• calculated only for common stock
• basic earnings per share includes only actual shares outstanding
• diluted earnings per share includes securities that may become common shares in future

• only CS outstanding, BEPS =
• =net income

  ---

  (weighted average number of CS outstanding)

• or only CS and nonconvertible PS outstanding, BEPS=
• =(net income - PS dividend)

  ---

  (weighted average CS outstanding)

• CS and equity securities. must disclose BEPS and DEPS
• DEPS= (net income available to CS adjusted for effects of PCS)

  ---

  (WA # of CS and potential common stock issuable)

basic earning per share

weighted average computation variables

• stock dividends and splits
• assumed to be outstanding since inception of firm
• apply % of stock dividend or factor in split
• if occurs on BS date, all are adjusted
• contingent shares
• shares issuable for little or no cash. outstanding on date condition is met
• weighted for period conditions are met
• contingency is a future earnings level, no contingent shares are included in WA

1. reflects max dilution or lowest value of EPS that is possible given firm's outstanding securities on BS date
2. only diluted PCS are incorporated
3. DEPS is lower than BEPS as a result of assumed conversion of the PSC
4. Antidulitive PCS ignored for DEPS calculation

1. assume exercise of the options
2. purchase treasury shares w/ proceeds from exercise (proceeds X average $ of stock)
3. Incremental shares=denominator effect

• incorporates convertible securities into DEPS (assume converted)
• if DEPS decreases, PSC is dilutive and is counted
• interest expense- if bonds sold at premium or discount, interest expense will reflect amortization and should be added back (after tax)
• convertible preferred stock- treated same as bonds but no tax effect

used when more than one PCS

1. enter pcs with lowest Numerator/denominator effect first
2. enter next lowest and so on until a PCS is encountered w/ a higher N/D than the previous DEPS figure, or until all are entered

1. No EPS for extraordinary items
2. dilutive share- measure independently for each period
3. alternative measures of earnings- allows presentation in footnotes

g/l= net book value of asset at date

losses are ordinary and part of continued operations

separately disclosed and calculated in IS under income from continued operations

1. income- for portion of the year up to disposal
2. G/L- = net proceeds on sale - BV or component's NA

• net proceeds on sale=price - disposal costs
• gain- only actual are reported (not estimated)
• loss- component assets are written down to = FV - cost of disposal
• recognized even if sale hasn't taken place @ estimated amount
• if estimated is not = to actual, G/L recorded to make up for it

defines discontinued operations as an entity component that has either been disposed of or is classified as held for sale and

1. represents a separate major line of business or
2. geographical area or
3. part of a coordinated plan to dispose of a separate major line of business, geographical area, or
4. subsidiary acquired w/ intent to resell

• are unusual and infrequent
• environment must be considered from 3 perspectives: General business, specific industry, and geographic

• firms can chose to value their financial instruments at FV and report resulting G/L in current income
• enables firms to mitigate volatility in reported earnings cause by measuring related A/L differently
• some must be measured at FV, most can be measured at FV

• agreement with unrelated party, binding both parties, and usually legally enforceable
• agreement specifices all significant trms and a disincentive for nonperformance that is sufficient to make performance probable
• hasn't yet been booked

1. date of first recognition
2. date of firm commitment is entered into
3. date that financial As that have been reported at FV w/ unrealized g/ls included in earnings cease to qualify
4. date accounting treatment for an investment in another entity changes bc investment ceases to qualify or investor ceases to consolidate
5. date an event requires eligible item to be measured at FV at time but not subsequently

1. only allows FV method if it eliminates or significantly decreases a measurement/recognition accounting mismatch from using different bases
2. FV can only be elected at date of initial recognition

1. may be applied on instrument basis w/ a few exceptions (same borrower or same K, etc.)
2. irrevocable unless and until a new election date for the specific item occurs
3. applied to entire instrument
4. if applied to H2M or A4S securities, they are treated as trading securities (G/L=current income)

IS and BS- big difference

SOCF- essentially the same

1. market approach
2. income approach- converts future amounts to a single present amount
3. cost approach- amount currently required to replace asset

*sometimes one approach is used, sometime multiple. once chosen, method must be applied consistenty

• only appropriate if new method beter reflects FV
• change in technique is a "change in accounting estimate"

1. level 1- quote prices in active markets for identical A/L
2. level 2- inputs are observable for A/L (other than above)
3. level 3- unobservable. should only be used if no other inputs available

*IFRS sidenote: hierarchy used for disclosures, not for measuring

• A/L measured @ FV on reoccuring basis
• FV at reporting date, level w/in hierarchy
• if level 3: recon of beginning and ending balances with details
• amount of total g/l and description of where it is on IS
• annual reports only: valuation technique
• A/L measured @ FV on non-reoccuring basis
• FV measurements recorded and why
• level w/ in hierarchy
• level 3- unobseval inputs, descriptions, infor used to develope inputs
• annual report: caluation change
• other: disclosures above must be in tabular format

