IAS 18

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IAS 18

• Revenue
• Scope
• General principles
• Measurement
• Disclosures

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Scope
3
General Principles

• Measure reliably
• Flow of economic benefits probable
• Costs measured reliably

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Measurement
Fair value of consideration received or receivable
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Disclosures

• Accounting policies adopted including methods to
  determine stage of completion of services
• Amount of each significant category of revenue
  recognised during the period including revenue
  arising from goods, services, interest, royalties
  and dividends
• Amount of revenue arising from exchanges of goods
  and services included in each significant
  category of revenue

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Home Questions

• Transystems

7
International Accounting Standards

• IAS 33 Earnings Per Share

8
IAS 33 Earnings Per Share

• Objective
• To prescribe principles for the determination and
  presentation of earnings per share
• Focus on determining the denominator of
  calculation

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IAS 33 Earnings Per Share

• Scope
• Enterprises whose shares are publicly traded
• Enterprises in process of issuing such shares
• Enterprises electing to disclose EPS
• Present in consolidated financial statements only
  when parent financial statements also presented

10
IAS 33 Earnings Per Share

• Basic EPS
• Net profit attributable to ordinary
  shareholdersdivided by
• Weighted average number of ordinary shares
  outstanding during period

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Example 1 Increasing Rate Preference
Dividends An entity issued non-convertible, non
redeemable class A cumulative preference shares
of 100 par value on 1 January 2001. They are
entitled to a 7 annual dividend, starting in
2004.The market rate dividend yield, in 2001,
was 7. To compensate for no dividend for 3 years
the shares are issued at 81.63 (a discount of
18.37 - present value of 100 discounted at 7
over 3 years).The discount is amortised to
profit and loss and treated as a preference
dividend. The following imputed dividend is
deducted  Carrying value
Imputed dividend Carrying value Dividend
paid 1 January 2001
31 December 2001
81.63 5.71
87.34 2002 87.34
6.12 93.46
2003 93.46 6.54
100.00 Thereafter
100.00 7.00
107.00 (7.00)
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Example 2 Weighted average number of shares

Shares Own shares
Shares
issued acquired
outstanding1 January 20x1 Opening balance
2,000 300
1,70031 May 20x1 Issue of new shares - cash
800 - 2,5001
December 20x1 Purchase of shares - cash -
250 2,25031 December
20x1 Closing balance 2,800
550 2,250 Computation of
weighted average (1,700 x 5/12)
(2,500 x 6/12) (2,250 x 1/12) 2,146
sharesor (1,700 x 12/12) ( 800 x 7/12)
- (250 x 1/12) 2,146 shares
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Example 3 Bonus issue Net profit 20x0

180Net profit 20x1
600Ordinary shares
until 30.9.20x1
200Bonus issue 1.10.20x1
21 400 Earnings per share
20x1
600 100p

(200 400)  Adjusted earnings per share 20x0
180
30p
(200 400)
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Example 4 Rights issue Net profit
20x0 1,100 20x1
1,500 20x2 1,800Shares pre rights
500Rights issue
15 _at_ 5 per share by 1.3.20x1Fair value
pre rights 11 Computation of
theoretical ex rights value per share Fair
value of all outstanding shares total amount
received ex rightsNumber of shares outstanding
pre rights number of shares in rights
exercise (500 shares x 11) (100 shares x 5)
10 500 shares 100
shares Computation of adjustment factor Fair
value pre rights
11 1.1Theoretical ex rights value
10 
15
Calculation of earnings per share

20x0 20x1
20x220X0 EPS as originally reported
220p ( 1,100 / 500
shares)20X1 EPS restated for rights issue
( 1,100 / 500 shares x 1.1)
200p20X1 EPS including rights
1,500 (500
x 1.1 x 2/12) (600 x 10/12)
254p20X2 EPS 1,800 / 600 shares

300p
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IAS 33 Earnings Per Share

• Diluted EPS
• Net profit attributable to ordinary
  shareholders (adjusted for effects of all
  dilutive ordinary shares)
• divided by
• Weighted average number of ordinary shares
  outstanding during period
• (adjusted for effects of all dilutive
  ordinary shares)

