IAS 21

TYU 1 1-Apr-25
Settled $ KR
1 1.8
1-Apr Purchase dr 30000 ?? 54,000
Payables cr 30000

31-May Payables dr 30000

Loss dr 857
Bank cr 30,857

TYU 2
Unsettled 1-Jan
$ D
1-Jan Purchase Dr 20000 1 1.75
Payables Cr 20000
Rate given per $
31-Mar Payables Dr 1579 Transaction is in D
Gain SOPL Cr 1579 So divide

TYU 3
Trans
i) Settled $ SWK
1 11.16
Purchase dr 25,627
Payables cr 25,627

Payables dr 25,627
Loss dr 684
Bank cr 26,311

ii) Unsettled
Loss Dr 326
Payables Cr 326

TYU 4-1
TR Dr 307,692 $
Sales Cr 307,692 1

TYU 4-2 Bank Dr 285,714

Loss Dr 21,978
TR Cr 307,692
TYU 4-3 Loss Dr 41,026
TR Cr 41,026

IAS 12

Illustration 1

a) PY CY
Est 150,000 Est 180,000
Paid -165,000 Underprov 15,000
Underprovision -15,000 195,000

b) PY CY
Est 150,000 Est 180,000
Paid -140,000 Overprov -10,000
Overprovision 10,000 170,000

DEFERRED TAX - TYU 1

In Financial Statements
Y1 Y2 Y3
Profit 1,200 1,200 1,200
Dep -200 -200 -200 Total dep 600
PBT 1,000 1,000 1,000 3,000
Tax 300 300 300 900

In Tax Books - calculation

Y1 Y2 Y3
Profit 1,200 1,200 1,200
Dep -240 -210 -150 Total dep 600
PBT 960 990 1,050 3,000
Tax 288 297 315 900

Deferred tax 12 3 -15

DTL DTL Reverse DTL

LEARN TO CALCULATE
SOFP Y0 Y1 Y2 Y3
Carrying value 600 400 200 0
Tax base 600 360 150 0
Temp diff 40 50 0
DTL ( Total) 12 15 0

Create DTL 12 3 -15

REVERSE
SOFP Y0 Y1 Y2 Y3
Carrying value 600 360 150 0
Tax base 600 400 200 0

Temp diff 40 50 0
DTA ( Total) 12 15 0

Create DTA 12 3 -15

TYU 5-2

CY est 60,000
Less: Over -4,500
Add: Inc in DT 600
56,100

TYU 5-3
CV (FS) 400
Less: TB 280
Temp diff 120
Tax rate 30%
DTL 36

TYU 5-4
PBT 100,000 120,000 110,000
Tax 30,000 36,000 33,000
Tax paid 28,900 37,200
Over/Under -1,100 1,200

Tax exp 30,000 34,900 34,200

TYU 5-5

Warranty provision - Liab

CV 65,000
TB 0
Diff 65,000 CV of L > TB of L
DTA 13000 DTA

IAS 33

Illustration 1
2008 2007
Profit 550,000 460,000
Shares 900,000 800,000
EPS 0.611 0.575

cents 61.11 57.50

TYU 1

Yr Shares Period Total

1 Jan to 30 june 8,280,000 6/12 4,140,000
1 july to 31 dec 11,592,000 6/12 5,796,000
WANES 9,936,000

Earnings 2,208,000
WANES 9,936,000
EPS 0.22 or 22 cents

Illustration 3
2008 2007
Earnings 550,000 460,000
WANES 1,200,000 1,200,000 (PY restated with bonus shares added)

EPS 0.458 0.383

TYU 2

Year Shares Bonus factor Total

Apr to Mar 7,000 8/7 8000

20x3 20x2
Profits 1,150 750
WANES 8000 8000
EPS 0.144 0.094
Illustration 4
STEP 1
TERP 2.5 Ratio 1:02
Numerator 7.5 MP 3
Denom 3 Right issue 1.5

