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AS – 20, EARNING PER SHARE
For C.A Final By A.B.Sonpal
Friends, we are back with another important Accounting Standard. This AS is frequently asked in the
examination but this is again an easy and scoring AS. Please refer the said notes and solve questions
from Rtp, practice manual and Institute’s study material, you will see similar question asked in the
examination. For ESOP please refer my separate note on AS 20 with ESOP. Let’s start this AS
This AS is applicable to all entity. Partial exemption is available to SMC and Level II and Level III
entities.
Types of EPS
a) Basic EPS b) Diluted EPS
WANOS – Weighted Avg. number of shares outstanding during the year, where weights are of time
period.
Calculation of EATESH
Note : If nothing is mentioned in the sum regarding preference dividend, then assume them to
be cumulative in nature and deduct it to arrive at EATESH. But if it is stated that preference
shares are non-cumulative in nature then dividend should be deducted only if it is declared.
Sol – Para 11, of AS 20, states that for the purpose of computation of BEPS, the net profit/loss for the
period attributable to Equity shareholders should be the net profit or loss for the period after deducting
preference dividend and any attributable tax thereto for the period.
With the emphasis on phase ‘’ attributable to equity shareholder’’ it may be construed that amount
appropriated to mandatory reserves as described in this case, though not available for distribution of
dividend are still attributable to Equity shareholders.
Therefore, the appropriate made to mandatory reserves for redemption of debentures would be added
in Net Profit attributable to Equity Shareholder for computation of BEPS. The treatment made by K ltd. is
not correct.
Calculation of WANOS
Opening Balance of XXX
O/s Share for full
year
Add : Public Issue on XXX
time proportionate
Basis
Add : Bonus Issue on XXX
full year basis
Add : Right Issue
Paid Part on time XXX
proportionate basis
Bonus part on full XXX
year basis
Add : Amalgamation XXX
in nature of purchase
on time
proportionate basis
Add : Amalgamation XXX
in nature of merger
on full year basis
Less : Buy Back of (XXX)
share on time
proportionate basis
XXX
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E.g. PAT (05- 06) 1000000
Calculate BEPS.
EATESH = 1000000
Calculation of WANOS
11000
Whenever shares are partly paid up (entitled to dividend) then calculation should be made on
per Re. basis of share capital.
BEPS and DEPS will be disclosed for each class of shares ( Para 8 )
Solution
EATESH = 1000000
Bonus Shares
Since Funds are not received on Bonus shares hence date of issue is not relevant. Bonus shares
should be considered as a mathematical calculation for complete periods (including
comparatives). Ratios of comparative years is called – Recalculated / Restated / Readjusted
Issued 5000 and 3000 Equity shares on 1/1/05 and 1/7/05 respectively and shares were subscribed and
paid up. Bonus issued 1:1 on 1/12/05.
Solution
For 04-05
Calculation of BEPS
EATESH = 1000000
For 05-06
EATESH = 1200000
WANOS
Note : As per AS – 20 whenever Bonus shares are issued then previous years ratios are given as
comparatives should be recalculated considering Bonus effect. Necessary qualification should be made
by the auditor If the same is not dealt with accordingly.
Right Shares
Right shares are issued to existing shareholders at reduced price (Sec 81). Right shares are split
into two parts –
a) Bonus part
b) Paid part
(No. of shares before right x MP before right + No. of right shares x Right price) /No of shares after right
Note
Due to Bonus element in Right shares, BEPS and DEPS comparative information of earlier years will also
be restated.
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EATESH 02 2000000
EATESH 03 3000000
No. of Outstanding shares prior to right issue 1000000 shares
Right issue One new shares for each 4 outstanding shares i.e.
250000
Terms of Right Issue Price Rs. 20 ; Last date of exercise of right is 31/3/03
Fair value of one Equity share immediately prior to exercise of right on 31/3/03 = Rs. 25.
Solution
For 2002
BEPS = 20 lac / 10 lac = Rs. 2
EATESH = 20 lac
WANOS = 10 lac
For 2003
EATESH 3000000
WANOS
Right Issue
Bonus 41667
1197917
We know that Amalgamation is in nature of purchase then the share issued on PC should be
taken in WANOS on time proportionate basis.
EATESH ( 05 – 06 ) 1200000
Solution
04 - 05
EATESH = 1000000
BEPS = 1000000/10000 = Rs. 100
WANOS
05- 06
EATESH = 1200000
(10000 x 6 /12)
In this case the shares issued as PC are taken on full year basis.
