Quote:

THE EXPERT IN ANYTHING WAS ONCE A BEGINNER.

INDEX

SR. NO. TOPIC NAME PAGE NO. NO. OF

QUESTIONS
SECTION A – CONCEPTS
1 CALCULATION OF BASIC EPS 2
2 CALCULATION OF NET PROFIT/LOSS AS ABOVE (NUMERATOR) 2
3 CALCULATION OF WEIGHTED AVG. NUMBER OF EQUITY SHARES 3
OUTSTANDING DURING THE PERIOD (DENOMINATOR)
4 DECIDING THE DATE FOR MAKING WEIGHTED AVG. 4 12
5 RIGHT ISSUE 8 6
6 DILUTED EARNINGS PER SHARE 11
7 DILUTIVE OR NON-DILUTIVE 12 7
SECTION B – QUESTIONS
SERIES 100 – CONCEPTUAL QUESTIONS ON EPS 16 3
SERIES 200 – QUESTIONS ON BEPS 18 3
SERIES 300 – QUESTIONS ON RIGHT ISSUE 20 2
SERIES 400 – QUESTIONS ON DEPS 22 4
SERIES 500 – MISC. CATOGERY QUESTIONS 24 1
SECTION C – MCQs
MCQs from ICAI Module 25 5

18.1
 SECTION A – CONCEPTS

REQUIRMENT as per ‘AS – 20’: An Enterprise should present BASIC and DILUTED Earnings per Share
on the face of the statement of Profit and Loss for each class of equity shares that has a different
right to share in the net profit for the period.
AS – 20 requires to present BEPS and DEPS even if the amounts disclosed are Negative (a loss per
share).

REQUIRMENT as per ‘PART II of the SCHEDULE III’ to the COMPANIES ACT:

Every company should calculate and disclose Earnings per Share in accordance with AS – 20, whether
its equity shares or potential equity shares are listed on a recognized stock exchange in India or not.

NOTE: Since all companies are required to disclose earnings per share as per Schedule III of Companies
Act, 2013, therefore AS – 20 in effect is mandatory for all companies.

1. CALCULATION OF BASIC EPS:

𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕/𝑳𝒐𝒔𝒔 𝒇𝒐𝒓 𝒕𝒉𝒆 𝒑𝒆𝒓𝒊𝒐𝒅 𝒂𝒕𝒕𝒓𝒊𝒃𝒖𝒕𝒂𝒃𝒍𝒆 𝒕𝒐 𝒕𝒉𝒆 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔

𝑩𝒂𝒔𝒊𝒄 𝑬𝑷𝑺 =
𝑾𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝑨𝒗𝒈. 𝑵𝒐. 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒔 𝒐𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒅𝒖𝒓𝒊𝒏𝒈 𝒕𝒉𝒆 𝒑𝒆𝒓𝒊𝒐𝒅

2. Calculation of Net Profit/Loss as above (Numerator)

Net Profit/Loss for the period including Prior period items & Extraordinary items as per AS – 5
Less: Tax Expense (Current Tax & Deferred Tax)
Less: *Preference Dividend
Net Profit/Loss attributable to the ESH

*Note 1: Dividend on Cumulative preference shares is deducted whether provided (declared) in the books
or not. However Dividend on Non – Cumulative preference shares is deducted only if provided in the
books. Dividend paid during the current year in respect of previous periods not to be deducted.

Note 2: Always, assume that PSC are cumulative. If not mentioned directly in the question.

18.2
 3. Calculation of Weighted Avg. Number of Equity shares
outstanding during the period (Denominator) -

• Consider the no. of equity shares outstanding in the beginning of the year, adjusted by the no. of
equity shares issued and bought back during the period multiplied by the time – weighting factor.
• Partly paid equity shares are treated as fraction and should be adjusted accordingly.
• Equity shares having different nominal values but with the same dividend rights should be
calculated by converting all such equity shares into equivalent number of shares of the same
nominal value. (i.e. Convert all equity shares into Amt. of Equity Share Capital to Calculate Earning
Per Rupee)
• No time weight shall be given in case of Bonus issue, Shares Split and Share Consolidation since no
additional earnings arises due to this.
• However, if bonus, split or consolidation takes place then in that case prior period EPS should be
adjusted accordingly and presented also in current year (it is called Restated EPS).
• Equity shares which are issuable upon the satisfaction of certain conditions resulting from
contractual arrangements (contingently issuable shares) are considered outstanding, and included
in the computation of basic earnings per share from the date when all necessary conditions under
the contract have been satisfied (Contingently Issuable shares)

18.3
 4. DECIDING THE DATE FOR MAKING WEIGHTED AVG.
Shares are usually included in the weighted average number of shares from the date consideration is
receivable (which is generally the date of their issue), for example:

The above-mentioned provisions are summarised in the following table:

Sr. No Nature of transaction Effective Date when
1 General Rule Consideration is receivable
2 Exchange for cash Cash is receivable
3 Voluntary reinvestment of dividend Dividend are reinvested
4 Conversion of debt instrument Accrual of interest is stopped
5 In lieu of interest / principal Accrual of interest is stopped
6 Exchange of liability Settlement Date
7 Consideration for acquisition of asset Acquisition is recognised in books
8 Rendering of services Services are rendered
9 Amalgamation in the Nature of Purchase Acquisition date
10 Amalgamation in the Nature of Merger Beginning of the Year
11 Mandatory convertible instrument Date of contract
12 Bonus Issue of Shares From the Beginning of Year
13 Contingently issuable shares When all necessary conditions for
conversion are satisfied

EXAMPLE 1:
EBIT = 49,80,000 (Current Year = 23-24)
Current Tax = 12,45,000
DTL = 2,15,000
85% Debenture issued on 1/7/23, ₹75 lacs
9% Non-Cumulative Preference Shares Capital are Outstanding ₹ 40 lacs From Beginning
10% Preference Shares Capital are issued on 1/3/24, ₹ 80 lacs
Preference Dividend not yet Declared
Calculate EAESH
SOLUTION:
Earnings Before Interest & Tax 49,80,000
(-) Interest (4,78,125)
Earning Before Tax 45,01,875
(-) Tax Expenses (14,60,000)
Earnings After Tax 30,41,875
(-) Preference Dividend on Cumulative Shares only (66,667)
(since dividend is not declared hence Dividend on
Non-Cumulative Pref. Share is ignore)
Earnings Available for Equity Share Holder 29,75,208

EXAMPLES 2:
Current Year 23-24
1/4/23: - 10,00,000 Shares are Outstanding
1/7/23: - New issue 60,000 No.
Calculate Weighted Average.

