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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 Accounting Standard was issued in the year 2001.

 This AS is applicable to all entity. Partial exemption is available to SMC and Level II and Level III
entities.

 Meaning of Earning Per Share

Earnings per share means spread of earnings, per share, for investment in a company on annual
basis.

 Types of EPS
a) Basic EPS b) Diluted EPS

 Basic Earnings Per Share

Basic Earnings Per Share (BEPS) = EATESH / WANOS

EATESH – Earnings attributable to equity shareholders

WANOS – Weighted Avg. number of shares outstanding during the year, where weights are of time
period.

 Calculation of EATESH

PAT ( After extra ordinary item and prior XXX

period item)
Less : Pref Dividend ( Note ) XXX
Less : CDT on above dividend XXX
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.

 Do not deduct any transfer to reserves.

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E.g. K ltd, as per the terms of an agreement entered with debenture-holders, is required to appropriate
adequate portion of it’s profit to a specific reserve over the period of maturity of debentures such that
at redemption the reserves constitutes at least half of the value of such debentures. As such, the
appropriations are not available to equity shareholders. K ltd. has excluded this from the numerator in
computing Basic EPS. Is such treatment correct?

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

1/4/05 Opening equity shares 10000

1/10/05 Fresh issue 2000 shares of Rs. 10

Calculate BEPS.

Soln - BEPS = EATESH / WANOS

EATESH = 1000000

Calculation of WANOS

1/4/05 Opening Equity shares 10000 BEPS = 1000000/11000 = 90.91

1/10/05 Public issue (2000 x 6/12 ) 1000

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 )

E.g. Calculate BEPS ( 10 – 11 )

EATESH ( 10 -11 ) 1000000

Equity shares as on 1/4/10 16500 of Rs. 10, 7 paid up
Public issue 1/7/2010 10000 shares of Rs. 10, 6 paid up
Received Call on 1/10/10 16400 shares Rs. 3 per share
Received Call on 1/11/10 10000 shares of Rs. 4 per share

Solution

EATESH = 1000000

Opening Shares as on 1/4/2010 (16500 x 7 ) 115500

Public Issue 1/7/2010 ( 10000x6x9/12 ) 45000
Call received 1/10/10 ( 16400x3x6/12 ) 24600
Call received 1/11/10 ( 10000x4x5/12 ) 16667
201767
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BEPS Per Re = 1000000 / 201767 = 4.96

BEPS (Rs 10) = 49.6

 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

E.g. Calculate BEPS for 05-06

Earning attributable to ESH for 04/05 1000000

Earning attributable to ESH for 05/06 1200000
Equity shares as on 1/4/04 10000 shares FV Rs. 10

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

1/4/04 Opening Shares 10000

1/1/05 Public Issue ( 5000 x 3 /12 ) 1250
11250

BEPS = 1000000/11250 = Rs. 88.89

For 05-06

EATESH = 1200000

WANOS

1/4/05 Opening Shares O/s ( 10000 + 5000 ) 15000

1/7/05 Public Issue ( 3000 x 9/12 ) 2250
1/12/05 Bonus 18000
35250
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BEPS = 1200000 / 35250 = Rs. 34.04

Re-stated BEPS (04-05 )

1000000 / (10000 + 1250 + 18000) = 1000000/29250 = Rs. 34.19

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

For Bonus part – Date of issue is not relevant

For Paid part – Date of issue is relevant

Steps in Right Issue

 Calculate Fair value ( Ex ) right

 Fair Value Ex right

(No. of shares before right x MP before right + No. of right shares x Right price) /No of shares after right

 Calculate Paid part and Bonus part

Paid part = (Right share x right price) / Fair value ex right

Bonus Part = Right shares – Paid part

Note

Due to Bonus element in Right shares, BEPS and DEPS comparative information of earlier years will also
be restated.
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E.g. Calculate BEPS (Accounting year 1/1/02 – 31/12/02 )

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

Opening o/s shares 1000000 EPS = 3000000 / 1197917 = Rs. 2.50

Right Issue

Paid Part ( N1 ) 156250

Bonus 41667

1197917

Re-stated BEPS ( 02 ) 2000000 / ( 1000000 + 41667 ) = 2000000/1041667 = Rs.1.92

N1 Right Issue Paid part

(1000000 x 25 + 250000 x 20 ) / 24 = 24 ( Fair value ex-right )

Paid Part = (250000 x 20 ) / 24 = 208333

Bonus part = 250000 – 208333 = 41667

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 Amalgamation in nature of purchase

We know that Amalgamation is in nature of purchase then the share issued on PC should be
taken in WANOS on time proportionate basis.