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EATESH 100000
Solution
WANOS
A ltd.
Solution
Conclusion
In case of amalgamation in nature of merger we add the earnings of the merged entity with our EATESH
and PC paid in form of equity shares is taken for full year but in case of amalgamation in nature of
purchase, we do not add the earnings of the taken over entity and PC paid in form of equity shares is
taken on time proportionate basis.
E.g. Share warrant, Convertible Pref. shares, Convertible Debentures, Share application ( Utilized in
business), ESOP, partly paid Equity share not entitled to dividend.
E.g.
10-11 11-12
PBT 700000 900000
Extra ordinary income 40000 20000
Loss from discontinuing (30000) (10000)
operations
Total 710000 910000
Tax @ 30 % 213000 273000
PAT 497000 637000
1/4/2010 7 % Pref shares Rs. 500000 ( share to be converted 3000 ), DDT 10 %, conversion date
1/1/2012
1/5/2011 Share application money Recd and invested in business Rs. 600000 (Allotment made
1/10/11)
10-11 11-12
PAT 497000 637000
Less :Pref Dividend 35000 (500000 x 7 % ) 26250 (500000 x 7% x
9/12)
Less :CDT 3889 (35000X10/90) 2917 ( 26250 X 10/90 )
EATESH 458111 607833
Calculation of WANOS
10-11 11-12
Opening Bal 50000 60000
1/7/10 Public Issue 75000 ( 1000 x 9/12 ) -
Convertible Pref Share - 750 (3000 x 3/12 )
Bonus - 5000
Share Application - 30000 (60000 x 6/12 )
Convertible debentures - 6667 ( 40000 x2/12 )
57500 102417
Calculation of BEPS
10-11 11-12
EATESH (a) 458111 607833
WANOS (b) 57500 102417
BEPS ( a / b ) 7.97 5.93
Calculation of DEPS
Identification of PES
10-11 11-12
7 % Pref. shares 3000 2250 (3000 x 9/12 )
12 % Convertible debentures 30000 ( 40000 x 9 / 12 ) 33333 ( 40000 x 10/ 12 )
issued on 1/7/2010
Share Warrant - 6667 ( 10000 x 8/12 )
Share Application recd on 1/5/11 - 25000 ( 60000 x 5/12 )
allotment made on 1/10/11
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Calculation of Incremental EPS
10-11 11-12
7 % Pref Shares 3rd ( 500000 x 7 % + 3889 ) / 3000 ( 500000 x 7 % x 9/12 + 2917 )
= 12.96 = 12.96
Convertible Debentures 2nd ( 600000 x 12% x 9/12 x 70 % ) / ( 600000 x 12% x 10/12 x
30000 = 1.26 70%)/33333 = 1.26
Share warrant Ist - 0/6667 = 0
Share Application Ist - 0/25000 = 0
Re-stated DEPS
An enterprise should present Basic and Diluted EPS on the face of settlement of P/L for each
class of Equity Shares.
EATESH = 600000
EATESH 600000
WANOS
BEPS For,
Disclosure Requirements
B ltd. makes a public issue 31/3/2010 of 100000 shares of Rs. 10 each. They were subscribed as
followes:
Bltd had 500000 equity shares outstanding as at 1/4/02. Calculate WANOS assuming
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a) Partly paid shares are entitled to proportionate dividend
b) Partly paid shares are entitled to dividend to the extent fully paid share
Solution A
WANOS
Solution B
Contract for Buy back which has not been completed at the balance sheet date, should be considered
for calculation of DEPS.
E.g.
M ltd decides to buy back 12.5 % at a price of Rs. 25. It plans to buy back the shares before 30/6/02.
Solution
We already know that but back contract should be considered for computation of DEPS
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Now the question is - What amount should be there in the denominator at the time of conducting test
for dilution. This sum was there in FAQ published by institutes. So answer is solved accordingly.
Some author says that the above sum needs reconsideration. The solution seems to contradict para 39
which requires that only shares with dilutive potential be included. Further, potential equity shares are
defined as Financial instrument or contract that entitles the holder to equity shares. Obviously Buy back
does not satisfy the definition of potential equity shares. Since it does not entitle the other party to the
contract of equity shares. Further the criteria of Para 39 will be satisfies when the number of share
increase and not when no. of shares decreases.
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