18.4
SOLUTION
Alternative 1:
1/4/23 10,00,000 x 12/12 10,00,000
1/7/23 60,000 x 9/12 45,000
10,45,000
Alternative 2:
1/4/23 Outstanding 10,00,000 x 3/12 2,50,000
1/7/23 Cumulative Outstanding 10,60,000 x 9/12 7,95,000)
10,45,000

EXAMPLE 3:
Current Year 23-24
1/4/23 10,00,000 Shares are Outstanding
1/7/23 New issue 60,000 no.
1/11/23 Buy Back 25000 no.
SOLUTION
Alternative: 1
1/4 10,00,000 x 12/12 10,00,000
New Issue 1/7 60,000 x 9/12 45,000
Buy Back 1/11 25,000 x 5/12 (10,417)
10,34,583
Alternative: 2
10,00,000 x 3/12 25,000
+ 10,60,000 x 4/12 53,333
+ 10,35,000 x 5/12 5,6,250
10,34,583

EXAMPLE 4:
EBIT = 32,50,000, Tax Rate = 30%
Current Year = 23-24
As on 1/4/23 Outstanding of Equity Shares = 10,00,000 no.
On 1/4/23 Outstanding 9% Convertible Debenture = ₹ 26,00,000, Face Value = 100/-
On 1/9/23 Convertible Debentures Converted into Equity Shares in the Ratio of 3:1
Calculate EPS
SOLUTION
Working Note 1:
Earnings Before Interest & Tax 32,50,000
(-) Interest (5 months) (97,500)
Earning Before Tax 31,52,5000
(-) Tax Expenditure @30% (9,45,750)
Earning After Tax 22,06,750
(-) Preference Dividend 0
Earnings Available for Equity Share Holders 22,06,750
Working Note 2:
1/4/23 Outstanding Equity 10,00,000 x 12/12 10,00,000
1/9/23 Conversion 26000x3 78,000 x 7/12 45,5000
10,45,500
EPS = EAESH/ Weighted average Outstanding no. = 22,06,750/10,45,500 =2.11/-

18.5
EXAMPLE 5:
EBIT – 25,00,000, Tax Rate – 30%
As on 1/4 (a) Outstanding Equity = 90,000 No.
(b) 9% Debentures of ₹ 60,00,000
On 1/7 Public Issue made of 30,000 No. of Equity Shares
On 1/10 Issued 11% Cumulative Preference Share Capital of ₹ 40,00,000 (Dividend not
Declared)
On 1/12 Buyback of 20,000 Equity No.
Calculate BEPS.
Solution:
Working Note 1:
Earnings Before Interest & Tax 25,00,000
(-) Interest (5,40,000)
Earning Before Tax 19,60,000
(-) Tax Expenditure (5,88,000)
Earning After Tax 13,72,000
(-) Preference Dividend (6 (2,20,000)
Months)
Earnings Available for Equity 11,52,000
Share Holders
Working Note 2:
Calculation of Weighted Average Outstanding Equity Share Capital (in ₹)
Date Particulars Working Weighted Avg. Amount
¼ Opening Balance 90,000 x 12/12 90,000
1/7 Public Issue 30,000 x 9/12 22,500
1/12 Buyback (20,000 x 4/12) (6,667)
Weighted Average Outstanding Share Capital 1,05,833

Basic EPS = 11,52,000/1,05,833 = 10.89/- per Share.

EXAMPLE 6: (Negetive EPS)

EBIT = 8,00,000
Tax Rate = 30%
1/4 = Outstanding 10% Debenture of ₹ 1 Crore
1/4 = Outstanding No. of Equity shares 1,00,000 no.
Calculate EPS
SOLUTION
EPS can be negative also if there is a Loss to the Company
Earnings Before Interest & Tax 8,00,000
(-) Interest (10,00,000)
Earnings Before Tax (2,00,000)
(-) Tax 0
Earnings After Tax / Earnings Available for Share (2,00,000)
Holders
EPS (Loss per Share) = (2,00,000)/1,00,000 = -2

EXAMPLE 7 (Bonus):
Previous Year EAESH = 12,00,000
Current Year EAESH = 15,00,000
Current Year Outstanding no. in Beginning = 2,00,000 no.
Current Year Bonus issue in 1/7 = 50,000 no.

18.6
Current Year Public Issue in 1/9 = 30,000 no.
Current Year Buy Back in 1/11 = 10,000 no.
Calculate EPS of Current Year & Restated Eps of Previous year.
SOLUTION
Working Note 1: Calculation of weighted Average Outstanding no.
1/4 2,00,000 x 12/12 2,00,000
+ 1/7 Bonus 50,000 x 12/12 50,000
+ 1/9 Public issue 30,000 x 7/12 17,500
- 1/11 Buy Back (10,000 x 5/12) (4,167)
2,63,333
Current Year Eps = 15,00,000/2,63,333 = 5.696/-
Restated Eps of Previous Year = 12,00,000/2,00,000+50,000 = 4.8/-

Example 8 (Share Split):

EAESH PY = 10,00,000
EAESH CY = 15,00,000
Outstanding Equity Since Beginning = 1,00,000 No. of 100/- each
On 1st Nov of CY above 1,00,000 No. of 100/- each converted into 10/- each
Solution:
Once the shares are Split or Consolidated, the new numbers after Split or Consolidation shall be taken
into Consideration while Calculating EPS
EPS (CY) = 15,00,000/1,00,0000x12/12 = 1.5/- per share
Profit & Loss A/c
CY PY
Net Profit 15,00,0000 10,00,000
1.5/- 10/-
As we can see from above P&L, that CY EPS and PY EPS are not Comparable because of Share Split in
CY.
Therefore, we should recalculate the PY EPS based on Share Split as under.
Restated EPS (PY) = 10,00,000/10,00,000 = 1/-

EXAMPLE 9 (Share Consolidation):

EAESH CY = 45,00,000
EAESH PY = 35,00,000
1,00,000 No. of Shares of 10/- each
During CY 10/- Shares Converted into 50/- Shares
Solution:
PY EPS (Actual) = 35,00,000/1,00,000 = 35/-
CY EPS (Actual) = 45,00,000/20,000 = 225/-
PY EPS (Restated) = 35,00,000/20,000 = 175/-

EXAMPLE 10: Partly Paid Shares

(Current Year 23-24)
EAESH = 15,00,000
1/4/23 = 50,000 no. Outstanding equity of ₹ 10 each
1/7/23 = 30,000 no. issued 10/- each, 5/- Paid Up
Calculate BEPS
SOLUTION
1/4 50,000 x 10 5,00,000x12/12 5,00,000
+ 1/7 30,000 x5 1,50,000x9/12 1,12,500

18.7
 Weighted Average amount of Share 6,12,500
Capital.
Earning Per Rupee = 15,00,000/6,12,500 = 2.4489/- (or) 2.45/- per Rupee
Eps for 10/- Fully Paid = 2.4489 x 10/- = 24.489
Eps For 5/- Paid up = 2.4489 x 5/- = 12.2445.

