PAS 33

Question 1

1. EPS disclosures are required for

a. Entities whose ordinary shares and potential ordinary shares are publicly traded.
b. Entities that are in the process of issuing ordinary shares in the public market.
c. All entities.
d. Entities whose ordinary shares and potential ordinary shares are publicly traded and entities that are in the process of issuing ordinary shares in public market.

Answer 1

d. Entities whose ordinary shares and potential ordinary shares are publicly traded and entities that are in the process of issuing ordinary shares in public market.

Question 2

2. EPS disclosures are

a. Required for all public and nonpublic entities
b. Required for public entities and encouraged for nonpublic entities
c. Encouraged for public entities and required for nonpublic entities
d. Encouraged for all entities

Answer 2

b. Required for public entities and encouraged for nonpublic entities

Question 3

3. When an entity issues both consolidated and separate financial statements, the EPS information is required

a. For both sets of financial statements
b. In neither set of financial statements
c. Only for consolidated financial statements
d. Only for separate financial statements

Answer 3

c. Only for consolidated financial statements

Question 4

4. Earnings per share shall be computed on the basis of

a. The number of shares outstanding at the end of the year
b. A weighted average of the number of shares outstanding during the year regardless of the extent of fluctuations
c. A weighted average of the number of shares outstanding during the year except that minor fluctuations in the number of shares es may be disregarded
d. The number of shares outstanding at the middle of year

Answer 4

c. A weighted average of the number of shares outstanding during the year except that minor fluctuations in the number of shares es may be disregarded

Question 5

5. Earnings per share shall be reported for all of the following, except

a. Continuing operations
b. Discontinued operations
c. Net income
d. Net cash provided by operating activities

Answer 5

d. Net cash provided by operating activities

Question 6

6. In computing basic earnings per share, if the preference shares are cumulative, the amount that should be deducted as an adjustment to the numerator is the

a. Preference dividends in arrears
b. Preference dividends paid during the year
c. Annual preference dividend
d. Annual ordinary dividend

Answer 6

c. Annual preference dividend

Question 7

7. In computing basic earnings per share, the amount of preference dividends on noncumulative preference shares should be

a. Deducted from net income whether declared or not
b. Deducted from net income only when declared
c. Added to net income only when declared
d. Ignored

Answer 7

b. Deducted from net income only when declared

Question 8

8. In computing basic earnings per share, the full amount of the required preference dividends on cumulative preference shares for the period should be

a. Ignored
b. Deducted from net income only when declared
c. Deducted from net income whether declared or not
d. Added to net income whether declared or not

Answer 8

c. Deducted from net income whether declared or not

Question 9

9. In computing basic loss per share, the annual preference dividend on cumulative preference shares should be

a. Ignored
b. Deducted from the net loss whether declared or not
c. Added to the net loss whether declared or not
d. Added to the net loss only when declared

Answer 9

c. Added to the net loss whether declared or not

Question 10

10. In the computation of weighted average number of shares when there is a share split, the additional shares are

a. Weighted by the number of days outstanding
b. Weighted by the number of months outstanding
c. Considered outstanding ng of the year of the beginning of
d. Considered outstanding at the beginning of the earliest year reported.

Answer 10

d. Considered outstanding at the beginning of the earliest year reported.

Question 11

1. Earnings per share shall be calculated before accounting for which of the following?

a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest

Answer 11

b. Ordinary dividend

Question 12

2. If a bonus issue occurs between the year-end and the date that the financial statements are authorized for issue

a. The EPS for both the current and the previous year are adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted

Answer 12

a. The EPS for both the current and the previous year are adjusted

Question 13

3. If a new issue of shares for cash is made between the year-end and the date that the financial statements are authorized for issue

a. The EPS for both the current and the previous year are adjusted.
b. The EPS for the current year only is adjusted.
c. No adjustment is made to EPS.
d. Diluted EPS only is adjusted.

Answer 13

c. No adjustment is made to EPS.

Question 14

4. The weighted average number of shares outstanding during the period for all periods should be adjusted for

a. Any change in the number of ordinary shares without a change in resources.
b. Any prior period adjustment.
c. Any new issue of shares for cash.
d. Any convertible instruments settled in cash.

Answer 14

a. Any change in the number of ordinary shares without a change in resources.