1. direct- domestic price of 1 unit of a foreign corrency
2. indirect- foreign price of one unit of domestic
3. spot- exchange rate @ current date
4. forward- for a specified future date

1. operating- import, export, borrow, lend, invest, etc.
2. forward exchange contract- agreement to x-change units of currency

• settled (denoted) in foreign currency
• measured (recorded) in Functional Currency

1. settled in foreign currency and domestic company ultimately pays or receives foreign currency
2. measure and record on books in functional currency
3. convert foreign currency units (FCU) using spot rate at transaction date 
4. recognize effects of exchange rate changes on accounts, in period when change occurs, as adjustment to account and exchange G/L (spot rate decrease=exchange gain)

foreign operating transaction

3 steps @ transaction date

1. determine FC units to settle transaction
2. translate FC to dollars= # of FC unitss X Spot Rate
3. record @ $ amount

foreign operating transaction

3 steps @ balance sheet date

1. determine new $ amount
2. determine exhcange rate g/l
3. record difference as increase/decrease in AR/AP and echange rate G/L

foreign operating transaction

5 steps @ settlement date

1. determine new $ amount
2. determine change
3. record diff as adjustment to AR/AP and ER G/L
4. record exchange G/L in current period IS (cont'd ops)
5. settle AR/AP balance

• average exchange rates can be used if reasonable approximations. At BS date:
• FC monetary amounts reported @ closing rate
• FC non-monetary amounts carried at historic cost: use historic exchange rate (transaction date)
• FC non-monetary amounts carried at FV; reported at historic exchange rate when FV determined
• exchange rate G/L on monetary items reported in profit/loss in period of change unless part of a net investment in a foreign operation and go to OCI until disposal

• A4S- g/l go to OCI (if equity securities)
• IFRS- 
• exchange rate G/L-->Current income
• investment G/L-->equity until disposed of

1. speculative
2. hedging

• agreemnt to buy/sell a specified amount of a foreign currency at a specified future date at a specifiec future price
• agreement is a binding agreement and must happen

• agreement that gives right to buy or sell a specified amount of a specified FC at a specified rate during, or at the end of a specified time period
• more costly that FCFXK bc option must be purchased including a premium
• benefit over FCFXK is that change in exchange rate doesn't hurt it

1. changes in rate determine its FV (increase in FV = gain, decrease in FV = loss)
2. no FV at inception b/c no gain in rate

D- cash (sell)

Loss on forward K

C- Cash (buy)

Forward K

• exchange traded options= Fv is mkt price at exchange
• over-the-counter options= quoted price by option dealer
• not traded in active market= based on option pricing model

• (=spot rate - strike price) 
• value of premium paid for FCOC

D- FC option

C- Cash

D- FC option

C- FCO gain

D-FC option loss

Loss in FCO

C- FCO

Cash

1. fees and charges
2. difference between spot/forward rates @ date forward K is initiated

1. forecasted transaction- FC transaction denominated in FC to offset risk of exchange rate changes
2. unrecognized firm commitment (denominated in FC)- to offset risk of ER changes on firm commitments
3. Recognized A/L- to offset rick of ER changes (same purpose as for A4S and Net Investment in Foreign Operations)

1. transaction identified, probably will occur, and presents an exposure to exchange rate changes
2. must be consistent w/ company policy, designated and documented in advance as intended for a hedge, and be highly effective as a hedge

1. change in FV recognized as increase/decrease in K CV w/ G/L recognized as well
2. to extent change in K value (hedge) is effective in offseting a loss or a gain in expected CF, G/L should be deferred and become OCI
3. to extent ineffective, G/L--> current income

D- Forward K

C- OCI

Gain on CF hedge

1. commitment must be a firm, identified, and present exposure to FC price changes
2. forward K used to hedge must be designated and effective as a hedge of the commitment

1. measured as change in forward ER, which also causes increase or decrease in CV and G/L to be recognized in net income
2. change in FV of firm commitment (hedged item) measured as increase or decrease in firm commitment and G/L is recognized in Net Income
3. to extent G/L on forward K is ineffective offseting g/l on firm commitment --> current income

1. change in FV of forward exchange K, measured as change in forward rate causes increase or decrease in CV and G/L to be recognized in net income
2. to extent G/L on forward K is effective offsetting expected cash flow of firm commitment --> OCI
3. to extent G/L on forward K is ineffective offsetting expected cash flow of firm commitment  --> current income

1. A/L denominated in a foreign currency and has already been booked
2. G/L on hedged A/L must be recognized in earnings

• CF or FV
• to qualify as CF: hedging instrument must completely offset variability in $ of CFs associated w/ receivable or payable