EXAMPLE 11 - Partly Paid Shares:

As on 1/4/23 Opening Outstanding Equity Shares 50,000 of 10/- each, 6/- Paid-up.
On 1/9/23 Public Issue of 30,000 shares made at 10/- each, 7/- Paid up
On 1/10/23 Amount Called @4/- on Opening but Shareholders holding 48,000 Shares have
paid.
On 1/12/23 Amount Called @3/- on public issue, all Share Holders have paid.
Note: Partly paid shares are also entitled for Dividend
Calculate Weighted Average Outstanding Equity Shares.
Solution:
Calculation of Weighted Average Outstanding Share Capital (in ₹)
Date Particulars Working Weighted Avg. Amount
1/4/23 Opening Balance 50,000 x 6 x 12/12 3,00,000
1/9/23 Public issue 30,000 x 7 x 6/12 1,22,500
1/10/23 Called @4/- 4,80,000 x 4 x 6/12 96,000
1/12/23 Called @3/- 30,000 x 3 x 4/12 30,000
Weighted Average Outstanding Share Capital 5,48,500
Weighted Avg Outstanding No. of Shares (5,48,500/10) 54,850 No.

EXAMPLE 12:
EAESH = 18,00,000
As on 1/4/23 Opening Outstanding 1,00,000 no. of Equity Shares of 10/- each
On 1/7/23 Issued 80,000 No. at 15/- each
On 1/11/23 Issued 50,000 No. at 20/- each

Calculate Weighted Average No. of Equity Shares & BEPS

Solution:
Calculation of Weighted Average Outstanding Share Capital (in ₹)
Date Particulars Working Weighted Avg. Amount
1/4/23 Opening Balance 1,00,000 x 10 x 12/12 10,00,000
1/7/23 Issue 80,000 x 15 x 9/12 9,00,000
1/11/23 Issue 50,000 x 20 x 5/12 4,16,667
Weighted Average Outstanding Equity Share Capital ₹ 23,16,667

Earning Per Rupee = 18,00,000/23,16,667 = 0.777 per Rupee

EPS @10/- 10 x 0.777 7.77/-
EPS @15/- 15 x 0.777 11.65/-
EPS @20/- 20 x 0.777 15.54/-

18.8
 5. RIGHT ISSUE:
A rights issue usually includes a bonus element.
Following steps are applied to Calculate BEPS in case of Right Issue:

METHOD I
Step 1: Calculate TMP[ER] if not available. Such price is IV of shares
[𝑭𝒂𝒊𝒓 𝑽𝒂𝒍𝒖𝒆 (𝒃𝒆𝒇𝒐𝒓𝒆 𝒓𝒊𝒈𝒉𝒕) 𝒙 𝑵𝒐. 𝒐𝒇 𝒔𝒉𝒂𝒓𝒆 (𝒑𝒓𝒆 − 𝒓𝒊𝒈𝒉𝒕)] + 𝑹𝒊𝒈𝒉𝒕 𝒊𝒔𝒔𝒖𝒆 𝒑𝒓𝒐𝒄𝒆𝒆𝒅𝒔
𝑭𝒐𝒓𝒎𝒖𝒍𝒂 =
𝑻𝒐𝒕𝒂𝒍 𝒔𝒉𝒂𝒓𝒆𝒔 𝒑𝒐𝒔𝒕 𝒓𝒊𝒈𝒉𝒕

Step 2: Calculate paid-up part in Right Issue (if Same Funds would have been raised in market from
General Public at Ex-Right Price, then how many shares required to be issued?)
𝑅𝑖𝑔ℎ𝑡 𝐼𝑠𝑠𝑢𝑒 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠
𝑃𝑎𝑖𝑑 𝑃𝑎𝑟𝑡 =
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑎𝑠 𝑝𝑒𝑟 𝑆𝑡𝑒𝑝 1

Step 3: Calculate Bonus part in Right Issue

𝐵𝑜𝑛𝑢𝑠 = 𝑅𝑖𝑔ℎ𝑡 𝑆ℎ𝑎𝑟𝑒 (𝑁𝑜. ) − 𝑝𝑎𝑖𝑑 𝑝𝑎𝑟𝑡 𝑎𝑠 𝑝𝑒𝑟 𝑆𝑡𝑒𝑝 2

Step 4:
→ Paid part should be adjusted from the date of receipts of amount. (Time weight from issue Date)
→ Bonus part should be considered from beginning. (Time Weight = 12/12)
→ Previous Year EPS will be readjusted because of Bonus elements.

METHOD II (Refer Example No. 18)

𝑪𝒖𝒎 𝑹𝒊𝒈𝒉𝒕 𝑷𝒓𝒊𝒄𝒆
Step 1: Calculate Right Factor = 𝒆𝒙 𝑹𝒊𝒈𝒉𝒕 𝑷𝒓𝒊𝒄𝒆

Step 2: weighted Average O/s of current year: -

No. of shares o/s (pre-right) x Right factor x T. weight till the date of Right issue
(+) No. of shares o/s (post-right) x T. weight till end of year

Refer Example No. 13 to 17 to understand the Entire Concept of Right Issue

EXAMPLE 13:
1/4/23 = Outstanding no. 6,00,000 no.
1/7/23 = Right issue announced in the ratio of 1:3 at 45/-
Cumulative Right price = 60/- per shares
Calculate Ex. Right Price
SOLUTIION
Ex. Right Price = (6,00,000 x 60) + (2,00,000 x 45)/8,00,000
Ex. Right = 56.25/- Per Shares
This is the price at which General public will be interest to Invent Share

18.9
EXAMPLE 14:
From the above Example 13 How many shares do we need to issue to general public by raising same ₹
90,00,000
SOLUTION
General public shall Invest their money at 56.25/- per share & not more Than that
No. of Shares for General Public = 9,00,000/56.25
= 1,60,000

EXAMPLE 15:
Calculate Bonus Part & Paid Part From above 2,00,000 no.
1,60,000 no. Paid Part 40,000 no. Bonus Part

EXAMPLE 16:
Calculate Current Year BEPS if EAESH 24,00,000
SOLUTION
1/4 = 6,00,000 x 12/12 = 6,00,000
1/7 = Right issue: -
Paid 1,60,000 x 9/12 1,20,000
Bonus 40,000 x 12/12 40,000
7,60,000
BEPS = 24,00,000/7,60,000 = 3.15

EXAMPLE 17:
Calculate Restated Eps of Previous Year if EAESH is 19,00,000
SOLUTION
19,00,000/6,00,000 + 40,000 = 2.968/-

EXAMPLE 18 (ICAI Approach):

EAESH = 21,00,000
As on 1/4 Outstanding Shares are 1,50,000 No.
On 1/7 Public Issue of 30,000 No.
On 1/10 Right issue @90/- at ratio of 1:2
On 1/1 Public issue of 50,000 No.

