...Questions All questions must be attempted. 1 Alistair tells you that when he was asked to choose a government security he could not differentiate one from another. The two that his father had suggested were: (a) 8% Treasury Stock 2015 (his eventual choice) (b) 2½ % Index Linked Stock 2011 Explain to Alistair the main features of each of the above. a) A bond is a tradable loan. Issuer promises to repay to the loan at a future date (on maturity), and pay interest at a defined rate (usually fixed). Issuer might be the British government or company. In this, the coupon is 8%, redemption date is 2015. Mr. Alistair will receive every six months 4% form government. The government will at the redemption date. b) These Gilts provide interest payments (coupon) and capital repayment that are linked to CPI (the Consumer Price Index, which measures the rate inflation). Until recently the index used was the Retail Price Index (RPI). Inflation erodes the return to the investor by reducing the real return an investor earns. By providing coupons that are increased in line with inflation, these Gilts provide additional protection for the investor. 2 Alistair has received his Contract Note detailing his recent purchase of gilts. He is unclear as to how the cost of the gilts was calculated by his broker. Using the following information calculates the cost of the purchase: ♦ the purchase took place on the 4 May ♦ the interest is paid half yearly on 22 February and 22 August ♦...
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...MFRS 133 Malaysian Financial Reporting Standard 133 Earnings per Share This version includes amendments resulting from MFRSs with effective dates no later than 1 January 2012. Amendments with an effective date later than 1 January 2012 MFRS 133 has been amended by: MFRS 10 Consolidated Financial Statements* MFRS 11 Joint Arrangements* MFRS 13 Fair Value Measurement* Presentation of Items of Other Comprehensive Income (Amendments to MFRS 101)† As those amendments have an effective date after 1 January 2012 they are not included in this edition. * † effective date 1 January 2013 effective date 1 July 2012 907 MFRS 133 CONTENTS paragraphs Preface INTRODUCTION IN1–IN3 MALAYSIAN FINANCIAL REPORTING STANDARD 133 EARNINGS PER SHARE OBJECTIVE 1 SCOPE 2–4A DEFINITIONS 5–8 MEASUREMENT 9–63 Basic earnings per share 9–29 Earnings 12–18 Shares 19–29 Diluted earnings per share 30–63 Earnings 33–35 Shares 36–40 Dilutive potential ordinary shares 41–63 Options, warrants and their equivalents 45–48 Convertible instruments 49–51 Contingently issuable shares 52–57 Contracts that may be settled in ordinary shares or cash 58–61 Purchased options 62 Written put options 63 RETROSPECTIVE ADJUSTMENTS 64–65 PRESENTATION 66–69 DISCLOSURE 70–73A EFFECTIVE DATE 74–74A WITHDRAWAL OF OTHER PRONOUNCEMENTS APPENDIX A 908 Application...
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...Standard 33 Earnings per Share HKAS 33 COPYRIGHT © Copyright 2012 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at www.ifrs.org. Further details of the copyright notice form ifrs foundation is available at http://app1.hkicpa.org.hk/ebook/copyright-notice.pdf © Copyright 2 HKAS 33 (March 2004March 2010) CONTENTS paragraphs INTRODUCTION IN1-IN3 HONG KONG ACCOUNTING STANDARD 33 EARNINGS PER SHARE OBJECTIVE SCOPE DEFINITIONS MEASUREMENT Basic Earnings per Share Earnings Shares Diluted Earnings per Share Earnings Shares...
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...McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved Terminology of Stocks Public Common Stock - Ownership shares in a publicly held corporation. Primary Market - Place where the sale of new stock first occurs. Secondary Market - market in which already issued securities are traded by investors. Initial Public Offering (IPO) - First offering of stock to the general public. Seasoned Issue - Sale of new shares by a firm that has already been through an IPO McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved 6- 3 6- 4 Value of a Stock Book Value - Net worth of the firm according to the balance sheet under GAAP. Market Value Balance Sheet - Financial statement that uses market value of assets and liabilities. Liquidation Value - Net proceeds that would be realized by selling the firm’s assets and paying off its creditors. (i.e., S/H get what’s left over). McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved Simple Models 1. Stock Price = discounted future stream of dividends paid to Shareholders (where dividend = periodic cash distribution from the firm to the shareholders). 2. Stock Price = discounted future value of corporation (where future value is determined using expected cash flows or other estimate of value). McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved 6- 5 6- 6 Expected Return Expected Return -...