Question 15

5. Which figure for earnings does EPS information use?

a. Net income attributable to ordinary equity holders and preference shareholders of the parent
b. Income before taxation
c. Income from continuing operations
d. Net income attributable to ordinary equity holders of the parent

Answer 15

d. Net income attributable to ordinary equity holders of the parent

Question 16

6. When an entity issues a share split

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.

Answer 16

b. The previous year’s EPS is adjusted for the issue.

Question 17

7. Ordinary shares issued as part of a business combination are included in the EPS calculation from

a. The beginning of the accounting period.
b. The date of acquisition.
c. The end of the accounting period.
d. The midpoint of the accounting year.

Answer 17

b. The date of acquisition.

Question 18

8. Shares which are issued to settle a liability are included in the EPS calculation from

a. Date of the contract for services
b. Halfway through the rendering of services
c. The completion of services
d. The settlement date

Answer 18

**d. The settlement date

Question 19

9. Shares which are to be issued upon the conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per share from

a. The date of the contract for the shares
b. Halfway through the period
c. The date of conversion
d. The issue of the share certificate

Answer 19

a. The date of the contract for the shares

Question 20

10. Under IFRS, where ordinary shares are issued but not paid, the ordinary shares are treated in EPS

a. In the same way as fully paid ordinary shares.
b. As a fraction of an ordinary share to the extent that the shares are entitled to participate in dividends.
c. In the same way as warrants or options
d. Are ignored.

Answer 20

b. As a fraction of an ordinary share to the extent that the shares are entitled to participate in dividends.

Question 21

1. Antidilutive securities

a. Should be included in the computation of diluted earnings per share but not basic earnings per share.
b. Are those whose inclusion in earnings per share computation would cause basic earnings per share to exceed diluted earnings per share.
c. Include share options and warrants whose option price is less than the average market price.
d. Should be disregarded in all EPS computations.

Answer 21

d. Should be disregarded in all EPS computations.

Question 22

2. The purpose of diluted earnings per share is to

a. Provide a comparison figure for debt holders.
b. Indicate earnings shareholders shall receive in future periods.
c. Distinguish between entities with a complex capital structure and entities with a simple capital structure.
d. Show the maximum possible dilution of earnings.

Answer 22

d. Show the maximum possible dilution of earnings.

Question 23

3. What is the justification underlying the concept of potential ordinary shares in an EPS computation?

a. Form over substance
b. Substance over form
c. Form and substance considered equally
d. Accounting practice

Answer 23

b. Substance over form

Question 24

4. In calculating diluted earnings per share, which of the following should not be considered?

a. The weighted average number of ordinary shares outstanding
b. The amount of dividends declared on cumulative preference shares
c. The amount of cash dividends declared on ordinary shares
d. The number of ordinary shares resulting from the assumed conversion of bonds payable outstanding

Answer 24

c. The amount of cash dividends declared on ordinary shares

Question 25

5. Which statement is correct in relation to EPS? a. If preference share is outstanding, dividend declared on the preference share is always deducted from net income in calculating EPS. b. EPS can never be negative. c. If income from continuing operations is less than zero, potentially dilutive securities are antidilutive. d. All issues convertible to ordinary shares must be included in the calculation of diluted EPS.

Answer 25

**c. If income from continuing operations is less than zero, potentially dilutive securities are antidilutive.**

Question 26

6. An entity already has calculated the basic earnings per share. In determining diluted earnings per share, the annual dividend on convertible cumulative preference share which is dilutive should be a. Added back to the numerator of basic EPS whether declared or not. b. Deducted from the numerator of basic EPS only if declared. c. Added back to the numerator of basic EPS only if declared. d. Deducted from the numerator of basic EPS whether declared or not.

Answer 26

**a. Added back to the numerator of basic EPS whether declared or not.**

Question 27

7. In determining diluted earnings per share, dividends on nonconvertible cumulative preference shares should be a. Disregarded b. Added back to net income whether declared or not c. Deducted from net income only if declared d. Deducted from net income whether declared or not

Answer 27

**d. Deducted from net income whether declared or not**

Question 28

8. The "if converted" method of computing earnings per share assumes conversion of convertible bonds payable at a. Beginning of the earliest period reported or at time of issuance, if later. b. Beginning of the earliest period reported regardless of time of issuance. c. Middle of the earliest period reported regardless of the time issuance d. Ending of the earliest period reported regardless of the time of issuance

Answer 28

**a. Beginning of the earliest period reported or at time of issuance, if later.**

Question 29

9. In determining diluted earnings per share, interest expense, net of income tax, on dilutive convertible bond payable should be a. Added back to weighted average shares outstanding 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. Deducted from weighted average shares outstanding for diluted earnings per share.

