CITN Exam Questions on EPS & IAS 23 with Simplified Answers
CITN Exam Questions on EPS & IAS 23 with simplified Answers – Related matters on this subject matter are the CITN study packs in pdf and the CITN study pack download. The current CITN past questions and answers pdf covers all of these. So, here are CITN taxation past questions and answers both for CITN foundation courses and CITN Pathfinder
CITN Exam Questions on Earnings Per Share (EPS )
Welcome to CITN Exam Questions on Earnings Per Share (EPS)! In this section, we will explore the key concepts and calculations related to EPS, which is a fundamental measure used by investors and analysts to evaluate a company’s profitability and financial performance. Earnings per share is a vital metric that provides insights into the portion of a company’s net income allocated to each outstanding share of common stock. By understanding EPS and its intricacies, you will be equipped to assess the financial health and growth potential of a company. Let’s dive into the world of EPS and test your knowledge with a series of exam-style questions.
Why must CITN candidates read this article CITN Exam Questions on Earnings Per Share – EPS?
CITN candidates should read this article on CITN Exam Questions on Earnings Per Share (EPS) because EPS is a crucial topic in the field of finance and accounting. Understanding EPS is essential for professionals working in financial management, investment analysis, and corporate finance roles. The article provides a comprehensive overview of EPS, including its calculation methods, significance in financial analysis, and implications for investors. That is about CITN Exam Questions on EPS & IAS 23 with Simplified Answers
By familiarizing themselves with EPS, CITN candidates will gain a deeper understanding of how a company’s profitability and financial performance can be evaluated through this key metric. They will also learn about the different factors that can influence EPS, such as stock splits, stock dividends, and the impact of dilutive securities. This knowledge is vital for making informed investment decisions, conducting financial statement analysis, and assessing the overall financial health of a company.
Moreover, the article presents exam-style questions that allow CITN candidates to test their understanding and application of EPS concepts. Practicing these questions will help candidates gauge their level of preparedness for CITN exams and reinforce their learning of EPS-related topics. Read more about CITN Exam Questions on EPS & IAS 23 with Simplified Answers.
Overall, reading this article will enhance the knowledge and skills of CITN candidates, enabling them to excel in their professional careers and successfully navigate the complexities of financial analysis and reporting. See to CITN Exam Questions on EPS & IAS 23 with Simplified Answers
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CITN Exam Questions on EPS & IAS 23 with Simplified Answers
The First Question:
(a) Earnings per share (EPS) is generally regarded as a key accounting ratio for use by investors. However, like any other accounting ratio, it has its limitations.
Required: CITN Exam Questions on EPS & IAS 23 with Simplified Answers
Explain the importance of EPS and state three (3) of its limitations. (8 Marks)
(b) Pronto Plc. has 100million ordinary shares in issue throughout the year ended December 31, 2019. The profit for the year was N240million.
The entity has two convertible financial instruments in issue:
(i) N50million 10% loan notes, each N100.00 of stock having the right to convert into 200 ordinary shares.
(ii) 40million convertible N1.00 12½% preference shares. Each preference share is convertible to 2 ordinary shares.
The income tax rate is 30%.
Required:
Calculate the basic and diluted EPS for Pronto Plc. for the year ended December 31, 2019. (7 Marks)
(Total 15 Marks)
CITN Exam Questions on EPS & IAS 23 with simplified Answers
PREFERRED SOLUTION TO THE QUESTION
(a) Earning per share (EPS) is one of the component parts of the price earning (P/E) ratio. P/E ratio is used by investors to help them identify the relative risks of an investment. A relatively high P/E ratio usually suggests that the shares are regarded as a safe investment while a lower P/E ratio suggests risk and volatility. EPS also measures the potential returns to equity holders in the form of dividends and bonus issues.
It can be used to compare and evaluate the EPS of the same entity in different years, that is to evaluate trends in EPS, that of other entities or an industry’s average.