STEP 2
Bonus factor = MP / TERP 1.2

Date No. of shares Bonus factor Period Total

1 jan to 30 june 800,000 1.2 6/12 480,000
1 july to 31 dec 1200000 NA 6/12 600,000
1,080,000

20x8 20x7
Earnings 550,000 460,000
WANES 1,080,000 800,000
EPS 0.509 0.575

Restate PY EPS 0.479

TYU 4

STEP 1
TERP 0.9 Ratio 1:04
Num 4.5 MP 1
Denom 5 Issue price 0.5

STEP 2
Bonus factor 1/0.9

Date No. of shares Bonus factor Period Total

1 jan to 30 june 4,000,000 1/0.9 6/12 2,222,222
1 july to 31 dec 5,000,000 NA 6/12 2,500,000
4,722,222

20x2 20x1
Earnings 425,000 320,000
WANES 4,722,222 4,000,000
EPS 0.090 0.080

RESTATE PY 0.072
Illustration 5

Basic EPS 20x2 20x1

PAT 700,000 641,773

Less: Irr Pref div -50,000 -50,000
Earnings 650,000 591,773

WANES 4,000,000 4,000,000

Basic EPS 0.163 0.148

Diluted EPS
Earnings 650,000 591,773
Add: Finance cost 100,000 75,000
Less; tax -30,000 -22,500
720,000 644,273

Shares 4,000,000 4,000,000

Notional 1,550,000 1,162,500
5,550,000 5,162,500

Diluted EPS 0.130 0.125

TYU 5

Earnings 2,208,000
Add: Interest 230,000
LesS: Tax -69000
2,369,000

Shares 8,280,000
Conv shares 2,070,000
10,350,000

DEPS 0.229

Illustration 6

Basic EPS 0.125

Earnings 500,000
WANES 4,000,000

Diluted EPS 0.115

Earnings 500,000

Shares 4,000,000
Free shares 333,333
4,333,333

TYU 6

Earning 2,208,000

Shares 8,280,000
Free shares 51,111
8,331,111

Diluted EPS 0.265

TYU 7

a) No change
Earnings 5,950,000
Shares 10,000,000

EPS 0.595

b) Bonus issue
No. of shares Bonus factor Total
10,000,000 5/4 12500000

Earnings 5,950,000
Shares 12,500,000

EPS 0.476

c) Issue market
Date No. of shares Period Total
1 Jan to 31 Jul 10,000,000 7/12 5,833,333
1 Aug to 31 Dec 11,000,000 5/12 4,583,333
10,416,667

Earnings 5,950,000
Shares 10,416,667

EPS 0.571
d) Right issue

Step 1 : TERP 3.75 Ratio 1:03

MP 4
Num 15 Ex price 3
Denom 4

Step 2 : Bonus factor 1.067

Date No. of shares Bonus factor Period Total

1 jan to 30 sep 10,000,000 1.067 9/12 8,002,500
1 oct to 31 dec 13,333,333 NA 3/12 3,333,333
11,335,833

Earnings 5,950,000
Shares 11,335,833

EPS 0.525

e) Diluted EPS - Conv bond

Earnings 5,950,000
Add: Int saved 260000
Less: Tax -78000
6,132,000

Shares 10,000,000
Notional shares 2340000
12,340,000

Diluted EPS 0.497

f) Diluted EPS - Options

Earnings 5,950,000

Shares 10,000,000
Free shares 27,750
10,027,750

Diluted EPS 0.593

TYU 8-1
Date No. of shares Bonus factor Total
12,000,000 5/4 15,000,000

Earnings 5,000,000
Shares 15000000
PY
EPS 0.333 0.266

TYU 8-2
Date Shares Period Total
1 jan to 31 mar 12 3/12 3
1 apr to 31 dec 14 9/12 10.5
13.5