17
IAS 33 Earnings Per Share

• Potential Ordinary Shares
• Convertible debt
• Share warrants and options
• Convertible preference shares

18
IAS33 Diluted Earnings per share

• Earnings - diluted
• Net profit attributable to ordinary shareholders
  adjusted by the post-tax effect of
• Any dividends recognised in the period for the
  diluted potential ordinary shares,
• Interest recognised in the period for the
  dilutive potential ordinary shares
• Any other changes in income or expense that would
  result from a conversion of the dilutive
  potential ordinary shares

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IAS33 Diluted Earnings per share

• Basic weighted average of ordinary shares plus
  the weighted average number of ordinary shares
  which would be issued on the conversion of all
  the dilutive potential ordinary shares into
  ordinary shares.
• Dilutive potential ordinary shares should be
  deemed to have been converted into ordinary
  shares at the beginning of the period or, if
  later, the date of the issue of the potential
  ordinary shares.

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IAS33 Diluted Earnings per share

• In considering whether potential ordinary shares
  are dilutive or anti-dilutive, each issue of
  potential ordinary shares is considered
  separately rather than in aggregate.
• In order to maximise the dilution of basic
  earnings per share, each issue of potential
  ordinary shares is considered in sequence from
  the most dilutive to the least dilutive.

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Example 5 Convertible bonds Net profit

1,004Ordinary shares outstanding
1,000Basic earnings per share
100pConvertible bonds 100
(Each block of 10 convertible into 3
shares)Interest expense (relating to the
convertible bond) 10 (including
amortisation of discount under

FRS 4)Current and deferred tax re
interest 4 Adjusted net profit
1,004 10 - 4
1,010Number of ordinary shares
1,000 30 1,030 Diluted earnings
per share 1,010 98p

1,030
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Example 7 Effects of share options on diluted
earnings per share Net profit for year
20x1
1,200,000Weighted average shares
during 20x1
500,000 sharesAverage market price of 1 share
during 20x1
20Weighted average number of options during 20x1
100,000 sharesExercise price
for shares under option during year 20x1
15Calculation of earnings per share

per share earnings sharesNet
profit for year 20x1
1,200,000Weighted average
shares during year
500,000 Basic earnings per share
240p Number of
options
100,000Number
of shares that would have been issued at
average market price (100,000 x 15) / 20

( 75,000) Diluted
earnings per share
229p 1,200,000 525,000
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Example 6 Determining the order in which to
include dilutive securities in the calculation of
weighted average number of shares EarningsNet
profit attributable to continuing operations
16,400,000Less
preference dividends
(
6,400,000)Profit from continuing operations
attributable To ordinary shareholders

10,000,000Loss from discontinued
operations
( 4,000,000)Net profit
attributable to ordinary shareholders
6,000,000 Ordinary
shares outstanding

2mAverage market price of one ordinary share
during year
75  Potential ordinary sharesOptions

100,000 with exercise price of 60Convertible
preference shares 800,000
convertible 21
8 per share
cumulative dividend5 Convertible bond
100m each 1,000
convertible into 20 ordinary sharesTax rate

40
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Increase in earnings attributable to
ordinary shareholders on conversion of potential
ordinary shares
Increase
Increase Earnings
in
in number per

earnings of ordinary incremental

shares
share
Options Increase in earnings
Nil Incremental shares
100,000 x ( 75- 60)/ 75
20,000
NilConvertible preference shares Increase
in earnings 8 x 800,000
6,400,000 Incremental shares

2 x 800,000
1,600,000
45 Convertible bonds Increase in
earnings 100m x 5 x 0.6
3,000,000 Incremental shares
2,000,000
1.50 Ranking (1) options, (2)
convertible loans, (3) convertible preference
shares 
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Computation of diluted earnings per share 

Net profit Ordinary Per
share
attributable shares


As reported
10,000,000 2,000,000
5.00Options
20,000

10,000,000 2,020,000
4.95 dilutive5 Convertible bonds
3,000,000 2,000,000
13,000,000
4,020,000 3.23
dilutiveConvertible preference shares
6,400,000 1,600,000
19,400,000
5,620,000 3.45 antidilutive 

The convertible preference shares are
ignored in calculating the dilutive earnings per
share as they are antidilutive. Computation of
basic and diluted earnings per share

