costs.

The directors of Soar Plc have decided to replace most of the existing plant and machinery, which are now obsolete, during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.

To improve liquidity, the directors issued 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and N600,000 4% convertible loan notes on June 1, 2015. The conversion terms are as follows:

Date Number of shares per N100 of loan stock
2015 120
2016 125
2017 118
2018 122

The new ordinary shares rank for dividends in the current year. Relevant data for the year ended September 30, 2015:

  • Profit before interest and tax: N850,000
  • Effective company tax rate: 30%
  • Basic EPS for 2014: 48 kobo
  • Issued shares as of September 30, 2014:
    • 2,000,000 ordinary shares of 50 kobo each
    • 400,000 12% irredeemable preference shares of N1 each
    • 300,000 10% redeemable preference shares of N1 each
    • N700,000 8% redeemable debenture (non-convertible)

Required: Calculate for Soar Plc for the year ended September 30, 2015: i. Basic earnings per share (5 marks)
ii. Fully diluted earnings per share (5 marks)

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  • 10 Marks

CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc has sought your professional advice on the application of IAS 33.

Required: Advise the management of Soar Plc on the following:

i. Significance of Earnings Per Share (EPS). (5 marks)
ii. Shortcomings of Earnings Per Share (EPS). (5 marks)

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  • 20 Marks

CR – Nov 2020 – L3 – Q2 – Earnings Per Share (IAS 33)

Calculate EPS under various scenarios for Goodwin plc and explain EPS use in investment decisions, including examples of potential ordinary shares.

Goodwin plc
Statement of profit or loss extract for the year ended December 31, 2019

As at January 1, 2019, the issued share capital of Goodwin plc was as follows:

  • 23,000 6% preference shares of N1 each
  • 20,700 ordinary shares of N1 each

Required: Calculate the basic and diluted earnings per share for the year ended December 31, 2019 under the following circumstances:

a. Where there is no change in the issued share capital. (5 Marks)

b. The company made a bonus issue of one ordinary share for every four shares in issue at September 30, 2019. (3 Marks)

c. The company made a rights issue of shares on October 1, 2019 in the proportion of 1 for every 5 shares held at a price of N1.20. The middle market price for the shares on the last day of quotation cum rights was N1.80 per share. (8 Marks)

d. Briefly discuss how investors use the EPS ratio in investment decisions and give TWO examples of potential ordinary shares under IAS 33. (4 Marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q4 – Earnings Per Share (IAS 33)

Explain EPS and PE ratio, and calculate EPS and DPS for Almond Nigeria Limited, also discussing EPS limitations.

a. Explain the following, stating their importance to investors in evaluating financial performance:
i. Earnings per share (EPS)
ii. Price earnings ratio (PE ratio)
(6 Marks)

b. The issued and fully paid share capital of Almond Nigeria Limited, which has remained unchanged since the date of incorporation until the financial year ended March 31, 2015, includes the following:

  • 2,400,000,000 ordinary shares
  • 600,000,000 6% participating preference shares of N1 each

The company has been operating at a profit for a number of years. As a result of a very conservative dividend policy in previous years, there is a large accumulated profit balance on the statement of financial position.

On July 1, 2015, the directors decided to issue two bonus shares to all ordinary shareholders for every one previously held.

The following is an extract of the group statement of profit or loss and other comprehensive income for the year ended March 31, 2016:

Almond Nigeria Limited
Extract of Group Statement of Profit or Loss and Other Comprehensive Income for the Year Ended March 31, 2016

2016 2015
Profit for the year N740,000 N540,000
Other comprehensive income – (20,000)
Total comprehensive income N740,000 N520,000
Total comprehensive income attributable to:
Owners of parent N680,000 N480,000
Non-controlling interest N60,000 N40,000
Total comprehensive income N740,000 N520,000

The following dividends have been paid or declared at the end of the period:

Dividend Type 2016 2015
Ordinary N330,000 N240,000
Preference N69,000 N60,000

Note: The participating preference shareholders are entitled to share profits in the same ratio in which they share dividends after payment of fixed preference dividends. They will also share the same benefit as ordinary shareholders if the company is liquidated.

Required:

  1. Calculate the earnings per share (EPS) in accordance with IAS 33 and the dividend per share (DPS) for the years ended March 31, 2015, and 2016. (10 Marks)
  2. Discuss the limitations of earnings per share (EPS) as a measure of a company’s performance. (4 Marks)

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  • 4 Marks

FR – May 2021 – L2 – Q2c – Basic and Diluted Earnings Per Share under IAS 33

Calculate basic and diluted earnings per share based on the financial information provided.