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...Chapter 11 Outline Corporate Reporting and Analysis * Corporate Reporting and Analysis * Corporation: Business that is a separate legal entity under state or federal laws with owners called shareholders or stockholders (pp. 12 & 466) * Characteristics of Corporations * Advantages of Corporate Characteristics * Separate legal entity: A corporation conducts its affairs with the same rights, duties, and responsibilities of a person. It takes actions through its agents, who are its officers and managers. * Limited liability of stockholders: Stockholders are liable for neither corporate acts nor corporate debt. * Transferable ownership rights: The transfer of shares from one stockholder to another usually has no effect on the corporation or its operations except when this causes a change in the directors who control or manage the corporation. * Continuous life: A corporation's life continues indefinitely because it is not tied to the physical lives of its owners. * Lack of mutual agency for stockholders: A corporation acts through its agents, who are its officers and managers. Stockholders, who are not its officers and managers, do not have the power to bind the corporation to contracts—referred to as lack of mutual agency. * Ease of capital accumulation: Buying stock is attractive to investors because (1) stockholders are not...
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...E. BUSINESS FINANCE 1. 2. 3. 4. 5. Sources of, and raising short-term finance Sources of, and raising long-term finance Internal sources of finance and dividend policy Gearing and capital structure considerations Finance for small and medium-size entities Sources of, and raising short-term finance What are the sources of short-term finance available to businesses? Overdrafts Short-term loans Trade credit Lease finance What are short-term finances usually needed for? Short-term finance is usually needed for businesses to run their day-to-day operations including payment of wages to employees and inventory. What are overdrafts? Overdrafts are deficits financed by the bank it is result of payments exceeding income in the current account. Overdrafts can be arranged relatively quickly, and are flexible with regard to the amount borrowed at any time, and interest is only paid when the account is overdrawn. Overdrafts are set a limit that should not be exceeded. The purpose of an overdraft generally should be to cover short-term deficits. Repayment is technically on demand and security depends on the size of the facility. What is a Solid Core (hard core) overdraft? A solid core (hard core) overdraft is when a business customer has an overdraft facility, and the account is always in overdraft. If the hard core element of the overdraft appears to be becoming a long-term feature of the business, the bank might wish to convert the hard core of the overdraft into a loan, thus...
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...Corporate Governance and Accounting Conservatism in China* Donglin Xiaa and Song Zhub,** b School of Economics and Management, Tsinghua University, China School of Economics and Business Administration, Beijing Normal University, China a Abstract A principal-agent relationship exists among creditors, shareholders and management, and information asymmetry among them leads to asymmetric loss functions, which induces conservative accounting. This paper investigates the determinants of accounting conservatism using accrual-based measures and data from 2001 to 2006 in China. We find that a higher degree of leverage, lower level of control of ultimate shareholders and lower level of management ownership lead to more conservative financial reporting. We also find that political concerns and pressures among state-owned enterprises are greater than those among non-state owned enterprises, which leads to more conservative financial reporting among the former. However, a decrease in such concerns leads to a decrease in accounting conservatism. Overall, we find that among the determinants of conservatism in China, debt is the most important, followed by ownership, and that board has little influence. JEL classification: G30; M41 Keywords: Information asymmetry; Agency problem; Accounting conservatism; Political concerns; Corporate governance * We thank George Yang from Chinese University of Hong Kong and participants at CJAR Summer Research Workshop for helpful comments....
