Please enable JavaScript.
Coggle requires JavaScript to display documents.
Int. Acc. FA LECT 5&6: CH 16 part 5: Dilutive securities and EPS…
Int. Acc. FA LECT 5&6: CH 16 part 5: Dilutive securities and EPS
Restricted shares
Same principles as with the accounting for stock options:
Fair value – market price of the shares (no pricing model needed)
Expensed over the vesting/service period
Difference with options: shares are issued directly at the date of grant (versus the date of exercise with options)
Instead of awarding employees with stock options, companies can also award their employees with restricted shares:
Shares cannot be sold or transferred until “vesting” has occurred
What if CEO doesn’t fulfill service condition? Suppose service period is five years and CEO leaves after 2 years.
Reverse the compensation expense already recorded, similar to stock option compensation.
Unearned Compensation represents the cost of services yet to be performed, which is not an asset. Reported in equity in the statement of financial position, as a contra equity acc
Summary
Convertible preference shares
: just reclassification of equity, no gain/ loss recognized
Warrants:
similar to convertible preference shares; if attached to a bond use with-and-without method
Convertible bonds:
With-and-without method
FV of equity component (= the amount that bondholders are willing to pay for the option to convert) remains part of equity
Stock options:
similar to convertible preference shares
Restricted shares:
same as accounting for ordinary/ preference shares
Compute EPS in a simple capital structure.
But capital structures can be simple and complex.
Simple
: only ordinary shares. No potential ordinary shares upon conversion or exercise of dilutive securities.
Complex
: including securities that could dilute the number of shares and thus, have a dilutive effect on EPS.
If there are gains/losses from discontinued operations, show EPS with and without this gain/loss component.
At its core,
earnings per share is simply
: FORMULA
EPS-simple capital structure (I)
Hence: subtract preference dividends from net income.
Preference dividends:
When declared.
If not declared, but preference shares are cumulative: still record
preference dividend!
Preference share dividends: not all of net income is available for ordinary share holders.
Calculate weighted-average number of shares outstanding
. FORMULA