Basic
DilutedProfit from continuing operations
5.00 3.23Loss
from discontinued operations
(2.00) (0.99)Net profit

3.00 2.24 
(4,000,000 2m) ( 2.00) (4,000,000
4.02m) ( 0.99)
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IAS 33 Earnings Per Share

• Comparative for both Basic and Diluted EPS to be
  adjusted for
• The effects of a capitalisation, bonus issue,
  share split and reverse share split
• Effects of errors and changes in accounting
  policies accounted for as per IAS 8
• Effects of a business that is a verity of
  interests

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IAS 33 Earnings Per Share

• Presentation and Disclosure
• Basic and diluted EPS should be shown on the face
  of the income statement for each class of
  ordinary share
• Equal prominence
• Show even if negative (i.e. a loss per share)

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IAS 33 Earnings Per Share

• Also disclose
• Amounts used as numerators for basic and diluted
  EPS, reconciled to net profit or loss for the
  period
• Weighted average number of ordinary shares for
  basic and diluted EPS, with a reconciliation of
  these denominators to each other

29
Home Questions and Examination Questions

• Home Examination
• Bosun See case studies
• Deltoid Ikast
• Company XG Lazise
• Brescia
  (Q1J2004)

30
IFRS 5

• Non-Current Assets Held For Sale Discontinued
  Operations
• Assets held for sale
• Discontinued operations
• Comparison to UK/IRISH GAAP

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Assets Held For Sale

• To be classified as held for sale
• Available for immediate sale in present condition
• Sale highly probable
• Transfer to be completed within one year

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• Carry at lower of carrying value fair value
  less cost to sell
• Do not depreciate
• Present separately on face of balance sheet

Where an entity adopts the revaluation model for
the measurement of assets, any asset classified
as held for sale should be revalued at fair value
immediately prior to the reclassification. Upon
reclassification costs to sell are deducted and
recognised as an impairment in the income
statement.
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Discontinued Operations

• Disclose as a single amount on the face of the
  income statement, the sum of
• Post-tax profit or loss of discontinued
  operation and
• Post-tax gain or loss recognised on the disposal
  of the asset

Detailed disclosures of revenue, expenses,
pre-tax profit or loss and related income taxes
also required either in notes or on face of
income statement plus separate disclosures
relating to cash flows from discontinued
operations
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Comparison to UK/IRISH GAAP
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Home questions and Examination Questions

• Home Examination
• Sandown None as only applicable
• Rationalise from December 2005
• Halogen
• Desolve

40
IAS 16

• Property, Plant and Equipment
• General principles
• Revaluations
• Depreciation

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General Principles
Initially record at cost Carry at historical
cost or revaluations Depreciation
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Revaluations
43
Revaluations
Where assets revalued, the entire class of assets
should be revalued
Revalued assets must continue to be depreciated
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Revaluations

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Example
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Solution - UK/IRISH GAAP
DR STRGL 220,000 DR PL
40,000 CR Fixed assets 260,000
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Solution - IFRS
DR Equity 160,000 DR I/S
40,000 CR Fixed assets 200,000
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Depreciation

• The residual value and the useful life of an
  asset shall be reviewed at least at each
  financial year-end
• The residual value is the estimated amount that
  an entity would currently obtain from disposal of
  the asset if the asset were already of the age
  and in the condition expected at the end of its
  useful life.

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IAS 40

• Investment Properties
• Definition scope
• Alternative treatments

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Definition Scope
51
Alternative Treatments
UK/IRISH gains losses taken to equity via the
STRGL
IFRS gains losses taken to the income statement
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Example
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Solution
54
International Accounting Standards

• IAS 23 Borrowing Costs

55
Alternative Treatments
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IAS 23 Borrowing Costs

• Allowed Alternative
• Recognition
• Borrowing costs eligible for capitalisation
• Excess of carrying amount over recoverable
  amount
• Commencement of capitalisation
• Suspension of capitalisation
• Cessation of capitalisation
• Disclosure

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Home questions and Examination questions

• Home Examination
• Broadoak Mermaid
• L Brondby
• K Case study Bornholm
• Aztech Ikast
• 
  Lazise