IAS 33 · Workpapers (Step 4 of 5)
Workpaper assignment
- Course
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Diluted earnings per share: adjustments, dilutive instruments, ranking by incremental earnings per share and stop at the antidilutive effect: Convertible bond A
Diluted earnings per share: convertible bonds, options and ranking by incremental earnings per share
Section 1 of 9
Objective
Section brief
- What to document
- The engagement, its scope and the working mode chosen.
- Why
- A workpaper answers one precise question: framing it avoids off-topic work.
- How
- Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
- Expected result
- You know which question the workpaper must settle, and for which reporting date.
- Your role
- Preparer of the IAS 33 workpaper
- Level
- Advanced
- Estimated time
- ≈ 75 min
- Progress
- 0 / 5 steps done (review excluded)
Context
Orvane Technologies SA (fictitious entity), a listed company, closes its books on 31 December 20X6. It has share options and two convertible bonds outstanding (A, issued during the year, and B) and bond C was converted into shares on 1 January. Management prepares diluted earnings per share for 20X6.
Assignment
Ranking of the instruments and diluted earnings per share
Purpose of the workpaper
For each instrument, compute the numerator adjustment after tax and the incremental shares (weighted conversion, treasury stock method, written put, contingent shares), compute the incremental earnings per share, rank the instruments from the lowest to the highest and compare cumulated earnings per share before and after each instrument: an instrument that does not decrease earnings per share is excluded. Document the judgments and prepare the entries and the note. Amounts, prices and rates are case data; comparisons use earnings per share rounded to two decimals (case convention).
Questions of the file covered by this workpaper
- Compute the tax effect and the numerator adjustment after tax for bonds A and B.
- Compute the weighted conversion shares of bonds A and B.
- Compute the price difference of the options.
- Compute the incremental shares of the options (treasury stock method).
- Compute the incremental earnings per share of the options and of bonds A and B.
- Compute the cumulated numerator at each step.
- Compute earnings per share at each step.
- Compare each step with the previous one and retain the lower earnings per share.
- Record the conversion of bond C on 1 January 20X6.
- Record the payment of the interest on bond A.
- Should bond B be retained in diluted earnings per share?
Documents in the file
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