SUBJECT: FINANCIAL REPORTING

ASSIGNMENT

SECTION (QCA)

Submitted By:

MUHAMMAD HUMZA F2017285013

MOAZAN NADEEM F2017285028

HAFIZ MUHAMMAD DANISH TARIQ F2017285060

Submitted To:

SIR MUHAMMAD JAMIL

Earnings per Share – EPS
Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of
its common stock. The resulting number serves as an indicator of a company's profitability. It is
common for a company to report EPS that is adjusted for extraordinary items and potential share
dilution. The higher a company's EPS, the more profitable it is considered.

KEY TAKEAWAYS
 Earnings per share (EPS) is a company's net profit divided by the number of common
shares it has outstanding.
 EPS indicates how much money a company makes for each share of its stock and is a
widely used metric for corporate profits.
 A higher EPS indicates more value because investors will pay more for a company with
higher profits.
 EPS can be arrived at in several forms, such as excluding extraordinary items or
discontinued operations, or on a diluted basis.

Formula and Calculation for EPS

The earnings per share value are calculated as the net income (also known as profits or earnings)
divided by the available shares. A more refined calculation adjusts the numerator and
denominator for shares that could be created through options, convertible debt, or warrants. The
numerator of the equation is also more relevant if it is adjusted for continuing operations.
{Earnings per Share}= {Net Income} - {Preferred Dividends}/ {End-of-Period Common
Shares Outstanding}

The Significance of EPS 

 A higher EPS means that a company is profitable enough to pay out more money to its
shareholders. For example, a company might increase its dividend as earnings increase
over time.  
 Investors typically compare the EPS of two companies within the same industry to get a
sense of how the company is performing relative to its peers. 
  Establishing trends in EPS growth gives a better idea of how profitable a company has
been in the past and may be in the future. A company with a steadily increasing EPS is
considered to be a more reliable investment than one who’s EPS is on the decline or
varies substantially.
 EPS is also an important variable in determining a stock’s value, since it provides the
“E”, or earnings, portion of the P/E (price-earnings) valuation ratio. The P/E ratio is one
of the most common ratios utilized by investors in determining whether a company's
stock price is valued properly relative to its earnings. 
 It's important to note that some companies (especially in the technology
sector) reinvest their profits to grow the business. However, investors still look to EPS as
a gauge of a company's profitability.

Objective of Earnings per Share:

The objective of this Standard is to prescribe principles for the determination and presentation of
earnings per share which will improve comparison of performance among different enterprises
for the same period and among different accounting periods for the same enterprise. The focus of
this standard is on the denominator of the earnings per share calculation. Even though earnings
per share data has limitations because of different accounting policies used for determining
'earnings', a consistently determined denominator enhances the quality of financial reporting.

Scope

IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing
securities to the public. Other entities that choose to present EPS information must also comply
with IAS 33.

If both parent and consolidated statements are presented in a single report, EPS is required only
for the consolidated statements.
 MCQ: IAS 33 Earnings per Share (Conceptual)

1) IAS 33 is required to be used by:

Answer: Companies whose shares and potential shares are publicly traded.

2) When an undertaking presents both consolidated and separate financial

statements, the disclosures required by IAS 33 need be presented:

Answer: Only for the consolidated information.

3) Anti-dilution is:

Answer: An increase in earnings per share when convertible instruments are converted to ordinary shares.

4) Dilution is:

Answer: A decrease in earnings per share when convertible instruments are converted to ordinary shares.

5) Put options on ordinary shares are contracts that give the holder the right to:

Answer: Sell ordinary shares.

6) Your preference dividend of $200 million is due. You have reserves of only
$40m. You can pay a preference dividend of:

Answer: $40m

7) Basic earnings per share amounts uses the profit attributable to:

Answer: Ordinary equity holders of the parent undertaking.

8) Basic earnings per share shall be calculated by dividing the numerator by the
number of ordinary shares outstanding (the denominator):

Answer: The weighted-average during the period.