Earnings 5 4
Shares 13.5 12

EPS 0.37 0.33

TYU 8-3

Step 1 : TERP 1.92 Right ratio 1:05

Num 11.5 MP 2
Denom 6 Right issue price 1.5

Step 2 : BF 2/1.92

Date Shares Bonus factor Period Total

1 jan to 30 june 12 2/1.92 6/12 6.25
1 july to 31 dec 14.4 NA 6/12 7.2
13.45

Earnings 5
Shares 13.45

EPS 0.372 0.320

TYU 8-4

Earnings 5,000,000
Add: Int 100000
Less: Tax -30000
 5,070,000

Shares 12,000,000
Add: Notional shares 750,000
12,750,000

DEPS 0.398

TYU 8-5

Earnings 5,000,000

Shares 12,000,000
Free shares 250000
12,250,000

DEPS 0.408
 31-May
KR
1.75

31-Mar
D
1.9

RE 18421.05263
Tran 20000

Decrease 1578.947368

Sett. Closing
SWK SWK
10.87 11.02

RE 25,953
Ini 25,627

Increase in payables

200,000 closing
Kr Kr Kr
0.65 0.7 0.75

RE 266,667
Trans 307,692
 TR is decreasing
Loss

Provi
150,000 150,000
ADD -165,000 -140,000
SOPL -15,000 10,000
195,000 170,000
180,000 180,000

LESS
SOPL

SAME Income tax exp Dr 300

Income tax payable Cr 288
SAME Deferred tax liab Cr 12

Income tax exp Dr 300

Income tax payable Cr 297
Deferred tax liab Cr 3

Income tax exp Dr 300

Deferred tax liab Dr 15
Income tax payable Cr 315

CV of asset > TB of asset

Hence it is DTL
CV of asset < TB of asset
Hence it is DTA
No of shares 800,000
Add: right 400000
1,200,000
IAS 21 : The effects of changes in Foreign Exchange rates

Definitions
Exchange rates
Historic rate - Rate on date of transaction
Closing rate - Rate at the reporting date
Average rate - Average of rates throughout the accounting period

Assets and Libilities classification

Monetary - Easily converted into cash (receivables, payables, loan)
Non-Monetary - No right to receive / deliver cash (inventory, plant and machinery)

Currency
Functional - Currency of primary economic environment
Presentation - Currency in which FS are presented

Initial measurement
Record the transaction at:
1. Historic rate
2. Average rate used only if no significant fluctuation

Subsequent measurement
Settled
- Use rate on settlement date
- Exchange difference - SOPL

Unsettled
i) Monetary
-Retranslate at closing rate
- Gain / loss - SOPL
ii) Non-monetary
- Remain at historic rate

Non-Monetary item
Cost model - Remain at historic cost
Revaluation / FV - Carried at fair value
- Thus, rate on date of revaluation will be considered
- Gain / loss not separately recognised in IAS 21
- Treated under respective standard

Treating exchange differences (PRESENTATION IN SOPL)

Trading related - Under other operating income/ expenses
Non trading - Interest income/ finance costs
 Which currency is our Functional currency?
Primary factors
- Influences sale price
- Country whose competative forces and regulations determine sale price
- Influences costs including labour, material
Secondary factors
- Funds are generated
- Receipts from operating activities

DOT - Historic settle closing

$100 70 75 68 6800

DOT Purchase Dr 7000

Payables Cr 7000

Settled
settle Payables Dr 7000
Exchange loss Dr (SOPL) 500
Bank Cr 7500

Unsettled - monetary CR 6800

end Payables Dr 200 7000
unsettled Gain Cr (SOPL) 200 200 decrease

10,000 RULE:
$ INR If transaction is in $
1 70 And rate / $
10,000 700000 Then, we multiply to find value in INR

10,000 RULE:
$ INR If transaction is in INR
1 70 And rate / $
143 10,000 Then, we divide to find value in $
Answer
B