Answer 29

**b. Added back to net income for diluted earnings per share.**

Question 30

10. When dilutive convertible bonds are the only potential ordinary shares a. Diluted EPS will be geater if the bonds are actually converted than not converted. b. Diluted EPS will be smaller if the bonds are actually converted than not converted. c. Diluted EPS will be the same whether or not the bonds are converted. d. The effect of conversion on diluted EPS cannot be determined without additional information.

Answer 30

**c. Diluted EPS will be the same whether or not the bonds are converted.**

Question 31

1. The calculation of diluted EPS assumes that share options were exercised and that the proceeds were used to a. Buy ordinary shares as an investment b. Retire preference shares c. Buy treasury shares d. Increase net income

Answer 31

**c. Buy treasury shares**

Question 32

2. Options and warrants are dilutive if a. The exercise price is lower than the average market price b. The exercise price is higher than the average market price. c. The exercise price is equal to the average market price. d. The option shares represent 20% of ordinary shares.

Answer 32

**a. The exercise price is lower than the average market price**

Question 33

3. When applying the treasury share method for diluted e EPS, the market price of the ordinary share used for the assumed acquisition of treasury shares is the a. Market price at the end of the year b. Average market price during the year c. Market price at the beginning of the year d. Average market price over a two-year period

Answer 33

**b. Average market price during the year**

Question 34

4. In applying the treasury share method of computing diluted earnings per share, when is it appropriate to use the average market price of ordinary share during the year as the assumed repurchase price? a. Always b. When the average market price is higher than the exercise price c. Never d. When the average market price is lower than the exercise price

Answer 34

**b. When the average market price is higher than the exercise price**

Question 35

5. Under the treasury share method, the number of potential ordinary shares is equal to a. Option shares b. Option shares minus assumed treasury shares c. Assumed treasury shares d. Option shares actually issued during the year

Answer 35

**b. Option shares minus assumed treasury shares**

Question 36

1. All of the following must be disclosed in relation to earnings per share, except a. Forecast earnings per share for the following year. b. Instruments that could potentially dilute basic earnings per share in the future but not included in the diluted EPS because they are antidilutive in the current period. c. The weighted average number of ordinary shares used. d. The earnings figures used in calculating EPS.

Answer 36

**a. Forecast earnings per share for the following year.**

Question 37

2. Dilution of EPS is defined as a. Decrease in earnings per share when any financial instrument is converted to any form of share capital. b. Decrease in share capital. c. Decrease in earnings per share when convertible instruments are converted to ordinary shares. d. Decrease in earnings per share when share capital is converted to debt capital.

Answer 37

**c. Decrease in earnings per share when convertible instruments are converted to ordinary shares.**

Question 38

3. If a share option is converted on March 31 a. The potential ordinary shares are included in diluted EPS up to March 31, and in basic EPS from the date converted to the year-end, both weighted accordingly. b. The ordinary shares are not included in diluted EPS. c. The ordinary shares are not included in basic EPS. d. The effects of the share option are included only in previous year's EPS calculation.

Answer 38

**a. The potential ordinary shares are included in diluted EPS up to March 31, and in basic EPS from the date converted to the year-end, both weighted accordingly.**

Question 39

4. In calculating whether potential ordinary shares are dilutive, the income figure used as the control number is a. Net income including discontinued operations b. Income from continuing operations c. Income before tax including discontinued operations d. Retained earnings for the year after dividends

Answer 39

**b. Income from continuing operations**

Question 40

5. The nature of diluted earnings per share involving share options can be described as a. Historical because earnings are historical b. Historical because it indicates an entity's valuation c. Proforma because it indicates potential changes in number of shares d. Proforma because it indicates potential changes in earnings.

Answer 40

**c. Proforma because it indicates potential changes in number of shares**