Notes

There 0 “V H iriierorq-rng tinancial statements For d.-Fterent stakehoiciegs
re 0 EPS Figures which mu
. st be disclosed — basic EPS d d.‘
Rafi‘ ‘PS 0“ I uted EPS.
CO‘ I d Diluted EPS
cu ate by dividing th . 1
°' 'F’“ ‘or the period o..,iZJ?§§i§I°"' , C°'C.°'°*ed by adiusiine the net
l °'d"’°’>’ equity holders oi th ° 1 i P'°"* 0' '05s Grid weighted
I 5)’ ilte weighmd “Vera ::°'e': average number of ordinary
of ordinary shares out?! dim‘ er shares that are used in the basic
I’ during the period “AS 33_ p°;O'“£;-10) 5 EP5 calculation to reflect the i
' ' ‘ L ; impact of potential ordinary e
1 I
“*‘~~—~..a___»_M ; ’ sha _ t
ls On in1p0rfOI1t F0 1, _ W‘-~_‘_m‘M-‘~_.H‘_-_
C Of ' 0
stcmipany directors and mo: °55e55"‘9 ilte Stewardship and management role performed by
increasing the pressu Ggersl RemUner°l'°" P0Cl<0ges might be linked to EPS growth, thereby
manggememeffort re ml m°”_°99me"l to improve EPS. The danger of this, however, is that

‘ "WY 90 Into distorting results to produce a Favourable EPS.

ii Tutorial note

i You are H(

4 un t el t ti . _

however be deft ': s:"e ‘*0 dffll with complicated EPS calculations in the SBR exam. You should
enfi ‘ ' _ iuations in which EPS is subject to manipulation by the directors of an
lYr POWCU Orly in respect of the earnings figure.
Y h .
a::m5m<:liJ'l‘d <:lso be able to explain and calculate the impact on EPS of certain
. 9 featments. A question could ask you to correct accounting treatments and calculate
a revised EPS figure.
Illustration ‘I

EPS Earnings manipulation

Vero manufactures furniture and is heavily capitalised. The depreciation expense is significant to the
financial statements, marking up around 40% of the operating expenses of the company tor the last
3 years. For unrelated reasons, the EPS of the company has been declining across the some period.

The Finance Director of Vera is considering extending the remaining useful lives of its property, plant
and equipment by an average of 5 years, which will reduce the depreciation expense by around
$4m per annum, and in turn help to increase EPS.
Required
- ' ' 'th the ro osed change in useful life at Vero's assets.
Comment on any ethical issues associated WI P P