The principal weakness of EPS includes the following:
(i) EPS is based on accounting figures and can only be as well reliable as these figures;
(ii) Due to the use of historical figures for its calculations, it is of limited use for predictive purposes;
(iii) EPS may not be comparable among entities because the number of shares issued is rarely comparable between them;
(iv) Financial statements are prone to manipulation by management, through window dressing; and
(v) Entities often use different accounting bases to treat transactions, hence entities’ EPS figures may not be comparable.
Calculation of EPS – Basic
Profit before tax N240m
Weighed average number of shares 100m
Basic EPS = 240/100 N2.40/share
(ii) Calculation of diluted EPS
Profit (W1) N248.5m
Weighted average number of shares (W2) 280m Diluted EPS 248.5/280 88.75kobo
Workings:
W1 Calculation of profit for diluted EPS
N’m N’m
Profit for the period 240
Savings on 10% loan notes (10% x 50m) 5
Tax as savings (30% x N5m) (1.5) 3.5
Savings on preference dividend (12½% x 40m) 5.0
Profit for diluted EPS 248.5
W2 Calculation of number of shares for diluted EPS.
Million
Share for basic EPS 100
Conversion of loan notes (200/100 x 50) 100
Conversion of preference share (40 x 2) 80 280
CITN Exam Questions on EPS & IAS 23 with simplified Answers
Examiner’s Findings:
His findings a that The question tests;
- the importance of earning per share (EPS),
- its limitations and computation of basic and
- diluted earnings per share.
- The majority of the candidates attempted the question
- Performance was below average.
- commonest errors were that the majority of the candidates did not clearly demonstrate an understanding of the importance and limitations of EPS,
- Many could not correctly calculate basic and diluted earnings per share.
Finally, he advises that you pay more attention to the computation and interpretation of ratio analysis. And, that will aid in better performance in future examinations.
CITN Exam Questions on EPS & IAS 23 with simplified Answers
The Second Question:
Youandi Plc. owned a piece of land that it acquired on March 1, 2018, at a cost of N288 million. During the year ended January 31, 2020, the company constructed a new factory on the land. The construction was financed from the pool of existing borrowings. Construction began on May 1, 2019, and was completed on October 31, 2019, at a cost of N432 million. The factory was available for use from that day although production did not start until November 2019. The useful life of the factory has been estimated to be 50 years.
Throughout the year, the company’s average borrowings were as follows:
| Amount | Interest Rate | |
| N’000 | ||
| Bank Overdraft | 160,000 | 9.75 |
| Bank Loan | 280,000 | 10.0 |
| Bonds | 400,000 | 8.0 |
Required:
(a) Outline the core provisions of IAS 23, Borrowing Costs. (7 Marks)
(b) Explain the accounting requirements of the issues in Youandi Plc., with relevant calculations for the year ended January 31, 2020, and the carrying amount of the factory as of January 31, 2020. (8 Marks)
(Total 15 Marks)
CITN Exam Questions on EPS & IAS 23 with simplified Answers
REQUIRED SOLUTION TO QUESTION
(a) According to IAS 23 borrowing cost may be capitalized during the acquisition, construction, or production of a qualifying asset. A qualifying asset is any asset that takes a substantial period of time to get ready for its intended use or sale. Borrowing costs include fees, transaction costs, and amortization of discounts or premiums relating to borrowing costs. Directly attributable costs may be capitalized if incurred during the capitalization period on qualifying assets.
The capitalizations commence when the borrowing costs have been incurred, expenditure on the asset has been incurred and construction activities have commenced.
The capitalisation of borrowing costs is suspended where there is an extended period of delay in the construction work.
Capitalization ceases when the asset is substantially ready for its intended use or sale. The borrowing costs of funds borrowed specifically to obtain qualifying assets is the actual borrowing cost incurred less investment income on temporary investment from those borrowings.
When an entity uses general borrowing to obtain a qualifying asset, the capitalization rate is the weighted average of the borrowing costs of the entity.
(b) The borrowing cost relating to the construction of the building is qualified for capitalization. The capitalization rate is the weighted average cost of the borrowed funds. The borrowing costs eligible for capitalization are those incurred from May 1, 2019, to October 31, 2019, when the construction took place.