Cum-Right Price = 100/-

Solution:
Step 1:
Ex-Right Price = (1,50,000+30,000) x 100 + (90,000 x 90) / 2,70,000 = 96.67/-
Step 2:
Right Factor = Cum-Right Price / Ex-Right Price = 100/96.67
Step 3:
Weighted Average: - Apply Right Factor only on No. of Shares Outstanding before Right Issue
Date Working Weighted Avg. Amount
1/4 1,50,000 x 3/12 x 100/96.67 38,792
1/7 1,80,000 x 3/12 x 100/96.67 46,550
1/10 2,70,000 x 3/12 67,500
1/1 3,20,000 x 3/12 80,000
2,32,842
BEPS = 21,00,000/2,32,842 = 9.02/- per Share.

18.10
 6. DILUTED EARNINGS PER SHARE:

(Theory might come, Pls refer it before exam)

• Diluted EPS is calculated when the enterprise is having Potential Equity shares.
• Potential Equity shares are those securities which entitles the holders the right to convert their
securities into equity shares such as Convertible Debentures, Convertible Preference Shares etc.
• Potential Equity shares are diluted if their conversion into equity shares reduces the earnings per
share. Hence, DEPS should always be less than BEPS.
• If DEPS is more than BEPS then it is not dilutive, it is Anti – dilutive EPS and hence in that case,
DEPS will be equal to BEPS, Since DEPS cannot be higher than BEPS.

Examples of Potential Equity Shares which may be diluted:

1. Convertible Debentures
2. Convertible Preference Shares
3. Share Warrants
4. ESOPs
5. Share Application Money pending allotment (not statutorily required to be kept separately and
utilized in the business)
6. Partly paid Equity shares to the extent of unpaid amount (not entitled for Dividend)

18.11
 7. DILUTIVE OR NON-DILUTIVE
Potential equity shares should be treated as dilutive when, and only when their conversion to equity
shares would decrease net profit per share from continuing ordinary operations.

Note 1: DEPS calculation requires only the “Net profit from continuing ordinary activities” (i.e. Extra-
Ordinary Items and Discontinuing Activities are avoided)
The net profit from continuing ordinary activities is the net profit from ordinary activities after
deducting preference dividends and any attributable tax thereto and after excluding items relating to
discontinued operations.

Note 2: Potential equity shares are anti-dilutive when their conversion to equity shares would increase
earnings per share from continuing ordinary activities or decrease loss per share from continuing
ordinary activities.
The formula can be mathematically expressed as follows:
𝑃𝑟𝑜𝑓𝑖𝑡/𝐿𝑜𝑠𝑠 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒 ℎ𝑜𝑙𝑑𝑒𝑟 𝑤ℎ𝑒𝑛 𝑑𝑖𝑙𝑢𝑡𝑖𝑣𝑒 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑟𝑒 𝑐𝑜𝑛𝑣𝑒𝑟𝑡𝑒𝑑 𝑖𝑛𝑡𝑜 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 + 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑖𝑙𝑢𝑡𝑖𝑣𝑒 𝑝𝑜𝑡𝑒𝑛𝑡𝑖𝑎𝑙 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠

In case there are more than 1 potential equity shares:

In considering whether potential equity shares are dilutive or antidilutive, each issue or series of
potential equity shares is considered separately rather than in aggregate. The sequence in which
potential equity shares are considered may affect whether they are dilutive. Therefore, to maximise the
dilution of basic earnings per share, each issue or series of potential equity shares is considered in
sequence from the most dilutive to the least dilutive. For determining the sequence from most dilutive to
least dilutive potential equity shares, the earnings per incremental share is the least, the potential
equity share is considered most dilutive and vice-versa.

How to Calculated DEPS – Following calculation is required:

1. Identify Potential Equity Shares first. (Whether any security which is pending for
conversion is outstanding and resources thereof have been used in the business)

2. Identify Dilutive potential equity shares by applying following steps:

Step 1 - Calculate Incremental EPS for every single potential equity share

Step 2 - Arrange IEPS in Increasing Order

Step 3 - Apply Test for Dilution. Test each potential equity share on BEPS from continuing
ordinary operations. If ratio EPS declines from preceding calculation then it is called Diluted
EPS and if ratio increases from previous calculation then it is called Anti – Diluted EPS

Why we are following above steps:

To maximise the dilution of basic earnings per share, each issue or series of potential
ordinary shares is considered in sequence from the most dilutive to the least dilutive, ie
dilutive potential ordinary shares with the lowest ‘earnings per incremental share’ are
included in the diluted earnings per share calculation before those with a higher earnings per
incremental share. Options and warrants are generally included first because they do not
18.12
 affect the numerator of the calculation.

Note: Anti Diluted EPS shall not be presented in the Statement of P&L, in that case Diluted
EPS shall be equal to BEPS

EXAMPLE 19:
EBIT = 9,00,000 (Current Year 23-24)
Tax Rate = 30%
1/4/23 = Outstanding 8% Convertible Debenture of ₹ 15,00,000, Face Value is ₹ 100
(Convertible in next year into 50,000 no of equity shares)
1/4/23 = Outstanding equity shares 1,00,000 no.
Calculate BEPS & DEPS
SOLUTION
EBIT 9,00,000
(-) Interest 1,20,000
EBT 7,80,000
(-) Tax 30% 2,34,000
EAESH 5,46,000
Basic EPS = 5,46,000/1,00,000
= 5.46/-

DEPS = EAESH + (Saving in Interest net of Tax) / Weighted Avg no. of Equity + Weighted Avg Potential
No. of Equity
[5,46,000 + (1,20,000 – 30%)] / [(1,00,000 x 12/12) + (50,000 x 12/12)] = 4.20/-

