1 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

ax. CONTENTS: TO BE SCANNED IN STILL .................................................................................................................................................................................. 2 EARNINGS PER SHARE IAS33. CIRC 03/09 .................................................................................................................................................. 3 Special things to remember: ..................................................................................................................................................................................................... 3 SCOPE: ................................................................................................................................................................................................................................................. 3 Definitions and Measurement. ................................................................................................................................................................................................. 3 MEASUREMENT .............................................................................................................................................................................................................................. 5 Different classes of shares: ......................................................................................................................................................................................................... 7 CHANGES IN CAPITAL STRUCTURE: ..................................................................................................................................................................................... 9 Headline Earnings........................................................................................................................................................................................................................18 Dividends Per Share. ...................................................................................................................................................................................................................18 PrEsentation:..................................................................................................................................................................................................................................19 disclosure: ........................................................................................................................................................................................................................................19

2 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. To be scanned in still 1. 2.

3 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

Earnings per Share IAS33. Circ 03/09

SPECIAL THINGS TO REMEMBER: 1) :To Calc. Basic Earnings : (remember if given a retained earnings amount, transfers to reserves and dividends paid would have BEEN subtracted -ie treated as After not Before- so must be added back to get the basic earnings to work from) 2) Rem: For Free issue of Bonus shares :DO NOT go and add again to the final year - remember that somewhere in the final year that Bonus Issue had to have been recorded anyway! So it is already in the total number of shares for the end of the year it does not have to be added again! . But you must add it to the total shares for the Comparative Years figures though- it will definitely not be in there yet! 3) Remember to always SUBTRACT THE PREFERENCE DIVIDENDS FROM NET PROFIT FOR YEAR BEFORE YOU GO AND WORK OUT ANY Earnings Per Share you always for get to do this! 4) REMEMBER to always check the pref & cumulative & other types of shares to see if the dividend was carried over to the next year or not, or if it was maybe not paid for that year in an exam.They give you figures where the dividends seem to have been paid this year but they are from last years cumulatve that was not paid then, and then you also have to take it out last years profit to get the actual profit to calc. Basic Earnings etc. 5) Remember to do the Total column on the very left in the weighted number of shares calculation- you always forget

SCOPE: 1) Earnings per Share & Dividends Per Share are 2 of the most widely used ratios by investors and analysts of shares. Therefore guidelines must be laid out (IAS33/AC104) for the calculation of these shares so that ratios from different companies can be compared with the certainty that they are actually comparable and worked out in the same way by each company. 2) IAS33/ AC104 is applicable to ONLY : a) Companies listed on a recognized stock exchange such as the JHB stock exchange, or any. b) Other companies whose shares are publicly traded, on any public market , even over the counter , that is unlisted public companies. c) Companies other than 1 and 2 such as any private company that prefers to disclose earnings & dividends per share, must use IAS33. 3) DIVIDENDS: a) per SHARE: IAS 33 contains nothing about dividends, that is in IAS 1 , ONLY, which states dividends AND together with dividends per share must be disclosed in the Notes OR in the StChEq , AND also , b) Any Dividends declared AFTER Yr End but before Fin Stats are issued must ALSO be disclosed separately in the notes where 1- dividends as well as 2- dividends per share should be disclosed for each . c) NEVER use weighted for dividends : this is needed so you can calculate the Dividends (dividends is only ever calc. using actual number of shares on hand when the dividend was paid out ,not the EPS, that is done with weighted!) DEFINITIONS AND MEASUREMENT. 6) The following definitions contained in IAS 33 /AC 104 are extremely important, and should be checked up in IAS and studied thoeroughly. a) ORDINARY SHARES: i) Definition: An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments. (1) Equity Instrument Definition: as per companies act the companies issued share capital and shares , excluding any part thereof which , neither in respect of dividends nor in respect of capital, carries any right to participate beyond a specific amount in a distribution. (2) Note: Pref.shares which do not share in the asset surplus or dividends over and above their fixed preference right , also do not form part of a companies equity share capital. (3) Ordinary shares only participate in profit after other types of shares have been allocated their portion. b) POTENTIAL ORDINARY SHARES:

4 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. Definition: A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. (1) Examples : (a) Debt or Equity instruments , incl. pref shares , that are convertible into ordinary shares. (b) Share Warrants and options : (these are financial instruments that give the holder the right to purchase ordinary shares) (c) Contractual arrangements: shares which would be issued on satisfaction of certain conditions resulting from contractual arrangements , such as the purchase of a business or other assets. c) CUMULATIVE PREFERENCE DIVIDENDS : i) Definition : The preference dividends for the current period are taken into account irrespective of whether or not they are paid or declared. This amount excludes any dividend paid or declared to cumulative preference shares in respect of previous periods. d) NON-CUMULATIVE PREFERENCE DIVIDENDS: i) Definition : This preference dividend is only taken into account if the dividend was declared during the period under review. e) BASIC EARNINGS: i) Definition: Basic Earnings are the profit or loss for the period attributable to ordinary shareholders after deducting preference dividends. All items of income and expense that are recognised in a period, including tax expense and {???non-controlling interests?- I think actual dividends paid to non-controlling interests by the subsidiary-rem that subsidiaries dividends paid to non-cnrtl. Interests } are included in the determination of the profit or loss for the period. No ordinary dividends or transfers to reserves are deducted. ii) Where a loss is incurred for a period, the same calculation is done as for earnings per share. iii) The amount of preference dividends that is deducted from the profit for the period is as follows : (1) PARTICIPATING PREFERENCE DIVIDENDS.: you regard all the dividends from these type of shares as Preference Dividends, so the part that is from Participating in the ordinary shares over and above the fixed pref. dividends is not seen as part of Ordinary Dividends , it is seen as part of the Preference dividends and thus is deducted from Net Profit to get the basic earnings, unlike ordinary dividends which are not deducted. (2) CUMULATIVE PREFERENCE DIVIDENDS: only the current years pref.dividends are deducted from net profit to get basic earnings, not last years ones-as per matching concept. iv) BASIC EARNINGS IS CALCULATED AS FOLLOWS: (1) It includes all PROFIT / LOSS that is calculated: (a) AFTER (i) Tax plus including deferred tax.( it is treated as plain tax) (ii) Preference share dividends paid outthe fixed portion incl. from cumulative pref. shares. (iii) Attributable profit after tax of associates and non-consolidated subsidiaries which has been accounted for by the equity method.???? (b) BEFORE (i) Before transfers to and from reserves : (remember if given a retained earnings amount, transfers to reserves and dividends paid would have BEEN subtracted -ie treated as After not Before- so must be added back to get the basic earnings to work from) (2) An alternative way of working it out is : (a) Retained Earnings end of year (b) Less :Retained earnings beginning of year (c) Add Back : Transfer to reserve (d) Add Back : Ordinary dividends. f) WEIGHTED AVERAGE NUMBER OF SHARES : i) Definition: the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. ii) the time weighting factor is the number of days that that the specific shares are outstanding as a proportion of the total number of days in the period. A reasonable approximation of the weighted average is adequate in many circumstances. iii) In most cases shares are included in the weighted average number of shares from the date consideration is receivable ( which is generally the date of issue) for example: ordinary shares issued for in exchange for cash are included when i)

5 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. cash is receivable. The date on which the shares were ISSUED is of no importance in the calculation if that is a different day from the day when CONSIDERATION IS RECEIVABLE.You ONLY use the date from which consideration is receivable. iv) METHOD TO CALCULATE WEIGHTED AVERAGE NUNBER OF SHARES : (1) ADD The FOLLOWING: (a) Number of ISSUED ORDINARY shares at beginning of year (b) Plus : any ordinary shares issued during the year X days shares were owned by new shareholder/ div.by/ days in a year(360 or 365) : ie Shares X days/365 or 360 (c) If any shares were bought back : then minus : number of X days in year they were NOT owned by old shareholder / div by /365 or 360 v) Share Premium: any premium gained on the issue of any shares is completely ignored in any calculations for Weighted average number of shares or for Basic earnings or even dividends. just forget it. g) BASIC EARNINGS PER SHARE: i) Basic earnings per share should be calculated by dividing the profit or loss(I think you should rather say BASIC EARNINGS ) for the period attributable to ordinary shareholders (less any fixed Pref. Share Dividends paid) by the weighted average number of ordinary shares outstanding during the period. ii) So : BASIC EARNINGS / Weighted Average Number of Shares = Basic Earnings per Share. 7) Rights Issue at Fair Value: A rights issue is an issue to existing shareholders of the company for consideration. 8) Rights Issue at Less than Fair Value (or called a Bonus Element In A Rights Issue: If a company raises capital by means of a rights issue and the issue price is less than the fair value of the company's shares when issued, a bonus element arises. The number of ordinary shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the issue,multiplied by the following factor:

COMMENT
. Where the rights themselves are to be publicly traded separately from the shares prior to the exercise date, fair value is stablished at the close of the last day on which the shares with the rights are traded. In above formula outstanding shares represent issued shares.

3-Bonus Element In A Rights Issue 4-Share Split 5-Reverse Share Split

MEASUREMENT 1) IAS 33.9: says BEPS must be shown on SCI face for 1) total profit as well as 2) continuing operations, and shown on face of SCI (not in notes) , and the textbook says it should also be done for 3) discontinued operations separately as well just to be thorough but this last one can be shown either on SCI or in Notes. 2) IAS 33 also says BEPS must be shown for EACH CLASS of ordinary shares , so if there are 2 classes of shares , there could be 6 figures disclosed : for Class A and B : total, continued, discontinued = 2*3 = 6! a) Note: Participating Preference shares are NOT considered a separate class per IAS33.13&14.

