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Lecture Intermediate accounting (IFRS 2nd edition): Chapter 16 - Kieso, Weygandt, Warfield

Chapter 16 - Dilutive securities and earnings per share. After completing this chapter you should be able to: Describe the accounting for the issuance, conversion, and retirement of convertible securities, explain the accounting for convertible preferred stock, contrast the accounting for stock warrants and for stock warrants issued with other securities. | PREVIEW OF CHAPTER Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield 16 Describe the accounting for share compensation plans. Discuss the controversy involving share compensation plans. Compute earnings per share in a simple capital structure. Compute earnings per share in a complex capital structure. After studying this chapter, you should be able to: Dilutive Securities and Earnings Per Share 16 LEARNING OBJECTIVES Describe the accounting for the issuance, conversion, and retirement of convertible securities. Explain the accounting for convertible preference shares. Contrast the accounting for share warrants and for share warrants issued with other securities. Share Options Convertible Securities Preference Shares Should companies report these instruments as a liability or equity? DILUTIVE SECURITIES AND COMPENSATION PLANS Debt and Equity LO 1 (at the holder’s option) Benefit of a Bond (guaranteed interest and principal) Privilege of Exchanging it for Shares Bonds which can be changed into other corporate securities are called convertible bonds. + Convertible Debt LO 1 To raise equity capital without giving up more ownership control than necessary. Obtain debt financing at cheaper rates. Two main reasons corporations issue convertibles: Convertible Debt LO 1 Convertible debt is accounted for as a compound instrument. Companies use the “with-and-without” method to value compound instruments. Accounting for Convertible Debt Convertible Debt LO 1 ILLUSTRATION 16-1 Convertible Debt Components Implementation of the with-and-without approach: First, determine total fair value of convertible debt with both the liability and equity component. Second, determine liability component by computing net present value of all contractual future cash flows discounted at the market rate of interest. Finally, subtract liability component estimated in second step from fair value of convertible debt (issue proceeds) to arrive at the equity component. Accounting . | PREVIEW OF CHAPTER Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield 16 Describe the accounting for share compensation plans. Discuss the controversy involving share compensation plans. Compute earnings per share in a simple capital structure. Compute earnings per share in a complex capital structure. After studying this chapter, you should be able to: Dilutive Securities and Earnings Per Share 16 LEARNING OBJECTIVES Describe the accounting for the issuance, conversion, and retirement of convertible securities. Explain the accounting for convertible preference shares. Contrast the accounting for share warrants and for share warrants issued with other securities. Share Options Convertible Securities Preference Shares Should companies report these instruments as a liability or equity? DILUTIVE SECURITIES AND COMPENSATION PLANS Debt and Equity LO 1 (at the holder’s option) Benefit of a Bond (guaranteed interest and principal) Privilege of Exchanging it for Shares .