Dome Ltd has 5,000,000 ordinary shares in issue and also had in issue in 2020:

  • GH¢1,000,000 of 14% convertible loan stock, convertible in three years at the rate of 2 shares for every GH¢10 of stock.
  • GH¢2,000,000 of 10% convertible loan stock, convertible in a year’s time at the rate of 3 shares for every GH¢5 of stock.

The total earnings in 2020 were GH¢1,750,000. The rate of income tax is 35%.

Required:
In accordance with IAS 33: Earnings Per Share, calculate the basic and diluted earnings per share.
(4 marks)

 

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  • 4 Marks

FR – May 2018 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculate the Earnings per Share for 2017 and 2016 in accordance with IAS 33 after a rights issue by Abu Ltd.

Abu Ltd had 100,000 shares in issue, but then makes a 1 for 5 rights issue on 1 October 2017 at a price of GH¢1. The market value on the last day of quotation with rights was GH¢1.60. Total earnings are GH¢50,000 in 2017, and GH¢40,000 in 2016.

Required:
Calculate the Earnings per Share for the year ended 31 December 2017 and the corresponding figure for 2016 in accordance with IAS 33: Earnings per Share. (4 marks)

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  • 4 Marks

FR – May 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Calculation of Basic Earnings Per Share for Bremang Ltd using IAS 33.

Bremang Ltd’s draft profit after tax for the year ended 31 October 2018 is GH¢10.2 million. At the beginning of the financial year, the company had 3.6 million, GH¢1 ordinary shares in issue. On 1 February 2018, the company entered into an arrangement with a supplier where the supplier would be given 48,000 GH¢1 ordinary shares in Bremang Ltd in return for services with a fair value of GH¢600,000 at 1 February 2018 to be performed evenly over the period 1 February 2018 to 31 January 2019. The shares were delivered on 31 January 2019 and earned proportionately over the year to 31 January 2019 as the services were rendered. The arrangement has not been recognised in the draft financial statements.

Required:

Calculate the basic earnings per share figure for Bremang Ltd for the year ended 31 October 2018 (to the nearest pesewas) in accordance with IAS 33: Earnings per Share. (Note: There is no tax or deferred tax consequences of the share issue).

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  • 3 Marks

CR – May 2018 – L3 – Q2b – IAS 33: Earnings per Share

Discuss the significance of EPS in analyzing company performance under IAS 33.

Earnings per share (EPS) is one of the most widely watched measures of company performance because of its significance. IAS 33 – Earnings per Share sets out the requirements for calculating and disclosing the basic earnings per share figure for quoted entities.

Required:
Discuss the significance of the earnings per share (EPS) figure to the analysis of company performance. (3 marks)

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  • 7 Marks

CR – Apr 2022 – L3 – Q2c – Earnings Per Share

Calculate and restate earnings per share (EPS) for the current and previous year, factoring in rights and bonus issues under IAS 33.

On 1 January 2020, Kalimba Ltd had 2 million ordinary shares in issue. On 30 April 2020, the company issued 270,000 ordinary shares at full market price. On 31 July 2020, the company made a rights issue of 1 for 10 at GH¢2. The fair value of the shares on the last day before the rights issue was GH¢3.10. On 30 September 2020, the company made a 1 for 20 bonus issue. Profit for the period was GH¢400,000. The reported earnings per share for the year ended 31 December 2019 was GH¢0.186.

Required:
Calculate the earnings per share (EPS) for the year ended 31 December 2020, and the restated EPS for the year ended 31 December 2019, in accordance with relevant International Financial Reporting Standards (IFRS).

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  • 20 Marks

CR – Nov 2016 – L1 – SB – Q2 – Earnings Per Share (IAS 33)

Evaluate the significance, shortcomings, and calculations of EPS for Soar Plc.

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc had sought your professional advice on the application of IAS 33.

a. You are required to advise the management of Soar Plc on the:
i. Significance of earnings per share. (5 marks)
ii. Shortcomings of earnings per share. (5 marks)

b. The directors of Soar Plc have decided to replace most of the existing plant and machinery which are now obsolete during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.

In order to improve liquidity, the directors decided to make a new issue of 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and a further N600,000 4% convertible loan notes on June 1, 2015. The terms of issue would provide for conversion into ordinary shares as stated below:

On September 30 Number of shares per N100 of loan stock
2015 120
2016 125
2017 118
2018 122

The ordinary shares issued would rank for dividend in the current year. The following relates to the company for the period ended September 30, 2015:

  • Profit before interest and tax is N850,000.
  • Effective rate of company tax on profit is 30% and the basic EPS for the year ended September 30, 2014, was 48 kobo.
  • The company had issued as at September 30, 2014, the following:
    • 2,000,000 ordinary shares of 50 kobo each fully paid.
    • 400,000 12% irredeemable preference shares of N1 each fully paid.
    • 300,000 10% redeemable preference shares of N1 each fully paid.
    • N700,000 8% redeemable debenture (non-convertible).