6 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. 3) IAS 33.10 : BEPS is calc. by divide Earnings= Numerator by WEIGHTED no. of shares = Denominator. 4) CLASS A & B SHARES : MULTIPLE CLASS ORDINARY SHARES: a) All equity shares with same rights to shares in profit/loss without seniority or prior rights- go in a class. b) The BEPS is calc. by sharing the EARNINGS between the classes per their right to receive profits eg: 2:1 etc.- then calc. EPS from there. ( first deduct pref. dividends from profit first as usual of course) 5) DECIMAL PLACES : for EPS : give the answer in cents, with 2 decimal places, rounded-off per usual, for each cent eg: 5.47 cents EPS BASIC EPS : THE EARNINGS: a) Profit must be adjusted for : non-controlling interest in subsidiaries is not included, after tax effect of pref. dividends, difference on the settlement of pref shares etc. before it is used as EARNINGS to calc. EPS. Preference Shares Dividends: Basics: (1) The pref dividends must be deducted from the earnings before it is used to calc. EPS since pref. dividends are seen as a wrong kind of equity no ownership really exists, more funding finance. (2) Cum Pref Shares Dividends: whether the cum.pref.dividends get carried over to next year or paid this year they must still be used in the calc. and deducted from earnings for the calc. AND if they are paid in a later year for a former year when they were not paid, that amount is NOT used in the EPS calc. for that future year at all- no carry forwards! (3) After tax amount: the amount of the pref. dividends to be used in the EPS calc. must be the AFTER TAX amount, so STC must be deducted first from the dividend before it is used in a calc.(because tax reduces earnings of course) (4) STC: funny thing: just watch out for this a bit :dont forget : if a cum pref div is not paid one year but carried to next yr, one mos still uses it in the unpaid yr to deduct from earnings for EPS calc., and the related STC in the unpaid yr is also deducted from it before it is used of course. BUT that STC is never paid because no dividends have been paid , so the taxman dosnt tax you on it yet THE PROBLEM comes in as follows: (a) in the later year: when the cum pref div does get paid out :- you mos pay STC that year on last years pref .dividends that you pay out this year cause that is how taxman works(taxman says it is only seen as declared in year it is actually paid out) . So book says the STC amount in the SCI that incl. this must be reduced by the STC from last year it must be removed- before it is deducted from current years declared pref.share.div to get the after tax amount to actually use in the EPS calculation that year. So this means if they give you a profit after tax figure for later YEAR YOU MUST ADD BACK THAT OLD STC SEPARATELY because it has been deducted for tax but should not go in EPS calc. this Yr.. (b) In the year it is not paid and carried forward : no STC is actually paid/accrued that Yr so if they give you any profit to use in EPS calculation for that year, rem to deduct the STC from this profit because it wont get deducted by the tax in the books because it wont be in the tax in the books for that year. YOU MUST DEDUCT THE STC SEPARATELY. (5) Equity/Liability :Only Pref.Shares that are classified as equity may be used to make adjustments, if classified as liabilites or as both equity&liabilities they may not be incl. in the calc. at all IAS 32 must be used to determine whether they are equity or liabilities. Increasing Rate Pref Shares: (1) Increasing rate prf shares are where pref shares are issued at a discount and then the first few initial future dividends are decreased to compensate the company for this OR they are issued at a premium and then the initial future dividends are increased to compensate the share buyer for this. (2) IAS 33 says: the discount/premium on issue of the shares must get amortised to retained earnings using the effective interest rate method and treated as a preference dividend for EPS purposes.- this means each year when a lower/higher dividend gets paid you use add/subtract an amortised special amount to your pref.dividends to deduct for EPS purposes. So instead of being zero it will be some amortised figure (or if much higher than usual it will be made a less by an amortised amount) (a) CALCULATION: (HOW DOES EFFECTIVE RATE METHOD work here ? also please explain the effective rate

7 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. method. This is a very tricky calc.you must ask lecturer to explain what happens if the issue price is NOT the same as fair value so the pref div % cannot work as the % to use to calc. the yearly amount to be deductedalso generally how it works with the effective interest rate method do you use the pref share % or the market interest rate? Pg 516 tx.book) you say 100/ 70 * issue price if the discount was 30% to get the price the shares were supposed to be before discount. Then take discounted issue price and * pref.share % for first year after buyings dividend. Second year and all future yrs is (discounted issue price + all previous years imaginarydividends )*pref share %. = that yrs imaginary dividend.- this carries on until the lower dividend years runs out and normal dividends start getting paid again. Funny method-cant explain just do it.see book pg 516 (3) Imaginary book value amount BUT IAS33 only applies to EPS and NEVER to ACCOUNTING RECORDS , so this is just an imaginary amortise to retained earnings thing and only used for purposes of the EPS calculation. Buy Back of Preference Shares 1) If pref shares are bought back by the company it is seen as equity (IAS32) so a CRRF reserve must be created.So in the books it does not go into SCI or profit. 2) BUT for EPS purposes NOT the full amount paid BUT any excess/under the carrying amount of the pref shares paid to repurchase them must be added/subtracted from profit to get the earnings to use for a EPS calculation(because its mos a loss/gain so it is a part of actual earnings mos just that its not treated like that in the books since its equity) Incentive for early conversion of Pref shares. 1) Sometimes a company offers to pay some cash on top of it, or give more shares than previously agreed to to convert pref. shares held by a shareholder into ordinary shares. Say the convertible pref shares were issued on the basis that 1 ordinary share will be exchanged for 1 pref share if they are ever converted. So now the company offers an incentive to induce this conversion by offering instead 2 ordinary shares for every 1 pref share. 2) Any excess over the original terms must be added to profit before you use profit as the earnings to calc EPS. (since in the books it is all treated as pure equity CRRF etc but mos it is a loss of sorts so it must coime into earnings somehow) Participating Pref Shares : (1) These are not a class of ordinary shares for purposes of EPS calculations so ALLdividends from these shares must be deducted from profit to get earnings for EPS (2) REM: if for some reason you could have to work it out, the fair value of any preference share is a perpetuity ie: dividends / divided by / interest rate in decimals . this interest rate can be the interest rate of the debentures , or even the current market interest rate for similar debt at similar risk it seems , (orim not sure but I think they even just use also the current bank interest rate it seems not even same risk or similar debt (see quest.6 pg36.vigario corporate mngmnt finance) (3)

