THEORY OF ACCOUNTS TIP QUEZON CITY

ToA.1827 – Earnings Per Share MAY 2016

REVIEW QUESTIONS

1. Which statement is incorrect regarding the objective of d. None of the above.

PAS 33?
a. The objective is to prescribe principles for the 6. If an entity presents items of profit or loss in a separate
determination and presentation of earnings per statement of profit or loss, it presents earnings per
share, so as to improve performance comparisons share
between different entities in the same reporting a. Only in the statement of profit or loss.
period and between different reporting periods for b. Only in the statement of profit or loss and other
the same entity. comprehensive income.
b. Even though earnings per share data have c. Only in the statement of changes in equity.
limitations because of the different accounting d. Only in the notes to the financial statements.
policies that may be used for determining
‘earnings’, a consistently determined denominator 7. EPS should always be shown separately for
enhances financial reporting. a. Net income and gross profit.
c. The focus of PAS 33 is on the numerator of the b. Net income and pretax income.
earnings per share calculation. c. Income from continuing operations.
d. None of the above. d. Discontinued operations and prior period
adjustments.

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2. EPS disclosures are

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a. Encouraged for all entities 8. Which statement is incorrect regarding basic EPS?
b. Required for all entities a. An entity shall calculate basic earnings per share

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c. Encouraged for public entities and required for
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nonpublic enterprises. equity holders of the parent entity and, if
d. Required for public entities and encouraged for presented, profit or loss from continuing operations

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nonpublic enterprises. attributable to those equity holders.
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b. Basic earnings per share shall be calculated by
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3. Dilution is dividing profit or loss attributable to ordinary

a. An increase in earnings per share resulting from equity holders of the parent entity (the numerator)
the assumption that convertible instruments are by the number of ordinary shares outstanding (the
converted, that options or warrants are exercised, denominator) at the end of the period.
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or that ordinary shares are issued upon the c. The objective of basic earnings per share
satisfaction of specified conditions. information is to provide a measure of the interests
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b. A reduction in loss per share resulting from the of each ordinary share of a parent entity in the
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assumption that convertible instruments are performance of the entity over the reporting
converted, that options or warrants are exercised, period.
or that ordinary shares are issued upon the d. None of the above.
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satisfaction of specified conditions.

c. Either a or b. 9. Earnings per share is calculated before accounting for
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d. Neither a nor b. which of the following items?

a. Preference dividend for the period
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4. Which statement is incorrect regarding requirement to b. Ordinary dividend

present EPS? c. Taxation
a. An entity whose securities are publicly traded (or d. Minority interest
that is in process of public issuance) must present,
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in the statement of comprehensive income, basic 10. For the purpose of calculating basic earnings per share,
and diluted earnings per share. the amounts attributable to ordinary equity holders of
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b. Basic and diluted earnings per share must be the parent entity shall be adjusted for the after-tax
presented with equal prominence for all periods amounts of preference dividends. The after-tax
presented. amount of preference dividends that is deducted from
c. Basic and diluted EPS must be presented even if profit or loss does not include:
the amounts are negative. a. The after-tax amount of any preference dividends
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d. If an entity reports a discontinued operation, basic on non-cumulative preference shares declared in

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.
c. If basic and diluted earnings per share are equal,
dual presentation can be accomplished in one line
in the statement of comprehensive income.
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.
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.

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PRISM CPA REVIEW CENTER
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
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to settle them.
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13. Which of the following is incorrect regarding inclusion
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of shares in the weighted average number of shares?
a. Ordinary shares issued as a result of the
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conversion of a debt instrument to ordinary shares
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are included from the date that interest ceases to
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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
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to the entity are included as the services are
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rendered.
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d. Ordinary shares issued in exchange for cash are
included when cash is received.
14. Ordinary shares issued as part of a business
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combination are included in the EPS calculation in the
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case of the "purchase" method from
a. The beginning of the accounting period.
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b. The date of acquisition
c. The end of the accounting period.
d. The midpoint of the accounting year.
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15. At what point are dilutive potential shares deemed to
have been converted into ordinary shares?
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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.
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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.
c. The ordinary shares are not included in the basic
EPS but are included in diluted EPS.
DO-IT-YOURSELF (DIY) DRILL
1. Are the following statements true or false, according to
PAS33 Earnings per share?
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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 -
(1) Earnings per share amounts should not be
presented if they are negative, i.e. losses per
share.
ToA.1827
 PRISM CPA REVIEW CENTER