EXAMPLE 20:
Same as Example 19 But instead of Debenture there are Convertible Preference Shares
SOLUTION
1) BEPS
EBIT 9,00,000
(-) Interest 0
EBT 9,00,000
(-) Tax @ 30% 2,70,000
EAT 6,30,000
(-) Preference Dividend (1,20,000)
EAESH 5,10,000
BEPS = 5,10,000/1,00,000 = 5.10/-

DEPS = 5,10,000 + Savings in Dividend / Weighted Avg No. of Equity + Weighted Avg No. of Potential
Equity
5,10,000 + 1,20,000/1,50,000 = 4.20/-

EXAMPLE 21:
Current Year 23-24
EBIT = 25,00,000
As on 1/4/23 Outstanding 10% Non-Convertible PSC of ₹20 lakhs (Dividend Declared)
On 1/4/23 Outstanding 1,50,000 no. of equity, Tax @30%
On 1/7/23 Issued 18,000 no. of 9% Debentures (face value 100/-) convertible after
3 years in the ratio of 3:1
18.13
SOLUTION
EBIT 25,00,000
Interest 1,21,500
EBT 23,78,500
Tax 30% 7,13,550
EAT 16,64,950
Preference Dividend (20,00,000)
EAESH 14,64,950
BEPS = 14,64,950/1,50,000 = 9.77/-
Calculation of DEPS:
1. Identify potential equity shares outstanding in current year
Convertible Debenture 9% WEF 1/7/23
18,000 x 3 = 54,000
2. Weighted average equity Outstanding;
54,000 x 9/12 = 40,500 no.
3. DEPS: EAESH + saving in Interest of Tax/ weighted Average equity + Weighted Avg. Potential equity
= 14,64,950 + (1,21,500 x 70%)/15,000+40,500
= 8.136/- Per share

EXAMPLE 22:
Same as Example 21, but Conversion Ratio is 1:5
Calculate DEPS
SOLUTION
Weighted Average = 18,000/5 x 1
= 3600
3600 x 9/12 = 2700
DEPS = 14,64,950 + 1,50,000 + 2700
= 10.15/- Anti Diluted
As per AS 20, Anti Diluted EPS need not be disclosed, In such case DEPS shall be disclosed at an amount
equal to BEPS. Therefore, Disclosed DEPS = 9.77/-

EXAMPLE 23:
EAESH = 18,00,000
No. of Equity Shares = 1,00,000
During the year, 10,000 no. of Debenture @ 11% Interest issued at face value 100/-
Conversion into equity is 40,000 no. after 3 years
Interest paid on such Debenture = 27,500/-
SOLUTION
Debenture must have been issued on 1/Jan/24
Since Interest of 27,500 belongs to 3 months
Interest Months
1,10,000 12
27,500 ?

DEPS = 18,00,000 + (27,500 x 70%)/1,00,000 + (40,000 x 3/12)

= 16.53/-

EXAMPLE 24:
EAESH = 15,00,000
No. of Outstanding Equity = 1,00,000

18.14
BEPS = 15/-
There are 60,000 option (ESOPs) are Outstanding For Full year given to employees at exercise price of
50/- each MP Per shares is 100/- each
Calculate How many Option are dilutive Potential Shares & also Calculate DEPS
SOLUTION
Total ESOP = 60,000 no. Outstanding
1. Dilutive Potential
2. Non-Dilutive (B/F) 30,000
Total ESOP – fund raised/MP
60,000 – 30,00,000/100 = 30,000 (Dilutive potential equity)
DEPS = EAESH + Saving/ Weighted Average equity + Weighted Potential equity
= 15,00,000 + 0* / 1,00,000 + 30,000 x 12/12
= 11.538/-
(* why 0? In ESOP there is no Interest or Dividend Payable)

EXAMPLE 25:
EAESH = 15,00,000
Including extra ordinary Income of 1,50,000
Opening no. of Ordinary equity = 1,00,000
On 1/8 = 10,000 no of shares warrant issued & converted into shares on 1st Jan of Current year
Calculate BEPS & DEPS
SOLUTION
1 Basic Earnings Per Share
1/4 1/Jan 31/3
Opening Outstanding Shares 10,000
1,00,000
Weighted Average: -
1,00,000 x 12/12 1,00,000
+ 10,000 x 3/12 2,500
1,02,500

BEPS = EAESH (Including Extra ordinary)/Weighted Average Outstanding equity

= 15,00,000/1,02,500
= 14.634/-

2 Diluted Earnings Per Share

1/4 1/8 1/Jan 31/3
Opening Outstanding 10,00,000 Share warrant 10,000 Share 10,000
Weighted Average Potential Equity = 10,000 x 5/12 = 4167
DEPS = (15,00,000 – 1,50,000) + 0 / 1,02,500 + 4167
= 12.656/-

18.15
 SECTION B - QUESTIONS
(Questions of Study Material, RTPs, MTPs and Past Exams to be
Practiced in the Class)
SERIES 100
Conceptual Questions on EPS

Q.AS20.RMP.101: (RTP May 2021)

In the following list of shares issued, for the purpose of calculation of weighted average
number of shares, from which date, weight is to be considered:
(i) Equity Shares issued in exchange of cash,
(ii) Equity Shares issued as a result of conversion of a debt instrument,
(iii) Equity Shares issued in exchange for the settlement of a liability of the enterprise,
(iv) Equity Shares issued for rendering of services to the enterprise,
(v) Equity Shares issued in lieu of interest and/or principal of another financial instrument,
(vi) Equity Shares issued as consideration for the acquisition of an asset other than in cash.
ANSWER:
The following dates should be considered for consideration of weights for the purpose of calculation of
weighted average number of shares in the given situations:
(i) Date of Cash receivable
(ii) Date of conversion
(iii) Date on which settlement becomes effective
(iv) When the services are rendered
(v) Date when interest ceases to accrue.
(vi) Date when Asset is Recorded.

Q.AS20.SM.102:
Date Particulars Purchased Sold Balance
1st Jan Balance at Beginning 1800 no. - 1800
31st May Issue of Shares for Cash 600 no. - 2400
1st Nov. Buy Back of shares - 300 no. 2100
Calculate Weighted Number of Shares.
SOLUTION:
Computation of Weighted Average:
(1,800 x 5/12) + (2,400 x 5/12) + (2,100 x 2/12) = 2,100 shares.
The weighted average number of shares can alternatively be computed as follows:
(1,800 x12/12) + (600 x 7/12) - (300 x 2/12) = 2,100 shares

Q.AS20.SM.103:
Date Particulars No. of Shares Face Value Paid up Value
1st Jan Balance at Beginning 1800 10/- 10/-
31st Oct Issue of Shares 600 10/- 5/-
Calculate Weighted Number of Shares.