DIFFERENT CLASSES OF SHARES: 1- Participating Preference Shares : Note :Allways specially subtract the fixed pref. dividend from the net profit because it is never done before Net Profit is calculated in the SCI, it is always done last, even if it is seen as debt and not equity type of thing. Participating preference shares are shares whose holders are entitled, in addition to receiving their fixed preference dividend, to share along with the ordinary shareholders in the remainder of the distributable profit, either pro rata or after ordinary shareholders have received a certain minimum dividend. Note that these shares dividends which they receive over and above the fixed part of their dividends ie the participating part, must also be deducted from Net Profit in order to calculate Basic Earnings. So the participating part of the dividends are not seen as ordinary dividends but as Pref.Dividends basicly.

8 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. The Earnings per Share and Dividends that go to Participating Pref. Shares must be shown separately next to the EPS&Divdends for ordinary shares and each other type of share.- NOT LEFT OUT. Apart from this It is important to take careful note of the conditions of issue and of the capital structure, for example: Note the following Complex Calculations: Note :Allways specially subtract the fixed pref. dividend from the net profit because it is never done before Net Profit is calculated in the SCI, it is always done last, even if it is seen as debt and not equity type of thing. 1) TYPE 1 : ``One cent per share for every four cents per share paid to ordinary shareholders'' a) does not necessarily mean that preference shareholders share one-fifth of the profits. Ie: if there are equal number of both types it will be 1 : 5, but if there are less /more Partic.Pref.Shares than Ordinary Shares the ratio will be different. So you must actually work it out with the FULL METHOD below, not just use ratios. 2) TYPE 2: If participating pref.shares are to share in dividends in the ratio 1 : 8 or 1/8 of total dividend earned by ordinary shareholders: a) VERY TRICKY: it is NOT 1/8 & 7/8= 8/8 total , NOR 9/8 TOTAL: you must do instead algebra so you say x + 1/8x = 100000profit therefore x(1+1/8)= 100000 therefore x=100000/(11/8 ) {note:you cannot say 100000/9/8, you must put brackets around (8/9) or it will come out wrong! and take it from there.NOTHING else will work.( the book says there are 8/8 + 1/8 parts , so there are 9 parts, so 1/9 is for pref and 8/9 is for ordinary this method can also be used if you can remember it) 3) TYPE 3: Each participating preference share is entitled to one-half of the ordinary dividend per share after the payment of dividends of 10 cents per share to the ordinary shareholders. Profit after tax for the year ended 31 December 19.1 amounted to R1 130 000. An ordinary dividend of 15 cents per share was paid during 19.1. 4,000,000 Ordinary shares of 25 c each :1,000,000 500,000 10% Cumulative Participating Preference Shares :500,000 a) Participating Rights: you first have to get the % of the total profit that goes to each type of share after 1-The minimum dividends are paid to ordinary shares & 2- After pref.share fixed % is paid out. This is 2 double percentages that work on each other : ratio of number of pref:to:ordinary and ratio of dividends payable to each. To work out this double percentage see 1 below in example.(you can also say 2:1 instead of 1 : 1/2) )

METHOD TO WORK OUT DIVIDENDS DIVIDED BETWEEN ORDINARY & PREFERENCE SHARES. 1) See example below : i) PARTICIPATING RIGHTS: (1) As in example below: each ones total is divided by the total of both together at the bottom to get the Percentages%. ii) EARNINGS PER SHARE : (1) This is calculated in separate columns for Ordinary & Preference & each other type 1 per column eg: Participating pref.One needs this calc. because you use this to work out EPS for the Notes & SCI. (a) NOTE: Pref shares have THEIR OWN EPS and Ordinary shares have their own EPS, and each other class of shares has its own EPS eg cumulative/participating etc. Each one is separate from the other and is shown separately as a separate figure in the SCI and Notes! iii) DIVIDENDS: (1) These amounts must be calculated separatelyfor each class of shares in order to get the totals per class so you can work out the Dividends per share for the SCI and Notes. iv) NUMBER OF SHARES : this is needed so you can calculate the Dividends (dividends is only ever calc. using actual number of shares on hand when the dividend was paid out ,not the EPS, that is done with weighted!) v) WEIGHTED AVERAGE NUMBER OF SHARES: THIS IS NEEDED so you can calc. the EPS-{Earnings per Share} (not the Dividends- dividends are only ever calculated using the number of shares on hand when the dividend was paid out, not averages of dividends on hand) vi) FIGURES TO DISCLOSE: here you just work out all the 1-EPS and 2-Dividends per share to disclose in SCI below Net Profit and in Notes Remember the EPS and dividends per share for pref. and cumulative and participating shares all get worked out separately and shown as separate figures from the exact amount those type of shares earned that year- eg for pref. it is only the fixed % that they get that is taken as basic earnings for that type of share to use in the calc. of EPS for pref. shares, and so forth.