12000
settled unsettled
1-Jan-01 Dinar 3000 9000

1-Jan-01 $ 500 1500

30-Nov-01 Paid $ 600 31-Dec-01 1607

Loss 100 107

Total Loss 207

Monetary
TR 10,000
Loan 100,000
TP

Non-monetary
NCA
Intangible
 trans
$ D
1 6
500

1 5
600

1 5.6
IAS 12 : Income Taxes

I. CURRENT TAX
Estimated amount of tax on profit

Journal entry
Dr Income tax Exp - SOPL
Cr Income tax payable - SOFP

*** Underprovision and Overprovision

PREVIOUS YEAR PREVIOUS YEAR

Income tax expense Dr 10,000 SOPL Income tax expense Dr
Income tax payable Cr 10,000 SOFP Income tax payable Cr

Income tax payable Dr 12,000 Income tax payable Dr

Bank Cr 12,000 Bank Cr

UNDERPROVISION In PY : Payment > Provision OVERPROVISION

Income tax payable DEBIT 2000 Income tax liability

CURRENT YEAR CURRENT YEAR

current year estimate 12,000 current year estimate
Add: Underprovision 2,000 Less: Overprovision
14,000 SOPL
Income tax expense Dr SOPL 14,000 Income tax expense Dr
Income tax payable Cr CREDIT 14,000 Income tax payable Cr

BALANCE CREDIT 12,000 BALANCE

Conclusion
1. Add underprovision to CY estimate - SOPL 1. Deduct overprovision from CY estimate - SOPL
2. SOFP provision will be CY estimate 2. SOFP provision will be CY estimate

II. DEFERRED TAX (Refer TYU1)

- Future tax consequences Tax -rules
- Based on current transactions and events 31-Mar
- Because of difference in ACCOUNTING profit and TAXABLE profit Profit
tax
Difference :
i) Permanent - Exp disallowed for tax purpose, but allowed in accounting records NO DEFERRED TAX
ii) Temporary - Item allowed to be deducted from both accounting and tax, but timing is different
 - Eg: Depreciation
- Gives rise to deferred tax

Why Deferred tax?

- Accrual concept
- If we do not charge deferred tax, it leads to:
i) overstatement of profit
ii) over-optimistic dividend payments
iii) distortion of EPS
iv) shareholders being misled

Accounting entries for Deferred tax

(Only temporary difference)

Carrying base (as per FS)

Less: Tax base (as per tax records)
Temporary difference * Tax rate = Deferred tax

Journal entry
Increase Dr Income tax exp
Cr Deferred tax

Decrease Dr Deferred tax

Cr Income tax exp

*** DTL - Deferred Tax liability DTL

Taxable temporary difference CV of A > TB of A
Carrying amount of asset > Tax base of asset CV of L < TB of L
Carrying amount of liability < Tax base of liability
- DTL to be recorded in full
- No discounting of liability

DTA - Deferred Tax Asset DTA

Deductible temporary difference TB of A > CV of A
Tax base of asset > Carrying amount of asset TB of L < CV of L
Tax base of liability < Carrying amount of liability

PRUDENCE
Note : 'A deferred tax asset shall be recognised for all
deductible temporary differences to the extent that it is
probable that taxable profit will be available against
which the deductible temporary difference can be
utilised'

Revaluation of Non-current Assets

Carrying value increases
Difference between carrying value and tax base increases
 - Deferred tax - revaluatin surplus via OCI
- No SOPL

Questions

Income tax payable 60,000

Less: Overprovision -4500
Add: Increase in DT 600
56,100
CY est 15,000
Less: Overprovision -4,000
Less: Dec in D.T. -3,000
8,000

D.T
Closing 9000
Opening 12,000
Decrease 3000
CY est 12,000
Less: Overprovision -7,000
Add: Inc in D.T 4,000
9,000 Option D

D.T
Closing 23,000
Opening 16,000
Increase 7,000

Out of this increase:

OCI 3000
SOPL 4,000
 Est 12,000 Underprovision
10,000
8,000 Overprovision

Provision Provision
10,000 Cr 10,000 10,000
10,000 Dr -12,000 -8,000
Dr -2,000 2,000
8,000 Cr 14,000 (12000+2000) 10,000
8,000 Dr 12,000 12,000

In PY : Provision > Payment

CREDIT 2000

12,000
-2,000
10,000
SOPL 10,000
CREDIT 10,000

CREDIT 12,000

ion from CY estimate - SOPL

l be CY estimate

FS
31-Mar
Profit
tax

ords NO DEFERRED TAX

ut timing is different
Accounting Tax
100,000 100,000
-15,000 - Permanent
85,000 100,000
25500 30000
Cr
(12000-2000)
Cr
IAS 33 : Earnings per share (Applicable to listed entities)

I. Basic EPS
= Earnings / Shares

Earnings : PAT - Irredeemable Preference dividend

Shares : Weighted average number *****

Importance
- Compare with other companies
- Compare between different accounting periods

V.V.I. Calculation of WANES (Weighted average number of equity shares)

I. MARKET ISSUE OF SHARES

Split the year from date of issue and pro rata the period
Illustration 1
Date No. of shares Period Total
1 Jan 2008 - 30 June 2008 800,000 6/12 400,000
1 July 2008 - 31 Dec 2008 1,000,000 6/12 500,000
WEIGHTED AVG SHARES 900,000

II. BONUS ISSUE

Issue of free shares to existing shareholders (Capitalistion of reserves)
NOTE: DATE OF BONUS ISSUE HERE IS IRRELEVANT, WE ASSUME BONUS SHARES ARE ISSUES AT START OF THE YEAR
RESTATE PREVIOUS YEAR EPS WITH BONUS SHARES ADDED

Illustration 3
Date No. of shares Bonus Factor Total
1 Jan - 31 Dec 1,000,000 6/5 1,200,000

III. BONUS AND MARKET ISSUE COMBINED

STOP BONUS FACTOR FROM DATE OF BONUS ISSUE AND ADD NO. OF BONUS SHARES IN SECOND COLUMN

TYU 3
Date No. of shares Bonus Factor Period
1 jan to 31 mar 1,000,000 6/5 3/12
1 apr to 31 jul 1,200,000 6/5 4/12
1 aug to 30 sep 1,440,000 NA 2/12
1 oct to 31 dec 1,740,000 NA 3/12

No. of Bonus shares = 12,00,000 * 1/5 = 240,000

Total shares after Bonus = 12,00,000*6/5 = 14,40,000 0.151

LAST YEARS RESTATED EPS

LAST YEARS EPS * 1 / BONUS FRACTION
 IV. RIGHT ISSUE
Offer made to current shareholders to buy shares usually at a discounted price

STEP 1
Calculate Theorotical Ex-Right Price
TERP = (Shares held in ratio * MV) + (Shares we get in ratio * Right issue price)
Total shares after right issue

STEP 2
Find Bonus Fraction
BF = MP / TERP

Date No. of shares Bonus Factor Period

1 Jan - 30 June 4,000,000 1.052 6/12
1 July - 31 Dec 4,800,000 NA 6/12

Right shares (1:5) 800,000

II. Diluted EPS

Company may have convertible instruments
Get converted to equity shares in the future
Denominater value of EPS increases
Thus, EPS decreases (dilutes)

DEPS
Earnings + notional extra earnings
No. of shares + notional extra shares

Notional extra earnings : interest / dividend saved less tax

Notional shares : No. of shares issued for convertible instruments

Options and Warrants

- gives the holder the right to buy shares in the future at predetermined price
- gives rise to a free element

No. of shares are split:

- No. of shares if would have been issued at fair value
- Remaining bonus shares

Free shares = No. of option * Fair value - exercise price

Fair value

To calculate DEPS, we add the free shares in the denominator

Date No. of shares Bonus Factor Period
1jan to 31may 3,000,000 4/3 5/12
1jun to 30sep 4,000,000 - 4/12
1oct to 31dec 5,000,000 - 3/12