18.16
SOLUTION:
Assuming that partly paid shares are entitled to participate in the dividend to the extent of amount
paid, number of partly paid equity shares would be taken as 300 for the purpose of calculation of
earnings per share.
Computation of weighted average would be as follows:
(1,800 x 12/12) + (300 x 2/12) = 1,850 shares.
Note: Where an enterprise has equity shares of different nominal values but with the same dividend
rights, the number of equity shares is calculated by converting all such equity shares into equivalent
number of shares of the same nominal value or by converting all the equity shares into Weighted Avg.
Paid Up Equity Capital to calculated Earnings Per Rupee (EPR)

18.17
 SERIES 200
Questions on BEPS

Q.AS20.SM.201:
Net profit for the year ended 31st March 20X1 - 18,00,000/-
Net profit for the year ended 31st March 20X2 - 60,00,000/-
No. of equity shares outstanding until 30th September 20X1 - 20,00,000
Bonus issue 1st October 20X1 was 2 equity shares for each equity share outstanding at 30 th September,
20X1
Calculate Basic Earnings Per Share.
SOLUTION:
No. of Bonus Issue 20,00,000 x 2 = 40,00,000 shares
Earnings per share for the year 2017=
Rs.60,00,000 = Rs. 1.00
(20,00,000+40,00,000)
Adjusted earnings per share for the year 2016=
Rs.18,00,000 = Rs. 0.30
(20,00,000+40,00,000)
Since the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to
the beginning of the year 20X2, the earliest period reported.

Q.AS20.SM.202: (MTP – Oct 20, Nov 21, May 22, May23, Exam May 18)
On 1st April, 20X1 a company had 6,00,000 equity shares of Rs. 10 each (Rs. 5 paid up by all
shareholders). On 1st September, 20X1 the remaining Rs. 5 was called up and paid by all shareholders
except one shareholder having 60,000 equity shares. The net profit for the year ended 31st March, 20X2
was Rs. 21,96,000 after considering dividend on preference shares of Rs. 3,40,000.
You are required to compute Basic EPS for the year ended 31 st March, 20X2 as per Accounting Standard
20 "Earnings Per Share".
SOLUTION:
Basic earnings per share (EPS) =
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠
𝑤𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
21,96,000
= = Rs. 4.80 per share
4,57,500 𝑠ℎ𝑎𝑟𝑒𝑠
Working note:
Calculation of weighted average number of equity shares
As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated as a fraction of equity share to
the extent that they were entitled to participate in dividend relative to a fully paid equity share during
the reporting period. Assuming that the partly paid shares are entitled to participate in the dividend to
the extent of amount paid, weighted average number of shares will be calculated as follows:
Date No. of equity Amount paid Weighted average no. of equity
shares per share shares
Rs. Rs. Rs.
1.4.20X1 6,00,000 5 6,00,000 х 5/10 х 5/12 = 1,25,000
1.9.20X1 5,40,000 10 5,40,000 х 7/12 = 3,15,000
18.18
 1.9.20X1 60,000 5 60,000 х 5/10 х 7/12 = 17,500
Total weighted average equity shares 4,57,500

Q.AS20.SM.203: (Also in RTP May 22)

NAT, a listed entity, as on 1st April,2021 had the following capital structure:
Rs.
10,00,000 Equity Shares having face value of Rs. 1 each 10,00,000
10,00,000 8% Preference Shares having face value of Rs. 10 each 1,00,00,000
During the year 2021-2022, the company had profit after tax of Rs. 90,00,000
On 1st January,2022, NAT made a bonus issue of one equity share for every 2 equity shares outstanding
as at 31st December,2021.
On 1st January,2022, NAT issued 2,00,000 equity shares of Rs. 1 each at their full market price of Rs.
7.60 per share.
NAT's shares were trading at Rs. 8.05 per share on 31st March,2022.
Further it has been provided that the basic earnings per share for the year ended 31st March,2021 was
previously reported at Rs. 62.30.
You are required to:
(i) Calculate the basic earnings per share to be reported in the financial statements of NAT for the
year ended 31st March,2022 including the comparative figure, in accordance with AS-20 Earnings
Per Share.
(ii) Explain why the bonus issue of shares and the shares issue at full market price are treated
differently in the calculation of the basic earnings per share?
SOLUTION
(i) Calculation of Basic Earnings per share for the year ended 31stMarch, 2022 including the
comparative figure:
(a) Earnings for the year ended 31st March, 2021 = EPS x Number of shares outstanding during
2020-2021
= Rs. 62.30 x 10,00,000 equity shares
= Rs. 6,23,00,000
(b) Adjusted Earnings per share after taking into consideration bonus issue
Adjusted Basic EPS = Earnings for the year 2020-2021 / Total outstanding shares +Bonus issue
= Rs. 6,23,00,000 / (10,00,000+ 5,00,000)
= Rs. 6,23,00,000 / 15,00,000
= Rs. 41.53 per share
(c) Basic EPS for the year 2021-2022
Basic EPS = Total Earnings – Preference Shares Dividend) / (Total shares outstanding at the
beginning + Bonus issue + weighted average of the shares issued in January, 2022)
= (Rs. 90,00,000 – Rs. (1,00,00,000 x 8%) / (10,00,000 + 5,00,000 + (2,00,000 x 3/12))
= Rs. 82,00,000 / 15,50,000 shares
= Rs. 5.29 per share

(ii) In case of a bonus issue, equity shares are issued to existing shareholders for no additional
consideration. Therefore, the number of equity shares outstanding is increased without an increase
in resources. Since the bonus issue is an issue without consideration, the issue is treated as if it had
18.19
 occurred prior to the beginning of the year 2021, the earliest period reported.
However, the share issued at full market price does not carry any bonus element and usually results
in a proportionate change in the resources available to the enterprise. Therefore, it is taken into
consideration from the time it has been issued i.e., the time- weighting factor is considered based
on the specific shares outstanding as a proportion of the total number of days in the period

SERIES 300
Questions on Right Issue

Q.AS20.SM.301:
X Ltd. supplied the following information. You are required to compute the basic earnings
per share:
(Accounting year 1.1.20X1 – 31.12.20X1)
Net Profit : Year 20X1: Rs. 20,00,000
: Year 20X2: Rs. 30,00,000
No. of shares outstanding prior to right issue : 10,00,000 shares
Right issue: one new share for every four outstanding i.e., 2,50,000 shares
Right issue price – Rs. 20
Last date of exercise rights – 31.3.20X2
Fair rate of one Equity share immediately Prior to exercise of rights on 31.3.20X2: Rs. 25
SOLUTION:
Computation of Basic Earnings Per Share
(as per paragraphs 10 and 26 of AS 20 on Earnings Per Share)
Year 20X1 Rs. Year 20X2 Rs.
EPS for the year 20X1 as originally reported
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 2.00
𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡 𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
= (Rs. 20,00,000 / 10,00,000 shares)
EPS for the year 20X1 restated for rights issue 1.92 (approx.)
= [Rs. 20,00,000 / (10,00,000 shares × 1.04)]