9 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. b)

CHANGES IN CAPITAL STRUCTURE: (A) TYPE 1 : Shares ISSUED FOR CONSIDERATION: 1) Shares are included in the weighted average number of shares from the: date consideration is receivable ( which is generally the date of issue) for example: ordinary shares issued for in exchange for cash are included when cash is receivable. The date on which the shares were ISSUED is of no importance in the calculation if that is a different day from the day when CONSIDERATION IS RECEIVABLE. You ONLY use the date from which consideration is receivable. 2) SHARES ARE CONSIDERED OUTSTANDING : WHAT DOES this phrase mean. 3) DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE. DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE FOR : SHARES ISSUED FOR A CONSIDERATION (FOR MONEY)

Consideration received for share issue

Date of inclusion in calculation of earnings per share

10 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. 1-For any situation where the date of payment is After/Before date of Issueing of Ordinary Shares/Pref Shares/ Debentures. 2-Cash 3-Voluntary reinvestment of dividends on ordinary or preference shares See the 2 sections below on issueing shares in return for getting shares in another company.The sections in there on Before/After situations are approximately what you do. When cash is receivable Dividend payment date

4-Conversion of a debt instrument Date interest ceases to accrue to ordinary shares. 5-Interest on other financial instrument 6-Settlement of a liability 7-Acquisition of an asset other than cash 8-Issueing shares is return for getting shares in another company. Date interest ceases to accrue Settlement date Date on which the acquisition is recognized Date on which the earnings from the shares in other company are included in your SCI. For Ordinary or Pref. Shares Issued BEFORE or AFTER date of acquisition as payment: It says in unisa book it is a problem due to matching concept that if Pref.Shares or Debentures are issued in return for shares in another company but the date from which one may include earnings from these shares in your SCI is After/Before date which you gave Pref.Shares/Debentures and thus have to pay interest/fixed dividends on them. (a) BASIC EARNINGS : To calc. the Preference Dividend which must be subtracted from the Net Profit to get Basic Earnings you can do any of the following : To accomplish the matching of cost with profit, the preference dividend should be provided for by one of following methods : (1) Use The Date To Calculate Pref. Dividends. as if it were from the time the shares in the other company become yours (actually the time you can include profits from their shares in your SCI), so even if you issued your own Pref. shares in return 2 months later/before and in reality only pay dividends from then, you ignore this and use false figures and make as if you pay dividends from date you acquired the interest.(???where do you disclose this fact that you used fanciful figures)??? (2) OR : the better way is to include the dividends from the actual date you start paying them, and just disclose the fact in the Fin.Stats. ie: that the fact that profit is included for eg :9 months and dividends are provided for only eg :6 months (or more/less) must be disclosed in the Notes, in a similar way to example below , and added as a sentence just below it in same paragraph(I Think- check how this works!). (b) WEIGHTED AVERAGE NUMBER OF SHARES: (a) You use the Date from when you Aquired; the interest in
the other company, not the true date you Issued the Ordinary shares so even if they were issued before /after instead of using the correct date you use a false date. But this must be disclosed in the Notes as shown in example above. So you actually rank the shares from the date you can include earnings in your SCI from the subsidiary ie: the date you obtain control over subsidiary, EVEN if the shares are only issued later or were issued before that date.rank means include for payments etc so it would mean include in the Weighted Average Number of Shares

11 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.
Calculation.

9-Rendering of services 10-Ordinary shares issued as part of the purchase consideration of a business combination that is an acquisition: So if a business becomes your subsidiary and you pay for it in shares.

Date or period for which the services are rendered. 1-From the date of acquisition because the acquirer incorporates the results of the operations of the acquiree into its statement of comprehensive income as from the date of acquisition. 2- Note that when doing the Basic Earnings Calculation you must only include the profit of the subsidiary in your own profit for that period of the year pro rata- that you owned the subsidiary- as per Consolidations/ Groups rules the profit from Before Aquisition was paid for by you in the purchase price.

Example: :Oorke is the newly acquired subsidiary and profits for the year were 100000, not 75000.

3-For Ordinary or Pref. Shares Issued BEFORE or AFTER date of acquisition as payment: It says in unisa book it is a problem due to matching concept that if Pref.Shares or Debentures are issued in return for shares in another company but the date from which one may include earnings from these shares in your SCI is After/Before date which you gave Pref.Shares/Debentures and thus have to pay interest/fixed dividends on them. (a) BASIC EARNINGS : To calc. the Preference Dividend which must be subtracted from the Net Profit to get Basic Earnings you can do any of the following : To accomplish the matching of cost with profit, the preference dividend should be provided for by one of following methods : (3) Use The Date To Calculate Pref. Dividends. as if it were from the time the shares in the other company become yours and you can include profits from their shares in your SCI, so even if you issued your own Pref. shares in return 2 months later/before and in reality only pay dividends from then, you ignore this and use false figures and make as if you pay dividends from date you acquired the interest. (4) OR : the better way is that the fact that profit is included for eg :9 months and dividends are provided for only eg :6 months (or more/less) must be disclosed in the Notes, in a similar way to example below , and added as a sentence just below it in same paragraph(I Think- check how this works!). (b) WEIGHTED AVERAGE NUMBER OF SHARES: (a) You use the Date from when you Aquired; the interest in the other company, not the true date you Issued the

12 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. Ordinary shares so even if they were issued before /after instead of using the correct date you use a false date. But this must be disclosed in the Notes as shown in example above.

11-Ordinary shares which are issuable upon the satisfaction of certain conditions (contingently issuable shares) 12-Rights Issue at Fair Value:

Are considered outstanding, and included in the computation of basic earnings per share from the date when all necessary conditions have been satisfied.

