Advanced Financial Accounting

Slides:



Advertisements
Similar presentations
EARNING PER SHARE Presented By :- Praveen Kumar Nahata ASA & Associates Bangalore.
Advertisements

Basic EPS Net Income - Preferred Dividends Weighted Average Common Shares (WACS)
By: Megan Addison, Nicholas DeMario, Scott Heydle and Jenn Ritchie.
ACCOUNTING STANDARD - 20 EARNINGS PER SHARE J.P., KAPUR & UBERAI.
Earnings per share JOIN KHALID AZIZ COACHING CLASSES ICMAP STAGE 1,2,3,4,5 ICAP MODULE A,B,C,D PIPFA BBA & MBA B.COM & M.COM ACCOUNTING OF O/A LEVEL MA-ECONOMICS.
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.
FA3 Lesson 9. Earnings per share 1.Basic earnings per share 2.Diluted earnings per share 3.Diluted earnings per share in a loss year.
Earnings Measures. Understanding Sustainable Earnings Sustainable earnings are also called permanent earnings and non- sustainable earnings are called.
© 2004 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin Chapter 20 Earnings Per Share.
Earnings per Share The Introductory Lecture for Acct 592.
Intermediate Accounting - Chapter 16
Slide 1 A Free sample background from © 2006 By Default! DILUTIVE EPS & SECURITIES CHAPTER 19 PART II 1.
27-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Australian Financial Accounting 5e by Craig Deegan Slides prepared by Craig Deegan Chapter.
1 Share-Based Compensation and Earnings Per Share Sid Glandon, DBA, CPA Associate Professor of Accounting The University of Texas at El Paso.
23-1 PowerPoint slides to accompany New Zealand Financial Accounting 5e by Samkin Slides adapted by Murugesh Arunachalam, © 2011 McGraw-Hill Australia.
McGraw-Hill /Irwin© 2009 The McGraw-Hill Companies, Inc. SHARE-BASED COMPENSATION AND EARNINGS PER SHARE Chapter 19.
Companies: Retained Profits, Share Splits and Buy-backs and the Statement of Financial Performance Chapter 15 HORNGREN ♦ HARRISON ♦ BAMBER ♦ BEST ♦ FRASER.
Advanced Financial Accounting: Chapter 11
Part 7: Chapter 47 An introduction to the analysis and interpretation of accounting statement By: Nenae 11gs.
Hong Kong Accounting Standard 33
SHARE-BASED COMPENSATION AND EARNINGS PER SHARE
Business Finance (MGT 232)
IAS 33 - Earnings Per Share. Academic Resource Center Share-based payments and earnings per share Page 2 Executive summary EPS: ► The accounting and disclosure.
Corporate Stock and Earnings Issues Chapter 24. Corporate Capital Structure Stockholders’ Equity Contributed Capital Retained Earnings.
EARNING PER SHARE Presented By :- Rachit Nagpal
Earnings per Share: IAS 33
McGraw-Hill/Irwin Slide 1 Preliminary Press Releases Releasing Financial Information Quarterly and Annual Reports Securities and Exchange Commission (SEC)
CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 13-2 Financial Statements and Analysis.
1 Earnings Per Share. 2  Detail recent changes in accounting standards relating to earnings per share, and know why the changes were made and how these.
CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 13-2 Financial Statements and Analysis.
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.
BE.16.2, Sasha Verbitsky Co has outstanding 1,000 of $ 1,000 bonds, each convertible into 50 shares of $ 10 par value common stock. The bonds are converted.
Dilutive Securities and Earnings Per Share Learning Objectives At the end of the presentation, you should learn how to: 1. 1.Compute earnings per share.
Financing Activities: Contributed and Earned Capital Shareholders’ Equity: Common Stock Other Paid-in Capital Retained Earnings.
1 Hicorp, Inc. A Study of Earnings Per Share Bloomington Group Jeff Attwood, Jean Baird, Susan Krieger, Kent Miller, Terry Nichols, Randy Short September.
1 Earnings per Share The Introductory Lecture for Acct 414 With comparison to IFRS.
1 1. Know the difference between a simple and a complex capital structure, and understand how dilutive securities affect earnings per share computations.
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.
Rajesh Kevin Sanjay Earning Per Share IAS 33.  History  Objectives  Scope  Requirement for E.P.S  Terms Used in E.P.S  Disclosure  Meaning of E.P.S.
By:- SHREEGANESH. S.  To prescribe principals for the determination and presentation of EPS.  To improve comparability among different enterprises for.
18-1 Intermediate Accounting,17E Stice | Stice | Skousen © 2010 Cengage Learning PowerPoint presented by: Douglas Cloud Professor Emeritus of Accounting,
. Copyright  2010 McGraw-Hill Australia Pty Ltd PPTs to accompany Deegan, Australian Financial Accounting 6e 27-1 Chapter 27 Earnings per share.
19-1 Diluted Earnings Per Share—Complex Capital Structure Chapter 19 Illustrated Solution: Problem
© 2006 Prentice Hall Business Publishing Introduction to Financial Accounting, 9/e © 2006 Prentice Hall Business Publishing Introduction to Financial Accounting,
B asic E arnings per S hare - S imple C apital S tructure Net Income - Applicable preferred dividends Weighted-average number of common shares outstanding*
Copyright © 2012 McGraw-Hill Australia Pty Ltd PPTs to accompany Deegan, Australian Financial Accounting 7e 16-1 Chapter 26 Earnings per share.
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A.,
16-1 C H A P T E R 16 DILUTIVE SECURITIES AND EARNINGS PER SHARE Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield.
Advanced Financial Accounting Lec-43 Main Ahmad Farhan.
Financial Accounting II Lecture 42. Earnings Per Share (EPS) is widely used by investors as a measure of a company’s performance and is of particular.
1 Earnings Per Share and Retained Earnings C hapter 16.
Demonstration Problem
Advanced Financial Accounting
EARNINGS PER SHARE (EPS)
Advanced Financial Accounting FIN-611
Financial Accounting II Lecture 43
Advanced Financial Accounting
Gabriela H. Schneider, CMA Northern Alberta Institute of Technology
Case Study for final exam review
Topic 9 Reporting financial performance
Module 9 Earnings per share
Earnings Per Share and Retained Earnings
Investment ratios Earnings per share ( EPS )
Chapter 13: Income Statement
Lesson 13-2 Financial Statements and Analysis
Earnings Per Share and Retained Earnings
MFRS 133 EARNINGS PER SHARE (EPS)
Earnings per Share (EPS)
© 2014 Cengage Learning. All Rights Reserved.
Principal Balance January 1
Presentation transcript:

Advanced Financial Accounting Lecturer-35

Question A company produced the following net profit of the year ending 31 December. On 1 January 2007, the number of shares outstanding was 500,000. During 2007 company announce the right issue with following details: Rights: 1 new share for each 5 outstanding (500,00/5x1 = 100,000 new shares in total) Exercise price Rs. 5.00 Last date to exercise rights: 1 March 2007 (10 months outstanding) The market (fair) value of one share of the company immediately prior to exercise on 1 march 2007 = Rs. 11.00. Required: Calculate the EPS for 2006, 2007 and 2008. Year 2006 Net-profit (Rs.) 110,000 2007 150,000 2008 180,000

Solution Theoretical ex-right price Worth in market 500,000 x Rs. 11 = 5,500,000 Right Shares 100,000 x Rs. 5 = 5,00,000 6,000,000 = 6,000,000 / 600,000 = Rs. 10 per share

Solution B. Bonus Right Against Resources (Already issued) Rs. 500,000 / 10 = 50,000 shares Bonus Element 100,000 - 50,000 = 50,000 shares 100,000

Solution C) Outstanding No. of shares 2006 2007 2008 2006 2007 2008 Opening balance outstanding 500,000 500,000 600,000 Bonus element 50,000 50,000 --- Resource Element --- 41,667 ---___ 550,000 59,1667 600,00

Solution D. EPS Earning Available to Common Stock-holders No. of weighted average shares outstanding during the year 2006 2007 2008 EPS 110,000/550,000 150,000 / 591,667 180,000/600,000 = 0.20 per share = 0.2535 per share = 0.30 per share