The asset is ready for use on October 31, 2019, hence depreciations would be calculated from that date.
CITN Exam Questions on EPS & IAS 23 with simplified Answers
The relevant calculations:
Weighted average cost of borrowed funds
| Amount | Interest rate | Total | |
| Bank overdraft | 160,000 | 9.75% | 15,600 |
| Bank loan | 280,000 | 10% | 28,000 |
| Bonds | 400,000 | 8% | 32,000 |
| 840,000 | 75,600 | ||
| Capitalisation rate | 75,600 x 100% = 9% | ||
| 840,000 | 840,000 | 1 | |
| Cost of asset | |||
| Land | 288,000 | ||
| Building | 432,000 | ||
| Borrowing cost (9% x 432m x 6/12) 19,440 | 451,440 | ||
| 739,440 | |||
| Depreciation (3/12 x 451.4m x 1/50) | -2,257 | ||
| Carrying amount | 737,183 | ||
CITN Exam Questions on EPS & IAS 23 with simplified Answers
EXAMINER’S FINDING:
- That the question tests the provisions of IAS 23 – Borrowing costs,
- The accounting treatment and
- Calculations of interest on the amount of borrowed costs.
- Few candidates attempted the questions
- Performance was below average.
- The common errors were the inability to demonstrate a clear understanding of the provisions of IAS 23.
- Candidates are advised to pay more attention to the provisions of all accounting standards in the syllabus
- To work hard for better performance in future examinations
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CITN Exam Questions on EPS & IAS 23 with Simplified Answers
I. Introduction: A. Explanation of CITN (Chartered Institute of Taxation of Nigeria) Exam – The CITN Exam is a professional examination conducted by the Chartered Institute of Taxation of Nigeria to assess the knowledge and competence of tax professionals. – It covers various areas of taxation, including financial reporting and accounting standards.
B. Overview of EPS (Earnings Per Share) and IAS 23 (International Accounting Standard 23) – EPS is a financial metric that measures the portion of a company’s profit allocated to each outstanding share of common stock. It is widely used by investors to evaluate a company’s profitability and performance. – IAS 23 is an accounting standard issued by the International Accounting Standards Board (IASB) that provides guidelines for accounting for borrowing costs related to qualifying assets during their construction or production. Read more about CITN Exam Questions on EPS & IAS 23 with Simplified Answers
C. Importance of understanding EPS and IAS 23 for tax professionals – Tax professionals need to have a comprehensive understanding of financial reporting and accounting standards to accurately assess tax liabilities and compliance. – EPS and IAS 23 are crucial areas that tax professionals should be knowledgeable about, as they impact financial statements, tax calculations, and tax planning strategies.
II. EPS Exam Questions and Simplified Answers A. Question 1: What is EPS, and why is it important for investors? 1. Answer: EPS, or Earnings Per Share, is a financial metric that indicates the profitability of a company on a per-share basis. It is important for investors because it helps them assess the company’s profitability and compare it with other companies in the same industry. It provides valuable insights into the company’s earnings potential and can influence investment decisions.
B. Question 2: How is basic EPS calculated? 1. Answer: Basic EPS is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding during a specific period. The formula is as follows: Basic EPS = Net Income / Weighted Average Common Shares Outstanding – More on CITN Exam Questions on EPS & IAS 23 with Simplified Answers
C. Question 3: What factors can influence EPS? 1. Answer: Several factors can impact EPS, including changes in net income, fluctuations in the number of shares outstanding, the issuance or repurchase of shares, and the presence of dilutive securities such as stock options or convertible bonds.
D. Question 4: How is diluted EPS different from basic EPS? 1. Answer: Diluted EPS takes into account the potential impact of dilutive securities, such as stock options, convertible bonds, or preferred stock, which could be converted into common shares. It provides a more conservative measure of EPS by assuming the conversion of these securities into common shares. Check out for more on CITN Exam Questions on EPS & IAS 23 with Simplified Answers.