At Fair Value means that it was sold at the price that it was valued at not for less or more.It is treated as if the shares were bought for cash on the Day of the rights issue. -A rights issue is an issue to existing shareholders of the company for consideration.-

NOTE-The shares are therefore taken into account in the calculation of the weighted number of shares from the date that the company has additional earnings capacity because of the new shares issued, for example if the shares are issued for cash, then the earnings capacity of the company will only increase from the date that the additional cash is available to that company. NOTE-Please note that none of the above examples will influence the calculation of the number of shares of the previous year.

METHOD TO CALCULATE AND DISCLOSE EARNINGS per share : a) SEE EXAMPLE BELOW- NOTE: it is done per year IN COLUMNS you can work all the way down with right up to EPS and dividends. b) The recon is simple- start with the EPS you calculated and work down to Net Profit for the Year by adding back pref.dividends etc.

13 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

2)

EXAMPLES:

(B) Type 2 : Shares issued for no consideration: Where reserves, such as non-distributable reserves, are capitalised by issuing equity shares, the earnings and dividend per share must be based on the increased weighted average number of issued shares after the capitalisation issue. When there is a capitalisation issue, no additional capital is acquired and the company merely makes a book entry. The reserves that were capitalised and for this reason the number of shares issued as a capitalisation issue are not weighted for the period of issue. The comparative figures (earnings and dividends per share) should also be adjusted by the increase in the number of shares, if they are to be comparable. Where shares are split, say from R1 shares to 50c shares, or where shares are consolidated and no repayment of capital takes place, the same principle applies as in the case of capitalisation issues. Ordinary shares may be issued or the number of shares outstanding may be reduced without a corresponding change in resources. This means that even though the number of shares changed during the year, no consideration was received, therefore the earnings capacity of the company did not change. Examples include the following : a capitalisation or bonus issue a bonus element in a rights issue a share split a reverse share split (consolidation of shares) Note that in the above cases the number of shares are not weighted when calculating basic earnings per share. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest reported period i.e. the beginning of the prior year. The number of shares are only weighted if the capitalisation issue (or other examples mentioned above) follows a rights issue in the same year. The capitalisation issue is then only weighted with regard to this rights issue meaning that..?????????????????/

14 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. DATES ON WHICH SHARES ARE INCLUDED IN THE CALCULATION FOR EARNINGS PER SHARE FOR : SHARES ISSUED FOR NO CONSIDERATION (FOR FREE BASICLY)

KIND OF SHARE ISSUE

Increase in equity share capital: 1 & 2 below: 1-Capitalisation Issue/Bonus Issue.

Date of inclusion in calculation of earnings per share

1-BASIC EARNINGS: The only thing that could have any effect on the calc. of Basic Earnings in these cases is if Pref.Shares were issued as a Bonus Issue or Capitalisation issue and the dividends paid to them must be subtracted from Basic Earnings somehow. IT DOES NOT SAY IN THE BOOK BUT I THINK JUST TREAT THEM AND THEIR DIVIDENDS AS IF PAID FROM BEGINNING OF ANY YEAR DEALT WITH, INCL. ANY COMPARATIVE YEARS.-exactly the same as in (2-) below. Also always remember to deduct Pref.Dividends from Net Proft for the Earnings-you often forget them! 2-WEIGHTED AVERAGE NUMBER OF SHARES. 1-You DO NOT EVER WEIGHT THIS TYPE OF SHARE. It is treated as a full year if it is included at all. 2-If there are any other weird capitalization issues or Rights issues at less than Fair Value etc. before the capitalization issue,you use the figure you have worked out up to the date of the current capitalization issue as your beginning of year figure to work with, as the total amount of shares for any calc. SO you do NOT use the REAL ACTUAL number of shares at that time , you use the false one you got so far. This is a weird way to do it , but it is some mathematical thing. ALSO: For the previous years Comparative Figures: you adjust it starting with the first Capitalisation (or other weird type) of issue from the current year, then use that figure to do the next adjustment in line and so on till you get your answer. This is for Multiple Capitalisation or other weird Issues in the same year. Remember a capitalisation issue is never weighted by months though, but other types might be! 3-You Treat the Extra shares which were issued for free by the Capitalisation issue as if they were issued at the beginning of the year of the Financial stats - BUT for the Comparative Year if shown in the Fin.Stats. you only add the capitalization figure to this total in the ratio as to how many shares there were in issue/outstanding at the end of that year. So if there was a Capitalisation issue of 1 for every 1 shares held, and at the end of Current Fin.Year there were 500 shares you add 500 to this=1000 end this year(do not weight it at all) Then if end last year there were 200 in issue- you ONLY ADD THE SAME NUMBER OF SHARES that was in issue/outstanding at that time to last years figure therefore 200+200=400.So current year gets 500 and last year get 200. The logic behind this is that the equity of the shares issued was part of reserves anyway at the time so it must then get shown, if the 2 years are to be comparable.(but what happens if the reserves only appeared halfway through this period?- so if they were NOT there at the beginning of the years concerned??) But if the question does not say the ratio the capitalization took place in then just add them to the totals as they come. Rem: For Free issue of Bonus shares :DO NOT go and add again to the final year remember that somewhere in the final year that Bonus Issue had to have been recorded anyway! So it is already in the total number of shares for the end of the year it does not have to be added again! . But you must add it to the total shares for the Comparative Years figures though- it will definitely not be in there yet! ALLWAYS USE THE FOLLOWING METHOD TO WORK THEM OUT NEVER ANYTHING ELSE IT JUST CAUSES MISTAKES.