Required:
Calculate for Soar Plc for the year ended September 30, 2015:
i. Basic earnings per share (5 marks).
ii. Fully diluted earnings per share (5 marks).

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  • 10 Marks

CR – Nov 2016 – L3 – Q2b – Earnings Per Share (IAS 33)

Calculation of Soar Plc’s basic and fully diluted earnings per share considering new shares, convertible loans, and associated financing costs.

The directors of Soar Plc have decided to replace most of the existing plant and machinery, which are now obsolete, during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.

To improve liquidity, the directors issued 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and N600,000 4% convertible loan notes on June 1, 2015. The conversion terms are as follows:

Date Number of shares per N100 of loan stock
2015 120
2016 125
2017 118
2018 122

The new ordinary shares rank for dividends in the current year. Relevant data for the year ended September 30, 2015:

  • Profit before interest and tax: N850,000
  • Effective company tax rate: 30%
  • Basic EPS for 2014: 48 kobo
  • Issued shares as of September 30, 2014:
    • 2,000,000 ordinary shares of 50 kobo each
    • 400,000 12% irredeemable preference shares of N1 each
    • 300,000 10% redeemable preference shares of N1 each
    • N700,000 8% redeemable debenture (non-convertible)

Required: Calculate for Soar Plc for the year ended September 30, 2015: i. Basic earnings per share (5 marks)
ii. Fully diluted earnings per share (5 marks)

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  • 10 Marks

CR – Nov 2016 – L3 – Q2a – Earnings Per Share (IAS 33)

Explanation of the significance and shortcomings of Earnings Per Share (EPS) for Soar Plc’s management.

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc has sought your professional advice on the application of IAS 33.

Required: Advise the management of Soar Plc on the following:

i. Significance of Earnings Per Share (EPS). (5 marks)
ii. Shortcomings of Earnings Per Share (EPS). (5 marks)

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  • 20 Marks

CR – Nov 2020 – L3 – Q2 – Earnings Per Share (IAS 33)

Calculate EPS under various scenarios for Goodwin plc and explain EPS use in investment decisions, including examples of potential ordinary shares.

Goodwin plc
Statement of profit or loss extract for the year ended December 31, 2019

As at January 1, 2019, the issued share capital of Goodwin plc was as follows:

  • 23,000 6% preference shares of N1 each
  • 20,700 ordinary shares of N1 each

Required: Calculate the basic and diluted earnings per share for the year ended December 31, 2019 under the following circumstances:

a. Where there is no change in the issued share capital. (5 Marks)

b. The company made a bonus issue of one ordinary share for every four shares in issue at September 30, 2019. (3 Marks)

c. The company made a rights issue of shares on October 1, 2019 in the proportion of 1 for every 5 shares held at a price of N1.20. The middle market price for the shares on the last day of quotation cum rights was N1.80 per share. (8 Marks)

d. Briefly discuss how investors use the EPS ratio in investment decisions and give TWO examples of potential ordinary shares under IAS 33. (4 Marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q4 – Earnings Per Share (IAS 33)

Explain EPS and PE ratio, and calculate EPS and DPS for Almond Nigeria Limited, also discussing EPS limitations.

a. Explain the following, stating their importance to investors in evaluating financial performance:
i. Earnings per share (EPS)
ii. Price earnings ratio (PE ratio)
(6 Marks)

b. The issued and fully paid share capital of Almond Nigeria Limited, which has remained unchanged since the date of incorporation until the financial year ended March 31, 2015, includes the following:

  • 2,400,000,000 ordinary shares
  • 600,000,000 6% participating preference shares of N1 each

The company has been operating at a profit for a number of years. As a result of a very conservative dividend policy in previous years, there is a large accumulated profit balance on the statement of financial position.

On July 1, 2015, the directors decided to issue two bonus shares to all ordinary shareholders for every one previously held.

