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F2: Advanced Financial Reporting
19.3 C
The redundancy costs will be recognised as an expense and reduce profits in
20X9. This would contribute to a reduction in EPS for y/e 20X9 compared to
20X8.
A scrip issue (AKA bonus issue) is a free issue of shares to current
shareholders based on their existing shareholdings. As scrip issues raise no
cash, they do not contribute to the ability of an entity to generate further profit.
Therefore, at the date of issuing, the scrip issue is irrelevant for EPS purposes.
EPS considers the scrip issues as if it has always been in existence.
When a scrip issue takes place, IAS 33 considers that the scrip issue had
already occurred in the comparative period. The comparative figure will require
adjustment to reflect the impact of the scrip issue.
If a scrip issue had arisen during 20X9, both the 20X9 and 20X8 EPS figures
would have taken account of the 20X9 scrip issue. Therefore, the scrip issue
would not contribute to the EPS movement.
Dividends paid would be irrelevant to the calculation of EPS. EPS is calculated
as profit attributable to ordinary shareholders/ weighted average of ordinary
shares. Dividends paid will Dr RE’s and Cr cash. This has no impact on EPS.
If a successful product launch caused an increase in profits, EPS would be
expected to increase, not decrease.
19.4 A
Current ratio = Current asset/current liabilities.
Revaluations (Dr NCA Cr Revaluation) do not impact any of the figures included
within the current ratio. Extra depreciation (Dr Depreciation expense Cr NCA)
as a result of the revaluation also has no impact on the above.
Gearing and return on capital employed would be affected as a revaluation
surplus would be included in equity, having a direct impact on these
calculations.
Operating profit margin will be affected as the revaluation would lead to
additional depreciation of $200k in the statement of profit or loss ($2 million
revaluation over 20 year remaining useful life).
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