15 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

This is the way you write up the Note for where year 1 and year 2 each get different amounts added :(a bit minimalistic though!!!??)

2-Rights Issue at Less than Fair Value (or called a Bonus Element In A Rights Issue)

If a company raises capital by means of a rights issue and the issue price is less than the fair value of the company's shares when issued, a bonus element arises. 1-BASIC EARNINGS : Done as per usual-nothing special (remember to deduct Pref.Dividends) ????Pref. Dividends is probabley calculated in the same way as done below for ordinary shares if the Pref.Dividends were also Issued at less than fair value??? 2-WEIGHTED AVERAGE NUMBER OF SHARES: (a)Here you must backdate any rights issues as if it happened at the beginning of the year.So you must treat it as if it happened at beginning of year. If the rights issue was in the middle of the year and there were other issues before that that had to be weighted by month, then you just work down the list in order of dates (???I dont think you weight a normal issue before the rights issue as out of say 3/6 months if the rights issue after it was half way through the year and it happened in the 3rd month- I think you just weight it as normal- add it up to the previous ones and work from there!???_) (b)For periods prior to rights issue: You only use the following calculation for the purposes of any Months before the rights issue and for Comparitive Figures on the Fin.Stats. nowhere else at all! So here you do not The number of ordinary shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the issue,multiplied by the following factor: Note: Fair Value means what the management judge to be what the shares are worth at the time, not the Current Book Value of the shares or also not the current plain market value- just the Fair Value in managements estimation at the time.-(not quite sure- must ask)

(i) FOR No-PAR VALUE SHARES :(I think)

16 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

(ii) FOR PAR VALUE SHARES: (I think)

EXAMPLE:

COMMENT
-(1)Where the rights themselves are to be publicly traded separately from the shares prior to the exercise date, fair value is stablished at the close of the last day on which the shares with the rights are traded. In above formula outstanding shares represent issued shares. -(2)If there are any multiple issues in the Current financial year before the rights at less than fair value issue then each period in between each issue is simply treated alone using the same formula and above and then just weighted and added together with the others to get the final answer.i think??? NOT SURE??? (b) For periods after rights issue: as per usual use the exact number of shares , just weight it by time =months/12 , Do not use the formula above. So if the Shares at less than Fair Value were issued half way through the year- then the first 6 months are done by taking the TOTAL shares IN ISSUE then ,using the special formula above, and then multiplied by 6/12 for half the year(per logic of it would be part of your reserves because it is free) , BUT the 2nd 6 mnths are done using the exact number of TOTAL shares now IN ISSUE (not using the funny formula) and also multiplied by 6/12.This is added together to get the total Weighted Average for the year. Note: you do not ever use the formula on only the amount of new shares issued- ONLY on the TOTAL shares THE COMPANY HAS EVER ISSUED and which are still there at that time. The Previous years Comparitive Figures must also be adjusted by using the special formula above, for the purposes of Comparative figures for the Fin Stat.(for the whole of that year) Example: Notes for the year of a rights issue at below fair value( it was very complex but they just wrote this simple thing here? A bit minimalistic! You should at least add the previous years figures were adjusted in accordance

Example of a right issue at below fair value

17 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

Reduction in Equity Share Capital: 3&4&5below 3-Share Split

The share split or reverse share split is the change in the nominal value of the shares leading to a change in the number of shares as shown below. - the number of shares remain unchanged and only the nominal value per share is affected.In this case no adjustment is necessary for basic earnings per share. 1-BASIC EARNINGS: Same as normal but not sure if you split pref.shares which date you take them from the date of split or for the whole year? 2- WEIGHTED AVERAGE NUMBER OF SHARES You simply take the new number of shares you get after the split and use that as the number of shares- BUT you must convert the Comparative figures for the previous year to the same format ie split them too, AND also if the split takes place in the middle of the year you must treat it as if it happened at the beginning of the year- No weighting by months is used at all here just very plain splitting the shares and changing all years to that format so it is comparable. To do the write-up in the NOTES it is done as follows:

3-DIVIDENDS per SHARE Dividends per share is calculated for both years using the new figures for number of shares worked out above- so for Comparative year the number after the split is also used In the NOTES one must disclose under a separate heading how dividends per share was adjusted after the split , as shown in example below:

4-Reverse Share Split (or Share Consolidation)

You must check how exactly one discloses this it is done in 3 or 4 different ways in the book! - the number of shares are reduced, in which case the basic earnings per share are based on the reduced number of equity shares after the consolidation of shares. The basic earnings per share for the preceding year are adjusted proportionately. -EARNINGS PER SHARE Works exactly the same as for a share split but just the other way around.see above. -WEIGHTED AVERAGE NUMBER OF SHARES Works exactly the same as for a share split but just the other way around.see above. In this case no adjustment is necessary for basic earnings per share.

5-Number of shares remain unchanged and only the nominal value per share is affected

18 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

HEADLINE EARNINGS. 1) The headline earnings are just the Net Profit LESS ANY :profit/loss on sale of Property Plant & Equipment or Profit/loss from Revaluation of Assets. So it is just basicly meant to be profit from operations. 2) NOTES to the Fin Stats : One must do a reconciliation in the Notes to recon. headline earnings to net profit . See example below.