𝐸𝑃𝑆 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 20𝑋2 𝑖𝑛𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑒𝑓𝑓𝑒𝑐𝑡𝑠 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠 𝑖𝑠𝑠𝑢𝑒 𝑅𝑠. 30,00,000 2.51 (approx.)
(10,00,000𝑠ℎ𝑎𝑟𝑒𝑠 × 1.04 × 3/12) + (12,50,000 𝑠ℎ𝑎𝑟𝑒𝑠 × 9/12)
𝑅𝑠. 30,00,000
11,97,500 𝑠ℎ𝑎𝑟𝑒𝑠

Working note:
1. Computation of theoretical ex-rights fair value per share
𝐹𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑎𝑙𝑙 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑚𝑚𝑒𝑑𝑖𝑎𝑡𝑒𝑙𝑦 𝑝𝑟𝑖𝑜𝑟 𝑡𝑜 𝑒𝑥𝑒𝑟𝑐𝑖𝑠𝑒 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠 +
𝑇𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑟𝑒𝑐𝑒𝑖𝑣𝑒𝑑 𝑓𝑟𝑜𝑚 𝑒𝑥𝑒𝑟𝑐𝑖𝑠𝑒
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑝𝑟𝑖𝑜𝑟 𝑡𝑜 𝑒𝑥𝑒𝑟𝑐𝑖𝑠𝑒 + 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑒𝑥𝑐𝑒𝑟𝑐𝑖𝑠𝑒
(𝑅𝑠. 25 × 10,00,000 𝑠ℎ𝑎𝑟𝑒𝑠) + (𝑅𝑠. 20 × 2,50,000 𝑠ℎ𝑎𝑟𝑒)
10,00,000 𝑠ℎ𝑎𝑟𝑒𝑠 + 2,50,000 𝑠ℎ𝑎𝑟𝑒𝑠
𝑅𝑠.3,00,00,000
= Rs. 24
12,50,000 𝑠ℎ𝑎𝑟𝑒𝑠

18.20
2. Computation of adjustment factor
𝑓𝑎𝑖𝑟 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑜𝑟 𝑡𝑜 𝑒𝑥𝑒𝑟𝑐𝑖𝑠𝑒 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠
= 𝑡ℎ𝑒𝑜𝑟𝑎𝑡𝑖𝑐𝑎𝑙 𝑒𝑥−𝑟𝑖𝑔ℎ𝑡𝑠 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
= 𝑅𝑠. 25/𝑅𝑆. 24 = 𝑅𝑠. 1.04 (𝑎𝑝𝑝𝑟𝑜𝑥. )

Q.AS20.SM.302: (Also in RTP N23, MTP Mar 19 & Similar in Nov. 19 Exams)
From the following information, you are required to compute the basic and adjusted Earnings per share:
Net profit for 2015-16 11 lakh
Net profit for 2016-17 15 lakh
No. of shares issued before rights issue 5 lakhs
Right issue One for every 5 held
Right issue price 15 per share
Last date of exercising right option 1-06-2016
Fair value of shares before right issue 21 per share

ANSWER:
Computation of theoretical ex-rights fair value per share
Fair value of all outstanding shares immediately prior to exercise of rights
+ Total amount received from exercise of rights
Number of shares outstanding prior to exercise +
number of shares issued in the exercise

(Rs. 21.00 x 5,00,000 shares) + (Rs.15.00 x 1,00,000 shares)

5,00,000 shares + 1,00,000 shares
Theoretical ex-rights fair value per share = Rs. 20.00
(a) Computation of adjustment factor
Fair value per share prior to exercise of rights Rs.(21.00)
(b) = = 1.05
Theoretica I ex−right value per share Rs.(20.00)

Computation of earnings per share

Year 2015-16 Year 2016-17
EPS for the year 2015-16 as originally reported: Rs. 2.20
(Rs. 11,00,000/5,00,000 shares)
EPS for the year 2015-16 restated for rights issue: [Rs. 11,00,000/ Rs. 2.10
(5,00,000 shares x 1.05)]
EPS for the year 2016-17 including effects of rights issue
Rs. 15,00,000 Rs. 2.55
1.05 10
(5,00,000 × 12 ) + ( 6,00,000 × 12)

18.21
 SERIES 400
Questions on DEPS

Q.AS20.SM.401:
Net profit for the current year Rs. 1,00,00,000
No. of Equity shares outstanding 50,00,000 No.
No. of 12% convertible debentures of Rs. 100 each 1,00,000 No.
(Each debenture is convertible into 10 equity shares)
Interest on debenture for the current year Rs. 12,00,000
Tax Saving relating to interest expense (30%) Rs. 3,60,000
Compute Diluted Earnings Per Share
SOLUTION:
Adjusted net profit for the current year (1,00,00,000 + 12,00,000 – 3,60,000) = Rs. 1,08,40,000
No. of equity shares resulting from conversion of debentures: 10,00,000 Shares
No. of equity shares used to compute diluted EPS: (50,00,000 + 10,00,000) = 60,00,000 Shares
Diluted earnings per share: (1,08,40,000/60,00,000) = Rs. 1.81

Q.AS20.SM.402:
Net Profit for the year 2020 Rs. 12,00,000
Weighted Avg. number of equity shares outstanding during the year 5,00,000 shares
2020
Avg. Fair Value of one equity share during the year 2020 Rs. 20.00
Weighted Avg. number of equity shares under option during the year 1,00,000 shares
2020
Exercise price for shares under option during the year 2020 Rs. 15
Compute Basic and Diluted Earnings Per Share.
SOLUTION
Particulars Earnings Shares EPS
Net Profit for the Year 2020 12,00,000 -
Weighted avg. no. of shares 2020 - 5,00,000
Basic EPS 2.40/-
No. of Shares under options - 1,00,000
Number of Shares that would have been issued - (75,000)
at Fair Value (100000 x 15) / 20
Diluted EPS 12,00,000 5,25,000 2.29/-
Note: The earnings have not been increased as the total number of shares has been increased only by
the number of shares (25,000) deemed for the purpose of the computation to have been issued for no
consideration.