Diluted EPS

Question In 2007 a company had a basic EPS of Rs. 1.05 per share based on earning of Rs. 105,000 and 100,000 ordinary Rs. 1 shares. It also had in issue Rs. 40,000 15% convertible debentures which in convertible in two years time at the rate of 4 ordinary shares for every Rs. 5 of debentures. The rate of income tax is 30%. In 2007 gross profit of Rs. 200,000 and expense of Rs. 50,000 were recorded including interest on debentures of Rs. 6,000. Required: Calculate the diluted EPS.

Conversion of Debentures into Shares Rs. 40,000 x 4/5 = 32,000 Shares.

Solution (Income Statement) (Rs.) Gross profit 200,000 Less: Operating expenses 44,000 Profit from operations 156,000 Less: Financial charges 6,000 Profit before tax 150,000 Less: Income tax (150000 x 30%) 45,000 Profit after tax 105,000

Solution (Revised Income Statement) (Rs.) Gross profit 200,000 Less: Operating expenses 44,000 Profit from operations 156,000 Less: Financial charges ______0 Profit before tax 156,000 Less: Income tax (156,000 x 30%) 46,800 Profit after tax 109,200

Solution (Diluted EPS) Formula Earning in Diluted EPS / Weighted average no. of shares outstanding during the year Diluted EPS = Rs. 109,200/132,000 = Rs. 0.827 per share Dilution = Rs. 1.05 – 0.827 = Rs. 0.223 per share

Question A company has 5,000,000 ordinary shares of Rs. 0.25 each in issue, and also had in issue in 2004: Rs.1,000,000 of 14% convertible debentures, convertible in 3 years time at the rate of 2 shares per Rs.10 of Stock. Rs. 2,000,000 of 10% convertible debentures, convertible in one year time @ of 3 shares per Rs. 5 of debentures. The earning in 2004 were Rs. 1,750,000. The rate of income tax 35%. Required: Calculate the basic EPS and diluted EPS.

Working Rs. 100,000 x 2/Rs. 10 = 200,000 shares

Working Rs. 200,000 x 3/Rs. 5 = 120,000 shares

Solution (Revised Income Statement) (Rs.) Profit from operations 156,000 Less: Financial charges _ ____0 Profit before tax 156,000 Less: Income tax (156,000 x 30%) 46,800 Earnings 109,200

Solution (Income Statement) (Rs.) Profit from operations 156,000 Less: Financial charges 10,000 Profit before tax 146,000 Less: Income tax (146,000 x 30%) 43,800 Earnings 102,200

Solution Basic EPS = 102,200 / 100,000 = 1.022 per share Conversion = Rs. 40,000 x 3/Rs. 20 = 6,000 shares After conversion EPS = 109,200 / 106,000 = 1.03 per share

Solution Financial charges – 30% tax 10,000 – 3,000 = Rs. 7,000 Rs. 7,000 / 6,000 = 1.661 per share If individual EPS of potential ordinary shares is greater than the basic EPS then the potential ordinary share are anti dilutive potential ordinary share.

Dilution Dilutive potential ordinary shares Anti-dilutive potential ordinary shares

Solution Incremental EPS Rs. 1,000,000 x 14% = Rs. 140,000 Less: Tax (140,000 x 35%) = Rs. 49,000 Rs. 91,000 Incremental EPS = Rs. 91,000 / 200,000 = 0.455 per share

Solution Incremental EPS Rs. 2,000,000 x 10% = Rs. 200,000 Less: Tax (200,000 x 35%) = Rs. 70,000 Rs. 130,000 Incremental EPS = Rs. 130,000 / 1,200,000 = 0.108 per share

Solution Basic EPS = Rs. 1,750,000 / 5,000,000 = 0.35 per share Diluted EPS = Rs. 1,750,000 + 130,000 / 5,000,000 + 1,200,000 = Rs. 1,880,000 / 6,200,000 = 0.303 per share Dilution = 0.35 – 0.303 = 0.046 per share