Headline earnings is defined as all trading profits or losses of the company, including those items that are of such a nature and size that their disclosure is relevant to explain the performance of the enterprise, after tax, non-controlling interest and preference dividends but excluding separately identifiable remeasurements. A measurement is an amount recognised in the statement of comprehensive income relating to any change (realised or unrealised) in the carrying amount of an asset or liability that arose after the initial recognition of such asset or liability.

Disclosure
Companies should disclose the following in the annual financial statements: - earnings per share calculated in accordance with IAS 33/AC 104; - headline earnings per share - an itemised reconciliation between headline earnings and earnings in accordance with IAS 33/AC 104. The reconciliation should detail the nature and amount of each reconciling item.

DIVIDENDS PER SHARE. 1) AC 104 does not require the disclosure of dividends per share. However par 95 of IAS 33/AC 101 Presentation of Financial Statements requires the disclosure of dividends per share.However,there are no specific guidelines in any of the current accounting statements on the calculation of dividends per share. 2) Calculation For the purpose of this course, the following guidelines should be followed on the calculation of dividends per share: Dividends declared for the period divided by the number of issued shares on the date when the dividends were declared. The calculation of dividends per share is therefore based on the number of issued shares and not on the weighted average number of issued shares. Comparative figures for dividends per share are only adjusted in the following instances: . Capitalisation issues, bonus issues, a share split or a share consolidation . Reduction in equity share capital 3) In the case where dividends are declared more than once during the period under review, a separate dividends per share must be calculated for each dividend payment. The sum of the separate dividends per share calculated can be disclosed in the statement of comprehensive income or the dividends per share for each declaration can be disclosed. 4) An adjusted dividend per share must be calculated if the company issued capitalisation shares,bonus issues or a share split or share consolidation occurred in the current year. The result of these share transactions is that the number of shares increase or

19 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax. decrease but the R-value of issued share capital remains unchanged. The number of issued shares of the previous year is therefore adjusted and this requires an adjusted dividend per share calculation.

5) Disclosure requirement
The revised IAS1 requires disclosure of dividends per share in cents for each class of equity shares for the period under review and the corresponding prior period in the statement of changes in equity or alternatively in the notes.

HOW TO DISCLOSE IN THE FIN.STATS (RATHER DO A SEPARATE FIGURE FOR INTERIM AND A SEPARATE FIGURE FOR FINAL AND THEN A TOTAL BELOW THESE FOR BOTH- ALL 3 SEPARATE FOR EACH YEAR SHOWN): AS FOLLOWS

PRESENTATION: As per IAS/AC and Act : An enterprise should present: . on the face of the statement of comprehensive income, . for each class of ordinary shares, . with equal prominence, . for all periods presented, basic earnings per share (including a loss per share). DISCLOSURE: An enterprise should disclose the following for basic earnings per share: 1. Earnings: . The earnings amount used in the calculation. . Reconciliation of the earnings amounts used in the calculation to the profit or loss for the period in the statement of comprehensive income. 2. Per share: . The weighted average number of ordinary shares used. . Reconciliation between the number of shares used for basic earnings per share. Note: If an enterprise discloses, in addition to basic earnings per share, per share amounts using a reported component of profit other than profit or loss for the period attributable to ordinary shareholders, such amount should be calculated using the weighted average number of ordinary shares. Note: If a component of profit is used which is not reported as a line item in the statement of comprehensive income, a reconciliation should be provided between the component used and a line item which is reported in the statement of comprehensive income.

20 | P a g e DIPAC ACCOUNTING Tut. Letter 1 : Notes: Framework Presentation Revenue - Change in Acc Policies Income Tax.

FINANCIAL INSTRUMENTS IAS 39 IAS 32 IFRS 7 IFRS 9

BASIC BUILDING BLOCKS OF FINANCIAL INSTRUMEMTS: 1. DEFINITION OF A FINANCIAL ASSET : Any CONTRACT that gives rise to a FINANCIAL ASSET of one entity and a FINANCIAL LIABILITY or equity instrument of another entity. a. There are 3 parts that must be present to form A FINANCIAL INSTRUMENT , i. CONTRACT, (need not be in writing,enforcable by law, between 2 or more parties.) ii. FINANCIAL ASSET on one side iii. FIN LIABILITY Or EQUITY INSTRUMENT on other side. 2. DEFINITION OF A FINANCIAL ASSET : A financial asset is any asset that is a. (a) cash; b. (b) an equity instrument of another entity; c. (c) a contractual right: i. (i) to receive cash or another financial asset from another entity; or ii. (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or d. (d) a contract that will or may be settled in the entitys own equity instruments and is: (subject to certain conditions see IAS32 Definition) 3. FINANCIAL ASSET EXAMPLES: a. PPE : b. LEASED ASSET S BY LESSEE: c. LEASED ASSETS BY LESSOR: d. 4. DEFINITION OF A FINANCIAL LIABILITY : A financial liability is any liability that is: (1) a contractual obligation : (a) (i) to deliver cash or another financial asset to another entity; or (b) (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (a) a contract that will or may be settled in the entitys own equity instruments and is:(subject to certain conditions- see IAS 32 deinitions) b)