Discontinued operations Disclosure Prior periods

Chapter 23 – Interim Reporting Page 339 6. The Kaikeru Company is preparing its financial statements for the first half of its financial year ending 31 December 20X7. One class of inventory has a cost per unit of CU5.00 and a net realisable value at 30 June 20X7 of CU4.80 per unit. The business is seasonal and the net realisable value at 31 December 20X7 is expected to be CU5.50. Kaikerus budget for the year scheduled a major refurbishment project for April to June 20X7. For legal reasons the contract for the refurbishment was not signed until 8 July 20X7, on which date the work was started. Are the following statements true or false, according to IAS34 Interim financial reporting? 1 The inventory should be carried at its cost per unit of CU5.00 at 30 June 20X7. 2 The cost of the major refurbishment project should be accrued at 30 June 20X7. Statement 1 Statement 2 A False False B False True C True False D True True Chapter 24 – Earnings Per Share Page 341 Chapter 24 EARNINGS PER SHARE 1 Business Context A key performance measure of an entity is its earnings per share EPS figure. It is an important element of the price earnings ratio which is often used for business valuation purposes. However, EPS is only as good as the basis on which it has been calculated. If there were no guidelines setting out how such a measure should be calculated, then entities would have the ability to derive a measure that presented a favourable position even where this was not the reality. Put simply, EPS is calculated as reported profits divided by the number of shares in issue. Although entities adopt different accounting policies which may affect their reported profits, they are required to calculate the number of shares in issue in a consistent manner. Setting such guidelines minimises an entity’s ability to report an EPS figure that has been adjusted to fit particular circumstances. Consistency of calculation improves an entity’s financial reporting and aids the ability of users to make useful comparisons between different entities. 2 Chapter Objectives On completion of this chapter you should be able to:  understand the purpose of earnings per share and the objective of IAS 33 Earnings per share;  demonstrate a knowledge of the calculation of basic EPS;  be able to adjust EPS for changes in the number of shares resulting from, for example, a bonus issue;  understand what diluted and adjusted EPS figures are; and  demonstrate the disclosure requirements within IAS 33. 3 Objectives, Scope and Definitions of IAS 33 The objective of IAS 33 is to set out principles for the calculation and presentation of EPS, to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. Since EPS is a measure of performance based on the reported profits of the entity, it is important to appreciate that entities may have adopted different accounting policies in calculating their profits. IAS 33 applies to entities whose ordinary shares are publicly traded or are in the process of being issued in public markets. Where an entity presents both group financial statements and individual entity financial statements, EPS disclosures are only required in the consolidated financial statements. However, an entity is permitted to disclose EPS information in the entity’s individual financial statements. [IAS 33.2, 33.4]