Earnings 2000000
Shares 4,250,000
EPS 0.471 or 47 cents

Net profit 10,500,000

Interest saved 200,000
Tax on saving -56,000
Earnings for DEPS 10,644,000

Shares 6,000,000
Notional shares 1,250,000
Shares for DEPS 7,250,000

Earnings for DEPS 10,644,000

Shares for DEPS 7,250,000
DEPS 1.468 or 146.8 cents

Earnings 1,550,000

Shares 5,000,000 WN
Free shares 1200000
6,200,000

DEPS 0.25
 Profit 100,000

Preference shares
Redeemable - Make compulsory payment - LIABILITY Dividend - Deducted as finance co
Irredeemable - No compulsory payment - EQUITY Dividend - Deducted from Retaine

EPS - EQUITY SHAREHOLDERS ONLY

PAT - Pref div IRR Pref shareholders

RE
Opening
PAT

Less: Div paid

(Eq div + IRR pref div)

UES AT START OF THE YEAR Ratio Bonus factor

1:05 6/5
1:03 4/3
2:04 6/4

3:05 8/5
1:02 3/2

SECOND COLUMN

Total
300,000
480,000
240,000 DATE OF BONUS ISSUE - FROM HERE WE WILL ADD BONUS SHARES
435,000 TO THE NO. OF SHARES AND NOT MULTIPLY BONUS FACTOR
1,455,000

EPS
(Average)

100
95 Market issue
5 Bonus element

Total
2,104,000
2,400,000
4,504,000

1000 shares - option

80 price

80000 Money? 200

100 Today - MP?

800 SHARES - full market price

1,000 OPTION
800 Received - full market price
200 FREE SHARES
Total
1,666,667
1,333,333
1,250,000
4,250,000
WN
Share capital $ 2,500,000
face value 0.5
No. of shares 5,000,000

Answer
A&E

100,000
IRREDEEMABLE
idend - Deducted as finance cost in SOPL
idend - Deducted from Retained earnings in SOCIE
Red. Pref div
PAT

div + IRR pref div)

Financial instruments
Fair value - transaction cost
20 - 0.6 = 19.4m

Finace cost 1.94

ROU asset 9000

Less: Dep -1800 5years
carrying value 7200

Bal b/d Interest - Payment Closing

5700 570 -1500 4770
4770 477 -1500 3747

CY est 3500 Closing DT 3000

Increase in DT 300 Opening DT -2700
 3800 300

Comparative EPS
PY EPS *1/bonus factor
0.45 * 4/5 0.36 or 36 cents
Answer
1,280

Answer
A,D

257 answer
Answer

Euro 10,000
31-Dec Rate 1.25
12500

Euros Rate $ Gain/Loss

31-Dec-06 7.5 1.1 8.25 5.5
31-Dec-07 5 1 5 Liab 5
0.5 Gain
Answer A&B

Answer
D
 1:04
TERP 3.6 3.8
18 2.8
5

Bonus factor 1.056 MP / TERP

Date No. of shares Bonus factor Period

1 Oct to 31 Dec 36,000 1.056 3/12
1 Jan to 30 Sep 45000 NA 9/12

Earnings 15,000
WANES 43254
Earnings 15,000
Add: Int 800 EPS 0.347
Less: Tax -200
15,600

Shares 43,250
Add: Notio 2500
45,750
Date No. of shares Bonus Factor Period
DEPS 0.341 1Oct to 31Jan 34000 6/5 4/12
1Feb to 30June 37000 6/5 5/12
1July to 30Sep 44400 - 3/12

Earnings 12000
EPS 0.28 or 28 cents

ONLY when Bonus Issue / Bonus element

Barstead
Dunstan
Statement Incorrect
Statement Correct
Total
9504
33750
43254

Total
13600
18500
11100
43200