Cases
Practical case
Brevane Industries SA (fictitious entity), a listed company, closes its books on 31 December 20X6. In 20X6 it made a bonus issue, entered into a contract for a mandatorily convertible instrument, saw the conditions of an additional share issue met and issued shares for cash; it also has cumulative and non-cumulative preference shares. After the reporting date it decided a reverse share split. Management prepares basic earnings per share for 20X6 and the comparative.
Your assignment
Analyse the effect of each event; restate the opening shares for the bonus issue, weight the other movements and compute the weighted average number; restate it for the reverse split; compute the attributable earnings for 20X6 and 20X5 and basic earnings per share for 20X6 and the restated figure for 20X5; record the bonus issue and the non-cumulative dividend; assess the inclusion of the mandatorily convertible instrument and of the contingent shares; present the effect on the financial statements; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
File checklist
Document 1
Document 2
Document 2
Document 2
Document 1
6 documents: open each one to read it.
Document 1Memo
Brevane Industries SA (fictitious entity) is listed and closes its books on 31 December 20X6; the financial statements will be authorised for issue on 10 March 20X7. Case conventions: movements dated on the first day of the month, weighting in whole months out of 12, earnings per share rounded to two decimals (half up).
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Start of the year | January 1 20X6 | |
| End of the year | December 31 20X6 | |
| Per-share basis (one share) | 1 unit | |
| Ordinary shares at 1 January 20X6 | 800,000 units | |
| Bonus issue: new shares | 1 unit | |
| Bonus issue: old shares held | 2 units | |
| Reserves capitalised in the bonus issue | €400,000.00 | |
| Conversion shares of the mandatorily convertible instrument | 60,000 units | |
| Date of the contract for the mandatorily convertible instrument | May 1 20X6 | |
| Contingently issuable shares | 30,000 units | |
| Date all the conditions are met | September 1 20X6 | |
| Shares issued for cash on 1 October 20X6 | 120,000 units | |
| Date of the issue for cash | October 1 20X6 | |
| Reverse split: new shares | 1 unit | |
| Reverse split: old shares exchanged | 5 units | |
| Cumulative dividend due for 20X6 (not declared) | €150,000.00 | |
| Cumulative dividend for 20X5 declared and paid in 20X6 | €150,000.00 | |
| Non-cumulative dividend declared for 20X6 | €30,000.00 | |
| Profit for 20X6 attributable to the parent | €1,604,000.00 | |
| Profit for 20X5 attributable to the parent | €1,290,000.00 | |
| Cumulative dividend due for 20X5 | €150,000.00 | |
| Weighted average number published for 20X5 | 800,000 units | |
| Forecast profit for 20X7 | €1,900,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Entity profile and case conventions
Ordinary share capital and events of 20X6
Reverse share split after the reporting date
Preference shares and dividends
Profit attributable to the parent
20X7 profit forecast
13 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
How does each event of the case (bonus issue, mandatorily convertible instrument, contingent shares, issue for cash, reverse split, preference dividends) affect basic earnings per share?
Task 2Calculation
Restate the opening shares for the bonus issue.
Part 1 · Calculation
Restate the opening shares for the bonus issue.
Task 3Calculation
Weight the restated opening shares, the mandatorily convertible instrument, the contingent shares and the issue of 1 October.
Part 1 · Calculation
Weight the restated opening shares, the mandatorily convertible instrument, the contingent shares and the issue of 1 October.
Result: Shares issued on 1 October weighted
Task 4Calculation
Compute the weighted average number before the reverse split.
Part 1 · Calculation
Compute the weighted average number before the reverse split.
Task 5Calculation
Restate the weighted average number of 20X6 for the reverse split.
Part 1 · Calculation
Restate the weighted average number of 20X6 for the reverse split.
Task 6Calculation
Restate the number of shares published for 20X5 for the bonus issue and then for the reverse split.
Part 1 · Calculation
Restate the number of shares published for 20X5 for the bonus issue and then for the reverse split.
Result: Number of 20X5 restated for the bonus issue and the reverse split
Task 7Calculation
Compute the earnings attributable to the ordinary shares for 20X6 and 20X5.
Part 1 · Calculation
Compute the earnings attributable to the ordinary shares for 20X6 and 20X5.
Result: Earnings of 20X5 attributable to the ordinary shares
Task 8Calculation
Compute basic earnings per share for 20X6 and the restated figure for 20X5.
Part 1 · Calculation
Compute basic earnings per share for 20X6 and the restated figure for 20X5.
Result: Restated basic earnings per share for 20X5
Task 9Journal entries
Record the bonus issue by capitalisation of reserves.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 10Journal entries
Record the non-cumulative preference dividend declared in December 20X6.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 11Professional judgement
Do the mandatorily convertible instrument and the contingent shares enter the basic denominator, and from what date?
Task 12Effects on the financial statements
What is the cumulative effect of the two entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Task 13Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 15).
Document this file
These working papers use the data and results of this case.
Normative references