1. adjust hedged item to FV @ BS date using spot rate and change in FV = foreign currency g/l in current income
2. adjust hedging instrument to FV at BS date w/ forward rate.
• amount up to g/l on hedged item recognized as foreign currency G/L to offset in current incoem
• amount up to current period amortization of any premium/discount on the hedging instrument is recognized in current income
• balance--> OCI

1. adjust hedged item to FV @ BS dates using spot rate and recognizing change as G/L current income
2. adjust hedging instrument to FV w/ forward rate and change in FV--> G/L in current income
3. to extent change in FV of instrument is different than FV change of item--> current income

1. change in FV of forward K (change in forward rate) increases or decreases CV and G/L--> NI
2. chnage in FV of instrument (change in MV), increases or decreases CV of investment w/ corresponding G/L in NI
3. to extent g/l in forward K doesn't offset investment G/L, Net G/L--> NI

1. change in FV of instrument and change in translated value of BS of foreign entity should be found 
2. to extent change in FV of instrument is < or = to change in translated BS, both enter into cumulative translation adjustment (OCI) as offset of one another
3. change in FV of instrument > change in translated BS=gain in NI

1. forward contract is used for speculation
2. no separate risk being hedged (not intended to offset anything)
3. forward K, and resulting G/L stand alone

1. forward K measured at forward rate if exchange will occur at maturity date of K
2. if BS date is between initiation and maturity of K, revalue K w/ forward rate @ maturity fate. any change from BS date value and CV is G/L--> NI
3. at settlement, K revalued w/ spot rate. change in thie from CV--> G/L in NI

1. determine functional currency of the entity that prepared the original FSs and
2. apply correct conversion process based on functional currency of entity that prepared original FSs

1. reporting currency= "presentation currency"
2. can provide supplementary information in currency other than its presentation currency

Which of the following could be the functional currency of a foreign subsidiary?

I. The recording currency of the foreign subsidiary.

II. The reporting currency of the subsidiary's parent.

III. A currency other than either the recording currency of the foreign subsidiary or the reporting currency of the subsidiary's parent.

• if operations of foreign entity are relatively self-contained and integrated with in the country in which it is located

1. if local, foreign economy is highly inflationary (cumulative inflation > of = to 100% over past 3 years)
2. if operations are direct and integral component or extension of a US entity's operations

• Role-to convert FSs
• method 1- translation
• method 2- remeasurement
  

1. translation- functional currency = local foreign currency
2. remeasurement- function currency=reporting currency
3. remeasurment and then translation- functional currency = another foreign currency

1. determine functional currency of entity issuing FS to be converted
2. insure FSs follow GAAP 
3. apply appropriate conversion method 
• if amount is needed to make BS balance, it is called a translation adjustment and it goes into either OCI or NI depending on method used

• convert accounts from foreign currency units to $ using current exchange rate (spot rate)
• revenue/expenses g/l: use exchange rate at dates which earned or incurred (WA rate can be used for the period)
• A and L: spot rate at BS date (except ones below)
• paid-in-capital- historic rate from when PIC arose (but not earlier than investment)
• retained earnings- calculated as beginning R/E + Translation NI - dividends declared converted at spot rate @ date of declaration

• doesn't go into NI, but treated as OCI for reporting purposes
• AOCI reported as an item in SH equity in translated BS

use temporal method

• for monetary items- current exchange rate
• non-monetary items- historical exchange rate used
• past price valuation used for A/L
• historic rate used for Rev/exp related to A/L
• use current if not related to a/l

highly inflationary economy

• GAAP- remeasurement
• IFRS- FS expressed in FCU adjusted using price-level index

1. remeasure to functional currency (remeasure adjustment in IS)
2. translate to US dollar (translation adjustment in OCI and in S.H.E. section of BS (AOCI))

1. assets in use
2. assets held for disposal
3. assets to be disposed of other than by sale

• write down to FV if recoverable cost (RC) < BV
• impairment=BV-FV
• recoverable cost (RC) = sum of expected future net cash inflows from use and ultimate disposal (decreased by cost to maintain assets)
• assets grouped at lowest possible organizational level at which cash flows can be identified

• write down FV- cost to sell (RC not used)
• only direct incremental costs are used in computation of cost to sell
• impairment loss= BV-FV-cost to sell
• asset can be written up/down if held for another period. gains limited to amount of initial impairment

• if decision to dispose preceeds actual disposal, estimated loss is recorded if probable and estimable
• estimated gains are not recognized

• includes abandonment, like-kind exchanges, etc.
• classify as held for use until disposal and continue to depreciate the asset
• additional impairment recoreded at disposal if BV>FV

1. impairment is testing at the "cash generating unit" level rather than reporting entity level
2. impairment testing: 1 stop and compares CV w/ recoverable cost
• recoverable cost is > of (a) net selling price or (b) value in use (discounted future CF)