43 Lecture

1. What does IAS-33 stand for? a) International Accounting Standard 33 b) International Audit Standard 33 c) International Financial Reporting Standard 33 d) International Stock Exchange Standard 33

Solution: a) International Accounting Standard 33

2. What is the purpose of IAS-33? a) To set out the guidelines for the calculation and disclosure of a company's earnings per share b) To set out the guidelines for the calculation and disclosure of a company's net income c) To set out the guidelines for the calculation and disclosure of a company's gross profit d) To set out the guidelines for the calculation and disclosure of a company's return on equity

Solution: a) To set out the guidelines for the calculation and disclosure of a company's earnings per share

3. Which of the following is NOT required to calculate basic EPS? a) Net income b) Weighted average number of outstanding common shares c) Convertible securities d) None of the above

Solution: c) Convertible securities

4. What is the difference between basic EPS and diluted EPS? a) Basic EPS takes into account the potential dilutive effect of convertible securities, while diluted EPS does not. b) Diluted EPS takes into account the potential dilutive effect of convertible securities, while basic EPS does not. c) Basic EPS and diluted EPS are the same thing. d) Basic EPS and diluted EPS are two different financial statements.

Solution: b) Diluted EPS takes into account the potential dilutive effect of convertible securities, while basic EPS does not.

5. What is a potential ordinary share? a) A share that has not been issued yet b) A security or instrument that has the potential to be converted into ordinary shares c) A share that has been repurchased by the company d) A share that has been retired by the company

Solution: b) A security or instrument that has the potential to be converted into ordinary shares

6. Which of the following is NOT a potential ordinary share? a) Convertible bond b) Stock option c) Warrant d) Preferred stock

Solution: d) Preferred stock

7. What is a simple capital structure? a) A capital structure that has only common shares outstanding b) A capital structure that has only preferred shares outstanding c) A capital structure that has both common and preferred shares outstanding d) A capital structure that has convertible securities outstanding

Solution: a) A capital structure that has only common shares outstanding

8. What is a complex capital structure? a) A capital structure that has only common shares outstanding b) A capital structure that has only preferred shares outstanding c) A capital structure that has both common and preferred shares outstanding d) A capital structure that has potential ordinary shares outstanding

Solution: d) A capital structure that has potential ordinary shares outstanding

9. What must companies disclose in their financial statements related to EPS? a) Basic and diluted EPS figures b) The number of potential ordinary shares outstanding c) The dilutive effect of potential ordinary shares d) All of the above

Solution: d) All of the above

10. Which of the following limitations of EPS is true? a) EPS takes into account other important financial metrics such as operating expenses and capital expenditures b) Companies cannot manipulate EPS figures through share buybacks or other financial engineering tactics c) EPS only measures the profitability of a company on a per-share basis d) EPS is a perfect indicator of a company's financial health

Solution: c) EPS only measures the profitability of a company on a

1. What is the purpose of calculating earnings per share? Answer: The purpose of calculating earnings per share is to provide investors and analysts with a metric that allows them to evaluate a company's profitability on a per-share basis.

2. What is the difference between basic EPS and diluted EPS? Answer: Basic EPS is calculated by dividing net income by the weighted average number of outstanding common shares, while diluted EPS takes into account the potential dilutive effect of convertible securities.

3. What are potential ordinary shares? Answer: Potential ordinary shares are securities or instruments that have the potential to be converted into ordinary shares.

4. What is a simple capital structure? Answer: A simple capital structure is a capital structure that has only common shares outstanding.

5. What is a complex capital structure? Answer: A complex capital structure is a capital structure that has potential ordinary shares outstanding.

6. How do companies calculate the weighted average number of outstanding common shares? Answer: Companies calculate the weighted average number of outstanding common shares by multiplying the number of shares outstanding by the percentage of the year that the shares were outstanding and then adding up the resulting products.

7. What disclosures related to EPS must companies make in their financial statements? Answer: Companies must disclose both basic and diluted EPS figures, as well as information related to potential ordinary shares and changes in their capital structure.

8. How can a company's EPS be affected by a stock split? Answer: A stock split can increase the number of outstanding shares, which can decrease EPS if net income remains the same.

9. What is the dilutive effect of potential ordinary shares? Answer: The dilutive effect of potential ordinary shares is the potential impact on EPS if all potential ordinary shares were converted to ordinary shares.

10. How can companies manipulate EPS figures? Answer: Companies can manipulate EPS figures through share buybacks, changes in their capital structure, or other financial engineering tactics.

IAS 33 Earnings per Share is an important standard that deals with the calculation and disclosure of earnings per share (EPS) in the financial statements of a company. The purpose of calculating EPS is to provide investors and analysts with a metric that allows them to evaluate a company's profitability on a per-share basis. EPS is calculated by dividing the net income of a company by the weighted average number of outstanding shares. Basic EPS is calculated by dividing net income by the weighted average number of outstanding common shares, while diluted EPS takes into account the potential dilutive effect of convertible securities. A simple capital structure is a capital structure that has only common shares outstanding. A complex capital structure is a capital structure that has potential ordinary shares outstanding. Potential ordinary shares are securities or instruments that have the potential to be converted into ordinary shares. Companies must disclose both basic and diluted EPS figures, as well as information related to potential ordinary shares and changes in their capital structure. The disclosure of EPS figures in the financial statements is crucial for investors and analysts in making investment decisions. The weighted average number of outstanding common shares is calculated by multiplying the number of shares outstanding by the percentage of the year that the shares were outstanding and then adding up the resulting products. Companies must calculate the weighted average number of outstanding common shares for each period presented in the financial statements. Companies can manipulate EPS figures through share buybacks, changes in their capital structure, or other financial engineering tactics. Therefore, it is important for investors and analysts to carefully evaluate a company's financial statements to ensure that they are not being misled by manipulated EPS figures. In conclusion, IAS 33 Earnings per Share plays a critical role in the preparation and presentation of financial statements. The standard ensures that investors and analysts have access to accurate and transparent information about a company's profitability on a per-share basis, which is essential for making informed investment decisions.