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FAR > 11. Earnings Per Share and Distributable Profits > Flashcards

11. Earnings Per Share and Distributable Profits Flashcards

1
Q

Price earnings ratio calculation

A

MV of share
DIVIDED BY
EPS

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2
Q

EPS means

A

Earnings Per Share

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3
Q

Who does the EPS ISA apply to?

A
  1. Separate FS for entities whose
    a. ordinary shares are publicly traded
    b. in the process of being issued in public markets
  2. Consol FS for groups who’s parent
    Has shares similarly traded/being issued
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4
Q

Basic EPS formula

A

Earnings
DIVIDED BY
Shares

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5
Q

EPS: How to deal with shares (issued at full market price)?

A

Weighted average number of equity shares

(taking into account when issued during the year)

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6
Q

EPS: How to treat irredeemable preference shares to arrive at earnings?

A

Dividend deducted from
net profit (P&L)

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7
Q

EPS: Bonus issues: When do you treat as having been issued?

A

START of the year

Comparitive figures are also restated
(To allow for proportional increase in share capital cause by the bonus issue)
(i.e. treat bonus issue as always having been in place)

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8
Q

EPS: Bonus issue: Treatment steps

A
  1. Calculate bonus fraction
  2. In weighted average calculation, multiply all shares before bonus issue by the bonus fraction
  3. Calculate EPS
  4. Restate prior year comparative by multiplying by inverse of bonus fraction
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9
Q

EPS: Bonus issue: Bonus fraction calculation

A

Shares AFTER the issue
DIVIDED BY
Shares before the issue

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10
Q

EPS: Rights issue: Treatment steps

A

(Adjust for the bonus element)

  1. Calculate theoretical ex-rights price (TERP)
  2. Calculate bonus fraction
  3. Calculate weighted average no. shares
  4. Calculate EPS
  5. Re-state prior year comparitive
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11
Q

EPS: Rjghts issue: Bonus fraction calculation

A

Market price before issue
DIVIDED BY
TERP

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12
Q

EPS: Treasury shares: Treatment

A

‘Reverse’ of a full market value issue

(I.e. weighted average will reduce no. shares i think)

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13
Q

Which profits are available for dividend issue?

A

Accumulated realized profits

Individual company FS not consol

(Generally = retained earnings balance)

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14
Q

EPS: Provision treatment

A

Realized loss

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15
Q

EPS: Reval surplus treatment

A

Unrealized profit

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16
Q

EPS: Depn increase from revaluation: Additional depn treatment

A

Released profit

17
Q

EPS: Unrealized surplus/loss in valuation treatment

A

Immediately realized

18
Q

EPS: Non-current asset revaluation gains treatment: Not reversing losses previously treated as realized

A

Unrealized

19
Q

EPS: Non-current asset revaluation gains treatment: Do reverse a loss already treated as realaised

A

Realised

20
Q

EPS: Non-current asset revaluation loss treatment: General rule

A

Realised

21
Q

EPS: Non-current asset revaluation loss: Exception: Criteria

A

Where the loss:

  1. Offsets a surplus on that asset
  2. Arises from reassessment of value of all NCAs
  3. Arises from reassessment of some NCAs
    Where the assets not revalued was worth
    AT LEAST
    Their carrying amounts
22
Q

EPS: Treatment when business elects to not transfer excess depreciation on PPE revaluation to retained earnings?

A

The adjustment is made
For the purposes of distributable profits

23
Q

EPS: The general additional rule for public companies

A

Cannot reduce net assets
below
aggregate of
1. Called up share capital
AND
2. Undistributable reserves

I.e. deduct those 2 from NAs to arrive at distributable profits for a public company

24
Q

EPS: (Additional rule for public companies):

Undistributable reserves are:

A
  1. Share premium
  2. Excess unrealized profits over unrealised losses
  3. Any other reserve C is prohibited from distributing
    By any statute or its memo/articles of association
25
Q

EPS: How can distributable profits for a public company also be calculated?

A

Just Distributable profits aha

LESS

Excess of unrealized losses over unrealized profits (if any)

26
Q

EPS: Alternative way of calculating distributable profits for a public company:

Distributable profits
Part (the top line) calculation

A

Accumulated realized profits

LESS

Accumulated realized losses

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