Cases
Practical case
Ardolia Group SA (fictitious entity), a listed parent, closes its consolidated accounts on 31 December 20X6. The group disposed of a line of business (discontinued operation), made a rights issue in April, has a contingent share agreement, put options written on its own shares and bonds settleable in shares or cash; a share issue took place after the reporting date. Management prepares earnings per share and the disclosures.
Your assignment
Determine the control number and the instruments to examine; compute the contingent shares, the repurchase obligation, the shares assumed issued and the incremental shares of the written put; compute basic earnings per share from continuing operations and the numerator adjustment after tax for the contract settleable in shares or cash; compute the incremental earnings per share, rank the instruments, compare the steps and determine diluted earnings per share from continuing operations; reconcile the denominators; compute earnings per share from discontinued operations and the total; restate the 20X5 comparative; record the interest; assess the contract settleable in shares or cash; describe the presentation and the disclosures; 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.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
Document 1
Document 1
7 documents: open each one to read it.
Document 1Memo
Ardolia Group SA (fictitious entity) is the listed parent of a group; it closes its consolidated accounts on 31 December 20X6. A disposed line of business is classified as a discontinued operation. Tax rate applicable to interest: 25%. Case conventions: weighting in whole months, earnings per share rounded to two decimals (half up), comparisons made on the rounded earnings per share.
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 | |
| Tax rate applicable to interest | 25% | |
| Profit from continuing operations attributable to the ordinary shares | €2,026,000.00 | |
| Result of discontinued operations | €1,420,000.00 | |
| Basic weighted average number for 20X6 | 2,000,000 units | |
| Adjustment factor of the rights issue | 1.04 | |
| Attributable profit published for 20X5 | €2,945,000.00 | |
| Weighted average number published for 20X5 | 1,875,000 units | |
| Shares issuable according to the position at the reporting date | 50,000 units | |
| Number of written put options | 60,000 units | |
| Exercise price of the put options | €24.00 | |
| Average market price for 20X6 | €20.00 | |
| Ordinary shares of the share settlement | 40,000 units | |
| Interest on the bonds before tax | €82,000.00 | |
| Shares issued after the reporting date | 300,000 units | |
| Closing price at 31 December 20X6 | €21.50 |
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.
Group profile and case conventions
Earnings, basic number and comparative
Contingently issuable shares
Written put options
Bonds settleable in shares or in cash
Share transaction after the reporting date
Closing share price
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
What is the control number of the dilution test, which instruments are to be examined and how should earnings per share be presented?
Task 2Calculation
Compute the contingent shares retained in diluted earnings per share.
Part 1 · Calculation
Compute the contingent shares retained in diluted earnings per share.
Task 3Calculation
Compute the repurchase obligation of the written puts.
Part 1 · Calculation
Compute the repurchase obligation of the written puts.
Task 4Calculation
Compute the shares assumed issued at the average price to fund that obligation.
Part 1 · Calculation
Compute the shares assumed issued at the average price to fund that obligation.
Task 5Calculation
Compute the incremental shares of the written puts.
Part 1 · Calculation
Compute the incremental shares of the written puts.
Task 6Analysis
Compute basic earnings per share from continuing operations and the numerator adjustment after tax for the contract settleable in shares or cash.
Part 1 · Calculation
Compute basic earnings per share from continuing operations and the numerator adjustment after tax for the contract settleable in shares or cash.
Result: Numerator adjustment after tax (bonds)
Task 7Calculation
Compute the incremental earnings per share of the three instruments.
Part 1 · Calculation
Compute the incremental earnings per share of the three instruments.
Result: Incremental earnings per share of the contract settleable in shares or cash
Task 8Analysis
Rank the instruments and compute the cumulated number of shares and numerator at each step.
Part 1 · Calculation
Rank the instruments and compute the cumulated number of shares and numerator at each step.
Result: Numerator after the share-settled contract
Task 9Calculation
Compute earnings per share from continuing operations at each step.
Part 1 · Calculation
Compute earnings per share from continuing operations at each step.
Result: Earnings per share after the share-settled contract
Task 10Calculation
Compare each step with the previous one and retain the lower earnings per share.
Part 1 · Calculation
Compare each step with the previous one and retain the lower earnings per share.
Result: Diluted earnings per share from continuing operations
Task 11Calculation
Reconcile the basic denominator to the diluted denominator by class of instrument.
Part 1 · Calculation
Reconcile the basic denominator to the diluted denominator by class of instrument.
Task 12Calculation
Compute basic and diluted earnings per share from discontinued operations.
Part 1 · Calculation
Compute basic and diluted earnings per share from discontinued operations.
Result: Diluted earnings per share from discontinued operations
Task 13Analysis
Compute total earnings per share and restate the 20X5 comparative for the adjustment factor of the rights issue.
Part 1 · Calculation
Compute total earnings per share and restate the 20X5 comparative for the adjustment factor of the rights issue.
Result: Restated basic earnings per share for 20X5
Task 14Journal entries
Record the payment of the interest on the bonds settleable in shares or cash.
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 15Professional judgement
Is the contract settleable in shares or cash retained in diluted earnings per share, and does the test change if it is performed on the total result?
Task 16Analysis
What must be presented on the face of the income statement and disclosed in the notes (reconciliations, antidilutive instruments, transactions after the reporting date)?
Task 17Effects on the financial statements
What is the effect of the entry 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.
Result: Amount of the effect — Equity
Task 18Conclusion
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 / 23).
Document this file
These working papers use the data and results of this case.
Normative references