In: Accounting
1. An entity issues shares as consideration for the purchase of inventory. The shares were issued on January 1, 2009. The inventory is eventually sold on December 31, 2010. The value of the inventory on January 1, 2009, was $3 million. This value was unchanged up to the date of sale. The sale proceeds were $5 million. The shares issued have a market value of $3.2 million. Which of the following statements correctly describes the accounting treatment of this share-based payment transaction?
a. Equity is increased by $3 million, inventory is increased by $3 million; the inventory value is expensed on sale on December 31, 2010.
b. Equity is increased by $3.2 million, inventory is increased by $3.2 million
c. Equity is increased by $3 million, inventory is increased by $3 million; the inventory value is expensed over the two years to December 31, 2010.
d. Equity is increased by $3.2 million, inventory is increased by $3.2 million; the inventory value is expensed over the two years to December 31, 2010.
2. For the year ended May 31, 2009, Orchard, Inc. had per share
earnings of $4.80. Orchard's outstanding shares for the 2008-2009
fiscal year consisted of $2,000,000 of 10% preference shares with
$100 par value and 1,000,000 ordinary shares. On June 1, 2009, the
ordinary shares were split 3 for 1, and the company redeemed
one-half of the preference shares at par value. Orchard's profit
for the year ended May 31, 2010, was 10% higher than in 2009. The
earnings per share for the fiscal year ended May 31, 2010 is
a. $1.73 c. $1.80
b. $1.77 d. $2.70
3. On January 1, 2010, Parco Corporation issued 3-year 6,800 8%
convertible bonds at par for $1,000 per bond. Interest is payable
annually in arrears. Each bond can be converted any time before
maturity into 250 ordinary shares. On maturity, Parco has the
option to settle the principal amount of the bonds in cash or in
ordinary shares. Market interest rate prevailing at the time of the
bond issue without a conversion option was 10; similarly, the
market price of one ordinary share at that date was $3. Other
details are as follows:
Profit for the year 2010 $3,400,000
Ordinary shares outstanding, $1 par 4,080,000
Convertible bonds outstanding 6,800,000
Ignoring income tax, the diluted earnings per share for the year
ended December 31, 2010 is (Round-off present value factors to four
decimal places)
a. $0.70 c. $0.68
b. $0.65 d. $0.83
ans 1 | ||
a. Equity is increased by $3 million, inventory is increased by $3 million; the inventory value is expensed on sale on December 31, 2010. | ||
As per IFRS 2 it states that the share based payment transaction should be valued at fair value of goods and services receievd if it | ||
can be measured | ||
Hence the fair valueof inventory will be taken its $3 million , so inventiry will be | ||
incaresed by $3 million and equity wll also be incraesed by $3 million and when inventoy'is | ||
sold that it is expensed hence it will be expensed on Dec 31 2010 | ||
ans 2 | ||
Basic EPS=Net Income-preferred dividend/Weighted avergae common stock | ||
for 2009 | ||
N-(2000000*10%)/1000000=4.8 | ||
N-200000=4.8*1000000 | ||
N=(4.8*1000000)+200000 | 5000000 | |
Profit are 10% higher in 2010 | 5500000 | |
EPS=(5500000-100000)/3000000 | 1.8 | |
Option C $1.8 is correct | ||
ans 3 | ||
Diluted EPS | 0.7 | |
Net income+after tax interest/outstanding common stock+potential shares | ||
(3400000+680000)/(4080000+170000) | ||
Potential shares | ||
Convertible bonds outstanding | ||
6800*250 | 1700000 | |
After tax interest | ||
(6800*1000*10%) | 680000 | |
Option A $.7 | ||
If any doubt please comemnt |