(2) Earnings per share amounts calculated for conversion of potential ordinary shares) shall be
discontinued operations should be presented. adjusted for
Statement (1) Statement (2) a. Any change in the number of ordinary shares
a. False False without a change in resources.
b. False True b. Any prior-year adjustment.
c. True False c. Any new issue of shares for cash.
d. True True d. Any convertible instruments settled in cash.

2. Are the following statements in relation to the term 8. Where ordinary shares are issued but not fully paid,
'dilution' true or false, according to PAS33 Earnings per then the ordinary shares are treated in the calculation
share? of basic EPS
(1) A reduction in earnings per share is an example of a. In the same way as fully paid ordinary shares.
dilution. b. As a fraction of an ordinary share to the extent that
(2) A reduction in loss per share is an example of they are entitled to participate in dividends.
dilution. c. In the same way as warrants or options and are
Statement (1) Statement (2) included only in diluted EPS.
a. False False d. Are ignored for the purposes of basic and diluted
b. False True EPS.
c. True False
d. True True 9. Which of the following best describes how convertible
financial instruments affect earnings per share (EPS)
3. Are the following statements true or false, according to calculations?
PAS33 Earnings per share? a. 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 diluted EPS.
they could potentially have an impact on the net b. Convertible financial instruments have the
profit for the period and the number of shares to be potential to dilute earnings per share, and should

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included in the calculation. be taken into account in calculating basic EPS.
(2) An enterprise needs to disclose diluted EPS only if c. Convertible financial instruments may be anti-

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it differs from basic EPS by a material amount.
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Statement (1) Statement (2) account in calculating basic EPS.
a. False False d. Convertible financial instruments should be

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b. False True separated into their components, and reported
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c. True False according to their separate components.
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d. True True
10. Which of the following is not an example of potential
4. In calculating whether potential ordinary shares are ordinary shares?
dilutive, the profit figure used as the "control number" a. Financial liabilities that are convertible into
is ordinary shares.
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a. Net profit after taxation (including discontinued b. Share options.

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operations). c. Contingently issuable shares.

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b. Net profit from continuing operations. d. Cancelled treasury shares.

c. Net profit before tax (including discontinued
operations). 11. For the purpose of calculating diluted earnings per
d. Retained profit for the year after dividends. share, which of the following will not require an after-
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tax adjustment:
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5. Undeclared dividends are deducted from net income in a. Any dividends relating to dilutive potential shares,
the earnings per share computation for which type of deducted in arriving at profit.
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preference shares? b. Any interest recognized in the period, related to

a. Non-cumulative only. dilutive potential shares.
b. Cumulative only. c. Any dividends, which are proposed on existing
c. Neither non-cumulative nor cumulative. shares after the period end.
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d. Both non-cumulative and cumulative d. Any other changes in income (or expense) that
would result from the conversion of the dilutive
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6. If a new issue of shares for cash is made between the potential shares.
year-end and the date that the financial statements are
authorized, then 12. When an entity issues both consolidated and separate
a. EPS for both the current and the previous year are financial statements, the EPS information disclosed
adjusted. under PAS 33 is required
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b. EPS for the current year only is adjusted a. For both sets of financial statements.
c. No adjustment is made to EPS. b. In neither set of statements.
d. Diluted EPS only is adjusted. c. Only for the consolidated information.
d. Only for the separate financial statements.
7. The weighted-average number of shares outstanding
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during the period for all periods (other than the  - end of ToA.1827 - 

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