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...settlement) 6+31+30+5 = 72 Half year = 22 Feb to 22 Aug = 6+31+30+31+30+31+22 = 181 Interest split = £800 x 72/181 = £318.23 Total paid = £20,800 + £318.23 = £21,118.23 3 (a) Ordinary shares: (i) the ordinary shareholders can sell their shares, or transfer without restriction. (ii) ordinary shareholders can share in the profit of the company--Dividends payable if company profits permit (iii) shareholders can be invited to attend all meeting (iv) ordinary shares have no fixed value — market value instead (v) shareholders have Full voting rights (b) Preference shares: (i) dividend on a preference share is normally fixed (ii) Dividends paid earlier that ordinary dividend (iii) on liquidation , the preference shareholders will receive only the nominal value of what they had contributed. (iv) No opportunity for dividend growth unless ‘participating’ (v) preference shares usually have no voting rights. 4. Theoretical...
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...QUESTIONNAIRE ON VALUING STOCKS By: Bahae eddine Boussouf Nadezda Vovk 1) Common stock: a share of ownership in the corporation, which confers rights to any common dividends as well as rights to vote on election of directors, mergers, or other major events. Preferred stock: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the good times when the company has excess cash and decides to distribute money in the form of dividends to its investors. In these instances when distributions are made, preferred stockholders must be paid before common stockholders. However, this claim is most important when the company must liquidate and pay all creditors and bondholders, common stockholders will not receive any money until after the preferred shareholders are paid out. Second, the dividends of preferred stocks are different from and generally greater than those of common stock. When you buy a preferred stock, you will have an idea of when to expect a dividend because they are paid at regular intervals. This is not necessarily the case for common stock, as the company's board of directors will decide whether...
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...Financial Management Decisions COST-VOLUME-PROFIT ANALYSIS 2.2 Cost Of Capital This Section includes : • Cost of Capital-Key Concepts • Importance • Classification • Determination of Cost of Capital • Computation • Weighted Average Cost of Capital INTRODUCTION: It has been discussed in lesson -4 that for evaluating capital investment proposals according to the sophisticated techniques like Net Present Value and Internal Rate of Return, the criterion used to accept or reject a proposal is the cost of capital. The cost of capital plays a significant role in capital budgeting decisions. In the present lesson the concept of cost of capital and the methods for its computation are explained. COST OF CAPITAL-KEY CONCEPTS: The term cost of capital refers to the minimum rate of return a firm must earn on its investments. This is in consonance with the firm’s overall object of wealth maximization. Cost of capital is a complex, controversial but significant concept in financial management. The following definitions give clarity management. Hamption J.: The cost of capital may be defined as “the rate of return the firm requires from investment in order to increase the value of the firm in the market place”. James C. Van Horne: The cost of capital is “a cut-off rate for the allocation of capital to investments of projects. It is the rate of return on a project that will leave unchanged the market price of the stock”. Soloman Ezra:”Cost...
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...CHAPTER 11 Reporting and Analyzing Stockholders’ Equity Study Objectives • • • • • • • • • Identify and discuss the major characteristics of a corporation. Understand the Components of Stockholders’ Equity. Record the issuance of common stock. Explain the accounting for the purchase of treasury stock. Differentiate preferred stock from common stock. Prepare the entries for cash dividends and understand the effect of stock dividends and stock splits. Identify the items that affect retained earnings. Prepare a comprehensive stockholders' equity section. Evaluate a corporation's dividend and earnings performance from a stockholder's perspective. Chapter Outline Study Objective 1 - Identify and Discuss the Major Characteristics of a Corporation 1. A corporation is a. a legal entity created by law b. a corporation has most of the rights and privileges of a person. c. Corporations may be classified in a variety of ways. Two common classifications are i. by purpose ii. by ownership. 1. Classification by ownership differentiates publicly held or privately held; a. A publicly held corporation is regularly traded on a national securities market and may have thousands of stockholders. b. A privately held corporation, often referred to as a closely held corporation, does not offer its stock for sale to the general public and may have only a few stockholders. 2. Distinguishing Corporations from proprietorships and partnerships. a. Separate legal existence: i. An entity separate and distinct...