E.g. EATESH ( 04 – 05 ) 1000000

EATESH ( 05 – 06 ) 1200000

Equity share as on 1/4/04 10000 FV of Rs. 10

On 1/10/05 10000 equity shares were issued as PC in nature of Purchase.

Solution

04 - 05

EATESH = 1000000
BEPS = 1000000/10000 = Rs. 100
WANOS

Opening shares 10000

05- 06

EATESH = 1200000

WANOS BEPS = 1200000/15000 = Rs. 80

Opening shares 10000

1/10/05 PC 5000 15000

(10000 x 6 /12)

 Amalgamation in nature of Merger

In this case the shares issued as PC are taken on full year basis.
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E.g. Altd ( New Entity )

EATESH upto the date of merger 500000

After merger 700000

Equity as on 1/4/04 10000 sh of Rs. 10 each

On 1/10/05, issued 5000 shares as PC

Bltd ( Merged entity )

EATESH 100000

Calculate BEPS for 31/3/05

Solution

EATESH ( 500000 + 700000 + 100000 ) 1300000

WANOS

1/4/04 Opening shares 10000 BEPS = 1300000/15000 =86.67

1/10/05 PC 5000 15000

E.g. Calculate BEPS assuming Amalgamation in nature of i) Purchase ii ) Merger

EATESH ( 10- 11) Altd. 600000

EATESH ( 1/4/10 to 31/10/10 ) Bltd 200000

Altd. took over Bltd. on 31/10/10

A ltd.

Opening Balance shares 100000

PC paid ( shares ) 20000

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Solution

Amalgamation in nature of Purchase

BEPS = 600000 / (100000 + 20000 X 5/12 ) = Rs.5.54

Amalgamation in nature of merger

BEPS = (600000 + 200000 ) / (100000 + 20000 ) = 800000/120000 = Rs.6.67

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.

 Diluted Earnings per share ( DEPS )

DEPS means basic EPS after considering effects of dilutive potential equity shares. This nullify
the advantage included in BEPS from potential Equity share.

 Potential Equity share ( PES )

Any instrument or contract which qualify the following conditions are called PES

I. Resource have been received in cash or kind

II. Such resource has been utilized in business
III. Equity shares are issued for settlement of such contract or instrument

E.g. Share warrant, Convertible Pref. shares, Convertible Debentures, Share application ( Utilized in
business), ESOP, partly paid Equity share not entitled to dividend.

 Whenever Diluted PES to be identified, apply the following steps :

I. Calculate Incremental EPS

IEPS = Effect of Earnings if PES are treated as Equity shares
Effect on shares if PES treated as Equity share

IEPS = Incremental EPS

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II. Test for Dilution

PES are treated as Dilutive only and only if Net profit per share decreases from
continuing ordinary operations.
For this purpose PES should be treated in ascending order of IEPS ( Ranking )

DEPS = BEPS + Effects on Diluted PES

If restated DEPS is to be calculated then

a) IEPS should be recalculated

b) Test for dilution will be repeated and restated DEPS will be calculated.

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 Balance Equity share 50000

1/7/2010 Public Issue 10000

1/4/2010 7 % Pref shares Rs. 500000 ( share to be converted 3000 ), DDT 10 %, conversion date
1/1/2012

1/7/2010 12 % Debentures Rs. 600000 to be converted into shares 40000 on 1/2/2012

1/8/2011 10000 share warrant to be converted in 2018

1/5/2011 Share application money Recd and invested in business Rs. 600000 (Allotment made
1/10/11)

1/7/2011 Bonus Issue 5000 shares

Calculate BEPS and DEPS for - 10/11, 11/12

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Calculation of BEPS

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

Re-stated BEPS (10- 11 )

458111/ ( 57500 + 5000 ) = Rs.7.33

Calculation of DEPS

Identification of PES

7 % Pref. shares
12 % Convertible debentures
issued on 1/7/2010
Share Warrant
Share Application recd on 1/5/11
allotment made on 1/10/11
10-11 11-12
3000 2250 (3000 x 9/12 )
30000 ( 40000 x 9 / 12 ) 33333 ( 40000 x 10/ 12 )
- 6667 ( 10000 x 8/12 )
- 25000 ( 60000 x 5/12 )
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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