 9) The time-weighting factor is the number of that the shares are outstanding:

Answer: Days

10) Shares, issued in exchange for the settlement of a liability, are included
in the EPS calculation from:

Answer: The settlement date

IAS 36 Impairment of Asset

IAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than
their recoverable amount (i.e. the higher of fair value less costs of disposal and value in use).
With the exception of goodwill and certain intangible assets for which an annual impairment test
is required, entities are required to conduct impairment tests where there is an indication of
impairment of an asset, and the test may be conducted for a 'cash-generating unit' where an asset
does not generate cash inflows that are largely independent of those from other assets.

IAS 36 was reissued in March 2004 and applies to goodwill and intangible assets acquired in
business combinations for which the agreement date is on or after 31 March 2004, and for all
other assets prospectively from the beginning of the first annual period beginning on or after 31
March 2004.

Key definitions [IAS 36]

Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit
exceeds its recoverable amount

Carrying amount: The amount at which an asset is recognized in the balance sheet after
deducting accumulated depreciation and accumulated impairment losses

Recoverable amount: The higher of an asset's fair value less costs of disposal* (sometimes
called net selling price) and its value in use
Prior to consequential amendments made by IFRS 13 Fair Value Measurement, this was referred
to as 'fair value less costs to sell'.

Fair value: The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (see IFRS 13 Fair Value
Measurement)

Value in use: The present value of the future cash flows expected to be derived from an asset or
cash-generating unit

Objective of IAS 36

The objective of this standard is to prescribe the procedures that an entity applies to ensure that
its assets are carried at no more than their recoverable amount.

Scope

IAS 36 ensure that assets are reported on the statement of financial position at no more than the
entity can recover from their use or sale.

May be an impairment loss “the amount by which the carrying amount of an asset or a cash
generating unit (CGU) exceeds its.

IAS 36 applies to (among other assets):

 land

 buildings

 machinery and equipment

 investment property carried at cost

 intangible assets

 goodwill

 investments in subsidiaries, associates, and joint ventures carried at cost

 assets carried at revalued amounts under IAS 16 and IAS 38

 IAS 36 applies to all assets except:

 inventories (see IAS 2)

 assets arising from construction contracts (see IAS 11)

 deferred tax assets (see IAS 12)

 assets arising from employee benefits (see IAS 19)

 financial assets (see IAS 39)

 investment property carried at fair value (see IAS 40)

 agricultural assets carried at fair value (see IAS 41)

 insurance contract assets (see IFRS 4)

 non-current assets held for sale (see IFRS 5)

MCQ: IAS 36 Impairment of assets (Basic)

1) Your asset is impaired: its ‘fair value less costs to sell’ = loss of $4k and
its ‘value in use’ = $6k. Which value do you use?

Answer: $6k

2) Your asset is impaired: its ‘fair value less costs to sell’ = loss of $4k and
its ‘value in use’ = loss of $2k. Which value do you use?
Answer: Zero
3) The carrying value of your cash-generating unit = Assets $10m + Goodwill
$3m And Its ‘value in use’ = $11m You should:
Answer: Reduce the goodwill to $1m.

4) For impairment testing a cash-generating unit is

Answer: The lowest aggregation of assets that can generate independent cash inflows.
 5) Costs of disposal are:

Answer: Incremental costs, directly attributable to the disposal of an asset, excluding finance costs and
income tax expense.

6) An asset is impaired if:

Answer: Its carrying amount exceeds the amount to be recovered through use (or sale) of the asset.

7) Goodwill should be tested for impairment:

Answer: Annually

8) Value-in-use is:

Answer: The discounted present value of future cash flows arising from use of the asset and from its disposal.

9) IAS 36 applies to which of the following assets:

Answer: Property, plant, and equipment and intangible assets.

10) If the fair value less costs to sell cannot be determined:

Answer: The recoverable amount is the value-in-use.