Wilson's Corporation is one of your new audit clients. The corporation's accountant is uncertain how to...

Wilson's Corporation is one of your new audit clients. The corporation's accountant is uncertain how to report earnings per share in accordance with IFRS and is requesting that you provide the following information: Define the term 'earnings per share' as it applies to a corporation with a capitalization structure composed of only one class of ordinary shares. Explain how earnings per share should be computed and how the information should be disclosed in the corporation's financial statements.

Expert Solution

Earning Per Share:

Earning per share (EPS) is a company's profit divided by the number of common shares it has outstanding. It also indicates how much money a company makes for each share of its stock and is widely used in its metric for corporate profits.

EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the present entity (the numerator) by the weighted average number of the ordinary shares outstanding (the denominator) during the period. The earning numerator (Net profit or loss) used for the calculation should be after deducting all expenses including taxes, minority interest, and preference dividends. The denominator (Number of shares) is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.

If EPS is disclosed, the following disclosures are required:

The amount used as the numerator in calculating EPS, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period.
the weighted average number of shares used as the denominator in calculating EPS, and the reconciliation of these denominators to each other
the description of those share transactions that occur after the balance sheet date and that would have changed significantly the number of shares.

ekkarill92 answered 2 years ago

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