Test For Dilution, for 10-11 ( Para 39 )

Numerator Denominator Ratio

BEPS 458111 57500
Less : Extra ordinary Inc. (28000) -
Add : Loss for Disc Opr. 21000 -
451111 5750 7.85
Add : Share Warrant - -
and application
Add : Convertible 37800 30000
Debentures (D)
488911 87500 5.59
Add : Convertible Pref 38889 3000
Share (A)
527800 90500 5.83

DEPS (458111+37800) / 87500 = Rs. 5.57

Re-stated DEPS

Test for Dilution

Numerator Denominator Ratio

BEPS 458111 57500
Less : Extra ordinary Inc. (28000) -
Add : Loss for Disc Opr. 21000 -
Add : Bonus - 5000
451111 62500 7.22
Add : Convertible 37800 30000
Debentures (D)
488911 92500 5.29
Add : Pref. Shares (A) 38889 3000
527800 95500 5.53
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Restated DEPS = (458111 + 37800 ) / 92500 = Rs.5.36

DEPS For 11-12

Numerator Denominator Ratio

BEPS 607833 102417
Less : Extra ordinary Inc. (14000) -
Add : Loss for Disc Opr. 7000 -
600833 102417 5.87
Add : Share Warrant - 31667 ( 25000+6667)
and application
600833 134084 4.48
Add : Convertible 42000 33333
Debentures (D)
642833 167417 3.84
Add : Convertible Pref 29167 2250
Share (A)
672000 169667 3.96

DEPS = (607833 + 42000 ) / 167417 = Rs. 3.88

 An enterprise should present Basic and Diluted EPS on the face of settlement of P/L for each
class of Equity Shares.

E.g. Calculate BEPS

EATESH = 600000

ESC I 30000 shares FV 10

ESC 2 50000 shares FV 8

ESC 1 is entitled to 3 % extra dividend in comparison to ESC 2.

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Solution

EATESH 600000

Less: Special dividend (9000) 591000

WANOS

ESC 1 30000 x 10 x 12/12 300000

ESC 2 50000 x 8 x 12/12 400000 700000

BEPS (Per Re ) 591000/700000 Rs 0.84

BEPS For,

ESC 1 0.84 x 10 + 9000 /30000 Rs. 8.70

ESC 2 0.84 x 8 Rs. 6.72

 Disclosure Requirements

a) BEPS and DEPS shall be calculated even if it is negative.

b) Reconciliation Statement
Earnings Weighted Avg
Basic Xxx Xxx
Debenture Int Xxx -
Debentutres - Xxx
Pref Dividednd Xxx -
Pref Shares - Xxx
DEPS XXX XXX
 Partial Exemption
a) DEPS is not required for SMC/ Level II and Level III entity.
b) Reconciliation statement is also not required.

E.g. Calculate WANOS

B ltd. makes a public issue 31/3/2010 of 100000 shares of Rs. 10 each. They were subscribed as
followes:

1/7/02 Rs. 5 on Application and Allotment

30/9/02 Rs. 2 on Ist call

1/1/03 Rs. 3 on final Call

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

Date No. of shares No. of equivalent sully Period for which

outstanding paid share outstanding
01/04/2002 500000 3 months
01/07/02 500000 500000 + 50000 = 3 months
100000 (x 50% ) 550000
30/9/02 500000 500000 + 70000 = 3 months
100000 ( x 70 % ) 570000
01/01/03 500000 500000 + 100000 = 3 months
100000 600000

WANOS

= 500000 x 3/12 + 550000 x 3/12 + 570000 x 3/12 + 600000 x 3/12

= 2220000 x 3/12 = 555000

Solution B

In this case weighted average shares = 500000 x 12 / 12 + 600000 x 9/12 = 950000

Buy Back not yet been completed

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. o/s shares as on 31/3/02 = 20 lac

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.

Avg MP during 31/3/02 = Rs. 20

Application has been received for 250000 shares.

Buy back not done as at 31/3/02.

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.

Total amount required for Buy Back 25000 x 25 = 6250000

No of shares that would have been bought back

had the shares been bought back at 20 6250000/20 = 312500

Shares actually bought back 250000

Shares treated as issue for no consideration 62500

62500 should be added to the denominator for calculation of DEPS.

Some author’s view on the above

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.

That’s It… Class Over

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