2. Corporations: Additional Topics and IFRS
Additional Share Transactions
Stock dividends and splits
Reacquisition of shares
Comprehensive Income
Continuing and discontinued operations
Other comprehensive income
Accounting Changes
Changes in accounting policies and estimates
Correction of prior period errors
Reporting Changes in Shareholders’ Equity
Summary of transactions
Statement of changes in shareholders’ equity
Analyzing Shareholders’ Equity
Earnings performance; Dividend record
Copyright John Wiley & Sons Canada, Ltd.

3. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 3

4. Copyright John Wiley & Sons Canada, Ltd.
Stock Dividends
Distribution of corporation’s own shares to its shareholders
Paid in shares instead of cash
Does not change assets or shareholders’ equity
Decreases retained earnings and increases share capital by the same amount
Total amount is therefore the same
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5. Stock Dividends: Purpose and Benefits
Satisfies shareholders' dividend expectations without spending cash
Increases marketability of corporation’s shares
Increasing number of shares will cause market price to decrease and make shares more affordable
Emphasizes that a portion of shareholders’ equity has been permanently retained in the business
Therefore unavailable for cash dividends
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6. Entries for Stock Dividends
Declaration date:
Record date: no entry required
Distribution date:
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7. Copyright John Wiley & Sons Canada, Ltd.
Stock Splits
Involves the issue of additional shares to shareholders
Similar to a stock dividend
Increases the marketability of shares by lowering market value per share
Effect on share price is generally inversely proportional to size of split
Does not affect shareholders’ equity
Therefore no entries are required
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8. Comparison of Dividends and Stock Splits
Cash dividends reduce assets and shareholders’ equity (retained earnings)
Stock dividends increase share capital and decrease retained earnings
Stock dividends have no effect (but do increase number of shares issued)
Copyright John Wiley & Sons Canada, Ltd.

9. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 9

10. Common Shares: Reacquisition of Shares
Companies can reacquire their shares from shareholders in order to:
Increase trading on securities markets
Increase earnings per share
Buy out hostile shareholders
Have shares available for compensation or other uses
Reacquired shares are retired and cancelled
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11. Common Shares: Reacquisition of Shares 2
Steps to record a reacquisition:
Remove cost of shares from share capital account
Based on average cost per share (must be calculated)
Record cash paid for the shares
Record the gain or loss on reacquisition
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12. Reacquisition of Shares: Below Average Cost
Average cost of shares:
Balance in Common Shares Account Number of Common Shares Issued
If shares reacquired at a price < average cost:
Difference is a “gain” on reacquisition
This “gain” is credited to a new shareholders’ equity account for the contributed capital from the reacquisition: =
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13. Reacquisition of Shares: Above Average Cost
If shares reacquired at a price > average cost:
Difference is a “loss” on reacquisition
Additional cost of shares is first debited to contributed capital from previous reacquisitions (if any)
Remaining difference is debited to retained earnings:
Copyright John Wiley & Sons Canada, Ltd.

14. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 14

15. Discontinued Operations
Disposal or reclassification to “held for sale” of a component of an entity
A separate major business line or geographic area
Reported separately on income statement
Includes allocation of income tax expense or savings (called intraperiod tax allocation)
Profit (loss) from discontinued operations and gain (loss) from disposal
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16. Discontinued Operations 2
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17. Other Comprehensive Income
Additional statement required under IFRS
All-inclusive format or as a separate statement
No “other comprehensive income” under ASPE
All changes in shareholders’ equity except from sale/purchase of shares and dividend transactions
Copyright John Wiley & Sons Canada, Ltd.

18. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 18

19. Change in Accounting Policy
Occurs when the policy used in current year is different that that used in prior year
Only occurs when change:
Is required by GAAP
Provides more reliable and relevant information
Must be applied retroactively (prior years restated) unless not practical to do so
Using a new accounting method due to a change in circumstances is not a change in accounting policy
No retroactive application
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20. Change in Accounting Estimates
Estimates of future conditions and events are made often in accounting
For example, bad debt expense or warranty expense
These estimates may need to be changed due to:
A change in circumstances
New information becoming available
The new estimate is used from now on
Do not go back and change prior periods
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21. Correction of Prior Period Errors
When a material error is discovered after the financial statements have been issued
Correction is made directly to Retained Earnings
Since effect of error is now located there (all revenues and expenses have been closed to retained earnings)
Net of any income tax effect
Example: overstatement of cost of goods sold
Understatement of inventory, profit (now retained earnings), and income tax payable
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22. Presentation of Prior Period Adjustments
Adjustment is added to (or deducted from) opening balance of retained earnings, net of income tax effect
Financial statements of prior years are restated to reflect the change
Details of the change and its impact disclosed in a note to the financial statements
Copyright John Wiley & Sons Canada, Ltd.

23. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 23

24. Statement of Changes in Shareholders’ Equity
Required for companies following IFRS
Shows changes in shareholders’ equity during year
Including contributed capital, retained earnings, other comprehensive income
Companies following ASPE:
Continue to use a Statement of Retained Earnings
Other changes are reported in notes to the statements
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25. Summary of Shareholders’ Equity Transactions
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26. CHAPTER 14: Corporations: Additional Topics and IFRS
Account for stock dividends and splits and compare their financial impact.
Account for the reacquisition of shares.
Prepare an income statement showing continuing and discontinued operations, and prepare a statement of comprehensive income.
Explain the accounting for different types of accounting changes and account for corrections of prior period errors.
Prepare a statement of changes in shareholders’ equity.
Evaluate earnings and dividend performance.
Copyright John Wiley & Sons Canada, Ltd. 26

27. Earnings Performance: Earnings per Share
Indicates profit earned by each common share
Used under IFRS not under Private Entity GAAP
Formula to calculate:
Weighted average number of common shares = shares issued during the year x the fraction of the year they are outstanding
Example: April 1 = 3/12 months if calendar year used
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28. Earnings per Share: Complex Capital Structure
When a company has securities that can be converted into common shares
Example: convertible preferred shares
If converted, the additional common shares will result in a reduced (diluted) EPS figure
Two EPS amounts are calculated:
Basic EPS: calculation on preceding page
Fully diluted EPS: calculated as if all securities were converted into common shares
Calculation of weighted average number of shares becomes more complicated
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29. Earnings Performance: Price-Earnings Ratio
Helps investors compare earnings of different companies
Formula to calculate:
A high PE ratio is an indicator that investors believe the company has good earnings potential
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30. Copyright John Wiley & Sons Canada, Ltd.
Payout Ratio
Indicates what percentage of profit a company is distributing to its shareholders
Can be calculated for common, preferred and all dividends:
Payout ratios vary with the industry
High payout ratios can indicate that a company is not reinvesting enough in its operations
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31. Copyright John Wiley & Sons Canada, Ltd.
Copyright © 2013 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (the Canadian copyright licensing agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these files or programs or from the use of the information contained herein.
Prepared by:
A. Davis, MSc, BComm, CA, CFE
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