Q.AS20.SM.403:
No. of equity shares outstanding = 30,00,000 Basic earnings per share ₹ 5.00
No. of 12% convertible debentures of ₹ 100 each; 50,000 Each debenture is convertible into 10 equity
shares
Tax Rate 30%
Compute Diluted Earnings per Share.
Working notes should form part of the answer.

18.22
SOLUTION
Earnings for the year:
= No. of Shares x Basic EPS
= 30,00,000 shares x ₹ 5 per share = ₹ 1,50,00,000
Computation of Adjusted Net Profit:
= Earnings for the year + Interest on debentures net of tax
= 1,50,00,000 + (6,00,000 - 1,80,000) = ₹ 1,54,20,000
Computation of Adjusted Denominator:
No. of equity shares resulting from conversion of debentures:
= 50,000 x 10 shares = 5,00,000 shares
No. of equity shares for diluted EPS = 30,00,000 + 5,00,000
= 35,00,000 shares
Computation of Diluted EPS:
= ₹ 1,54,20,000/35,00,000 shares = ₹ 4.4 per share.

Q.AS20.RMP.404: (Exam Nov.18)

From the following information given by Sampark Ltd., Calculate Basic EPS and Diluted EPS
as per AS 20:
Net profit for the current year Rs. 2,50,00,000
No. of Equity shares outstanding 50,00,000
No. of 12% convertible debentures of Rs. 100 each 50,000
(Each debenture is convertible into 8 equity
shares)
Interest on debenture for the current year Rs. 6,00,000
Tax Saving relating to interest expense (30%) 1,80,000

SOLUTION:
Calculation of Basic Earnings per Share
Basic EPS = Net profit for the current year
No. of Equity Shares
2,50,00,00
= 50,00,000
Basic EPS per share = Rs.5
Calculation of Diluted Earnings per Share
Diluted EPS = Adjusted net profit for the current year
Weighted average no. Equity Shares
Adjusted net profit for the current year Rs
Net profit for the current year 2,50,00,000
Add: Interest expenses for the current year 6,00,000
Less: Tax saving relating to Tax Expenses (1,80,000)
2,54,20,000
No. of equity shares resulting from conversion of debentures: 4,00,000 Shares

Weighted average no. of equity shares used to compute diluted EPS-

(50,00,000 +4,00,000) = 54,00,000 Equity Shares
Diluted earnings per share: (2,54,20,000/54,00,000) = Rs 4.71 (Approx.)

18.23
 SERIES 500
Misc. Category Questions

Q.AS20.SM.501: (MTP May 22)

(a) Stock options have been granted by AB Limited to its employees and they vest equally over 5 years,
i.e., 20 per cent at the end of each year from the date of grant. The options will vest only if the
employee is still employed with the company at the end of the year. If the employee leaves the
company during the vesting period, the options that have vested can be exercised, while the others
would lapse. Currently, AB Limited includes only the vested options for calculating Diluted EPS.
Should only completely vested options be included for computation of Diluted EPS? Is this in
accordance with the provisions of AS 20? Explain.
(b) X Limited, as at March 31, 2021, has income from continuing ordinary operations of Rs. 2,40,000, a
loss from discontinuing operations of Rs. 3,60,000 and accordingly a net loss of Rs. 1,20,000. The
Company has 1,000 equity shares and 200 potential equity shares outstanding as at March 31, 2021.
You are required to compute Basic and Diluted EPS?
SOLUTION:
(a) The current method of calculating Diluted EPS adopted by AB limited is not in accordance with AS
20. The calculation of Diluted EPS should include all potential equity shares, i.e., all the stock
options granted at the balance sheet date, which are dilutive in nature, irrespective of the vesting
pattern. The options that have lapsed during the year should be included for the portion of the
period the same were outstanding, pursuant to the requirement of the standard.
AS 20 states that “A potential equity share is a financial instrument or other contract that entitles,
or may entitle, its holder to equity shares”. Options including employee stock option plans under
which employees of an enterprise are entitled to receive equity shares as part of their remuneration
and other similar plans are examples of potential equity shares. Further, for the purpose of
calculating diluted earnings per share, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares outstanding during the period should be
adjusted for the effects of all dilutive potential equity shares.
(b) As per AS 20 “Potential equity shares should be treated as dilutive when, and only when, their
conversion to equity shares would decrease net profit per share from continuing ordinary
operations”. As income from continuing ordinary operations, Rs. 2,40,000 would be considered and
not Rs. (1,20,000), for ascertaining whether 200 potential equity shares are dilutive or anti-dilutive.
Accordingly, 200 potential equity shares would be dilutive potential equity shares since their
inclusion would decrease the net profit per share from continuing ordinary operations from Rs. 240
to Rs. 200. Thus the basic E.P.S would be Rs. (120) and diluted E.P.S. would be Rs. (100).

18.24
 SECTION C – MCQ’s
(MCQ’s from ICAI Material)

1. AB Company Ltd. had 1,00,000 shares of common stock outstanding on January. Additional 50,000
shares were issued on July 1, and 25,000 shares were re- acquired on September 1. The weighted
average number of shares outstanding during the year on Dec. 31 is
(a) 1,40,000 shares
(b) 1,25,000 shares
(c) 1,16,667 shares
(d) 1,20,000 shares

2. As per AS 20, potential equity shares should be treated as dilutive when, and only when, their
conversion to equity shares would
(a) Decrease net profit per share from continuing ordinary operations.
(b) Increase net profit per share from continuing ordinary operations.
(c) Make no change in net profit per share from continuing ordinary operations.
(d) Decrease net loss per share from continuing ordinary operations.

3. As per AS 20, equity shares which are issuable upon the satisfaction of certain conditions resulting
from contractual arrangements are
(a) Dilutive potential equity shares
(b) Contingently issuable shares
(c) Contractual issued shares
(d) Potential equity shares

4. In case potential equity shares have been cancelled during the year, they should be:
(a) Ignored for computation of Diluted EPS.
(b) Considered from the beginning of the year till the date they are cancelled.
(c) The company needs to make an accounting policy and can follow the treatment in
(a) or (b) as it decides.
(d) Considered for computation of diluted EPS only if the impact of such potential
equity shares would be material.

5. Partly paid up equity shares are:

(a) Always considered as a part of Basic EPS.
(b) Always considered as a part of Diluted EPS.
(c) Depending upon the entitlement of dividend to the shareholder, it will be considered as a
part of Basic or Diluted EPS as the case may be.
(d) Considered as part of Basic/ Diluted EPS depending on the accounting policy of the
company.
ANSWERS 1 2 3 4 5
c a b b c

18.25
Student Notes:-

18.26