E. Question 5: What are the benefits and limitations of EPS? 1. Answer: The benefits of EPS include providing a standardized measure of profitability that can be easily compared across companies and industries. It helps investors assess the earnings potential of a company and make informed investment decisions. However, EPS has limitations as it focuses solely on earnings and does not consider other important factors such as cash flow, quality of earnings, or the company’s financial position. Check out all about CITN Exam Questions on EPS & IAS 23 with Simplified Answers in this post.
III. IAS 23 Exam Questions and Simplified Answers A. Question 1: What does IAS 23 cover? 1. Answer: IAS 23, or International Accounting Standard 23, provides guidelines for accounting for borrowing costs related to qualifying assets during their construction or production. It ensures that borrowing costs incurred in obtaining the funds for the construction or production of assets are appropriately recognized in the financial statements.
B. Question 2: How are borrowing costs capitalized under IAS 23? 1. Answer: Under IAS 23, borrowing costs that are directly attributable to the acquisition, construction, or production of qualifying assets should be capitalized. These costs are added to the cost of the assets and recognized as part of the asset’s carrying amount.
C. Question 3: Can borrowing costs be expensed? 1. Answer: No, under IAS 23, borrowing costs related to qualifying assets should not be expensed. Instead, they should be capitalized as part of the cost of the asset. This treatment ensures that borrowing costs are matched with the construction or production activities and recognized as part of the asset’s value.
D. Question 4: What is the treatment of borrowing costs during the temporary suspension of production? 1. Answer: During a temporary suspension of production, the capitalization of borrowing costs should cease. This means that borrowing costs incurred during the suspension period are not capitalized. However, once production resumes, the capitalization of borrowing costs should be resumed as long as the qualifying asset is still under construction or production.
E. Question 5: What disclosures are required under IAS 23? 1. Answer: IAS 23 requires specific disclosures related to borrowing costs. These disclosures include: – The accounting policy adopted for borrowing costs, including the criteria for capitalization. – The amount of borrowing costs capitalized during the period. – The interest rate used to capitalize borrowing costs. – The amount of borrowing costs expensed during the period.
CITN Exam Questions on EPS & IAS 23 with Simplified Answers
IV. Conclusion A. Recap of the importance of understanding EPS and IAS 23 for tax professionals – Understanding EPS is crucial for tax professionals as it helps them evaluate a company’s profitability and make informed tax planning decisions for their clients. – Knowledge of IAS 23 is important to ensure proper accounting treatment of borrowing costs related to qualifying assets, which impacts financial statements and tax calculations. CITN Exam Questions on EPS & IAS 23 with Simplified Answers.
B. Summary of key points covered in the outline – EPS measures profitability on a per-share basis and is important for investors. – Basic EPS is calculated by dividing net income by the weighted average shares outstanding. – Factors influencing EPS include changes in net income and shares outstanding. – Diluted EPS accounts for the potential impact of dilutive securities. – IAS 23 provides guidelines for capitalizing borrowing costs related to qualifying assets. – Borrowing costs should not be expensed but capitalized under IAS 23. – During temporary suspension of production, capitalization of borrowing costs ceases. – Disclosures are required regarding the accounting policy and amount of capitalized borrowing costs under IAS 23.
Summing Up: CITN Exam Questions on EPS & IAS 23 with Simplified Answers
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CITN Exam Questions on EPS & IAS 23 with Simplified Answers
In conclusion, the CITN exam questions on EPS (Earnings Per Share) and IAS 23 (International Accounting Standard 23) provide a comprehensive assessment of your understanding and application of these important financial topics. By studying and mastering these concepts, you will be equipped with the knowledge and skills necessary to analyze a company’s profitability and make informed financial decisions. Remember, EPS measures a company’s earnings available to shareholders, while IAS 23 guides the accounting treatment for borrowing costs. By applying the simplified answers provided in this study guide, you can confidently approach the CITN exam and demonstrate your expertise in these areas. Best of luck in your exam preparation and future endeavors in the field of accounting! You can bookmark this page; CITN Exam Questions on EPS & IAS 23 with Simplified Answers.