The following is an extract of the group statement of profit or loss and other comprehensive income for the year ended March 31, 2016:

Almond Nigeria Limited
Extract of Group Statement of Profit or Loss and Other Comprehensive Income for the Year Ended March 31, 2016

2016 2015
Profit for the year N740,000 N540,000
Other comprehensive income – (20,000)
Total comprehensive income N740,000 N520,000
Total comprehensive income attributable to:
Owners of parent N680,000 N480,000
Non-controlling interest N60,000 N40,000
Total comprehensive income N740,000 N520,000

The following dividends have been paid or declared at the end of the period:

Dividend Type 2016 2015
Ordinary N330,000 N240,000
Preference N69,000 N60,000

Note: The participating preference shareholders are entitled to share profits in the same ratio in which they share dividends after payment of fixed preference dividends. They will also share the same benefit as ordinary shareholders if the company is liquidated.

Required:

  1. Calculate the earnings per share (EPS) in accordance with IAS 33 and the dividend per share (DPS) for the years ended March 31, 2015, and 2016. (10 Marks)
  2. Discuss the limitations of earnings per share (EPS) as a measure of a company’s performance. (4 Marks)

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  • 4 Marks

FR – May 2021 – L2 – Q2c – Basic and Diluted Earnings Per Share under IAS 33

Calculate basic and diluted earnings per share based on the financial information provided.

Dome Ltd has 5,000,000 ordinary shares in issue and also had in issue in 2020:

  • GH¢1,000,000 of 14% convertible loan stock, convertible in three years at the rate of 2 shares for every GH¢10 of stock.
  • GH¢2,000,000 of 10% convertible loan stock, convertible in a year’s time at the rate of 3 shares for every GH¢5 of stock.

The total earnings in 2020 were GH¢1,750,000. The rate of income tax is 35%.

Required:
In accordance with IAS 33: Earnings Per Share, calculate the basic and diluted earnings per share.
(4 marks)

 

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  • 4 Marks

FR – May 2018 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculate the Earnings per Share for 2017 and 2016 in accordance with IAS 33 after a rights issue by Abu Ltd.

Abu Ltd had 100,000 shares in issue, but then makes a 1 for 5 rights issue on 1 October 2017 at a price of GH¢1. The market value on the last day of quotation with rights was GH¢1.60. Total earnings are GH¢50,000 in 2017, and GH¢40,000 in 2016.

Required:
Calculate the Earnings per Share for the year ended 31 December 2017 and the corresponding figure for 2016 in accordance with IAS 33: Earnings per Share. (4 marks)

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  • 4 Marks

FR – May 2019 – L2 – Q2a – Financial Reporting Standards and Their Applications

Calculation of Basic Earnings Per Share for Bremang Ltd using IAS 33.

Bremang Ltd’s draft profit after tax for the year ended 31 October 2018 is GH¢10.2 million. At the beginning of the financial year, the company had 3.6 million, GH¢1 ordinary shares in issue. On 1 February 2018, the company entered into an arrangement with a supplier where the supplier would be given 48,000 GH¢1 ordinary shares in Bremang Ltd in return for services with a fair value of GH¢600,000 at 1 February 2018 to be performed evenly over the period 1 February 2018 to 31 January 2019. The shares were delivered on 31 January 2019 and earned proportionately over the year to 31 January 2019 as the services were rendered. The arrangement has not been recognised in the draft financial statements.

Required:

Calculate the basic earnings per share figure for Bremang Ltd for the year ended 31 October 2018 (to the nearest pesewas) in accordance with IAS 33: Earnings per Share. (Note: There is no tax or deferred tax consequences of the share issue).

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  • 3 Marks

CR – May 2018 – L3 – Q2b – IAS 33: Earnings per Share

Discuss the significance of EPS in analyzing company performance under IAS 33.

Earnings per share (EPS) is one of the most widely watched measures of company performance because of its significance. IAS 33 – Earnings per Share sets out the requirements for calculating and disclosing the basic earnings per share figure for quoted entities.

Required:
Discuss the significance of the earnings per share (EPS) figure to the analysis of company performance. (3 marks)

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  • 7 Marks

CR – Apr 2022 – L3 – Q2c – Earnings Per Share

Calculate and restate earnings per share (EPS) for the current and previous year, factoring in rights and bonus issues under IAS 33.

On 1 January 2020, Kalimba Ltd had 2 million ordinary shares in issue. On 30 April 2020, the company issued 270,000 ordinary shares at full market price. On 31 July 2020, the company made a rights issue of 1 for 10 at GH¢2. The fair value of the shares on the last day before the rights issue was GH¢3.10. On 30 September 2020, the company made a 1 for 20 bonus issue. Profit for the period was GH¢400,000. The reported earnings per share for the year ended 31 December 2019 was GH¢0.186.

Required:
Calculate the earnings per share (EPS) for the year ended 31 December 2020, and the restated EPS for the year ended 31 December 2019, in accordance with relevant International Financial Reporting Standards (IFRS).

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