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Interpretation of FS – Gregory Question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Interpretation of FS – Gregory Question

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • April 6, 2023 at 12:06 pm #682282
    TMaC123
    Participant
    • Topics: 18
    • Replies: 21
    • ☆

    Hi,

    This is part of the solution to an interpretation question (Gregory – Q440 Kaplan):

    The reason why the EPS may not have increased in line with reported
    profit is that the acquisition was financed by a share exchange which increased the
    number of shares in issue. Thus the EPS takes account of the additional consideration
    used to generate profit, whereas the trend of absolute profit does not take additional
    consideration into account. This is why the EPS is often said to be a more accurate
    reflection of performance than the trend of profits.

    I’m not sure I fully understand the statement specifically the part “whereas the trend of absolute profit does not take additional consideration into account”

    Can you help put this into simple language that’s more understandable?

    April 13, 2023 at 6:45 pm #682607
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6567
    • ☆☆☆☆☆

    It is essentially saying that the shares in issue have increased as a result of the acquisition via a share exchange, however we do not see an increase in the profit we require to maintain or increase the current level of profit. This means that although the profit figure will have increased as the profit is now of the enlarged group, it hasn’t led to an increase in the EPS figure.

    Let me know if that makes more sense and if not then I can add more.

    Thanks

  • Author
    Posts
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