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...Research on Earnings Management in Listed Companies Name: Jing LI Table of Contents 1.Overview of earnings management theories 3 2.Motivations for earnings management in listed companies 7 3. Means to do earnings management 12 4.Conclusion 17 1.Overview of earnings management theories 1.1 Meaning of Earnings Management To research on earnings management, we must understand the meaning of earnings management. In financial accounting theory, different researchers have different understandings of the meaning of the earnings management. First, researchers mainly hold three opinions: First one is that earnings management is due to a keen interest of managers on the choice of accounting policies. Mangers will choose those accounting policies that maximize their own utility or market value of the company. Meanwhile, the accounting policy will not exceed the scope of the accounting standards. The second one is based on the information concept. In this view, earnings management is the concept of a "disclosure management", or to say that the management of the company (including the board of directors, managers, department heads) for certain private interests to control financial statements when disclosing. The third one is from the objectives of standard-setters. Earnings management is that the authorities use professional judgment to prepare financial statements and through the planning transaction to mislead the stakeholders’...
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...b. Interest expense will exceed the cash interest payments c. The market interest rate is lower than the stated interest rate d. The issue price will be quoted at a number greater than 100. 3. When the company that borrows money by issuing a bond has the right to terminate a relationship with a lender early and repay the amount borrowed ahead of schedule, we say that the loan is: a. Convertible b. Secured c. Amortizable d. Callable 4. Par value of a stock refers to the: a. Issue price of the stock b. Value assigned to a share of stock by the corporate charter c. Market value of the stock on the date of the financial statements d. Maximum selling price of the stock e. Dividend value of the stock 5. Total assets on a balance sheet prepared on any date must agree with which of the following? a. The sum of total liabilities and net income as shown on the income statement b. The sum of total liabilities and contributed capital c. The sum of total liabilities and retained earnings d. The sum of total liabilities and contributed capital and retained earnings 6. Preferred stock on which the right to receive dividends is forfeited for any year that the dividends are not declared is referred to as: a. Participating preferred...
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...*Day’s sales in receivables= 365days/Receivable turnover,*NWC=Current assets – Current liabilities,*NWC turnover= Sales/NWC, *Fixed asset turnover=Sales/Net fixed assets,*Total asset turnover=Sales/Total assets,*Profit margin= Net income/Sales,*Return on assets(ROA)=Net income/Total assets,*Return on equity(ROE)= Net income/Total equity,*ROE= (Net income/Sales) x (Sales/Assets) x (Assets/Equity),*Price-earnings ratio= Price per share/earnings per share,*Earnings per share= Net income/# of share issued,*Market-to-book ratio=Market value per share/book value per share,*Book value per share= total equity/# of shares issued,*Capital intensity ratio= Total assets/Sales,*Dividend payout ratio= Dividends/Net income=Yearly dividend per share/Earning per share,*Earning Retention Ratio= (Net income – dividends)/net income=1-dividend payout ratio. III Income statement items-all cost (cost of goods sold and other administrative expenses)*Balance sheet items-all current assets (cash, inventory, accounts receivable) –some current liabilities (accounts payable) –fixed assets items*Retained earnings= currents...
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...| | | | | Correct Answer: | Retained earnings will decrease by $.16 million and contributed capital will increase by $0.16 million | | | | | * Question 3 10 out of 10 points | | | Which of the following represents the maximum shares of shares issuable to the public?Answer | | | | | Correct Answer: | Authorised shares | | | | | * Question 4 10 out of 10 points | | | From an investor's viewpoint, in today's litigious environment, what would be considered the most advantageous characteristic of the corporate form of organisation?Answer | | | | | Correct Answer: | Limited liability for shareholders | | | | | * Question 5 10 out of 10 points | | | Which of the following is a sound reason for issuing a share dividend (select the best answer)?Answer | | | | | Correct Answer: | To maintain dividend consistency and capitalise retained earnings | | | | | * Question 6 10 out of 10 points | | | Which of the following is a requirement that must be fulfilled in order to declare and pay a cash dividend (select the best answer)?Answer | | | | | Correct Answer: | Sufficient cash and retained earnings | | | | | * Question 7 10 out of 10 points | | | Which one of the following is a basic right of an owner of ordinary shares (select the best answer)?Answer | | | | | Correct Answer: | All of the here are basic rights | | | | | * Question 8 10 out of 10 points...
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