Accounting Standard 20 - Earning Per Share

1. Accounting Standard – 20 Earning Per Share PREPARED BY: CA. JIMMIT D MEHTA MODERATOR: SHINING STARS: A GROUP OF PROFESSIONALS www.professional-updates.blogspot.com

2. Earning per share is a financial ratio that gives the information regarding earning available to each equity shareholder. To improve comparability as between two or more companies and as between two or more accounting periods. OBJECTIVE www.professional-updates.blogspot.com

3. This statement is applicable to the enterprise whose equity shares or potential equity shares are listed in stock exchange & It is to be reported by the enterprises on the face of the statement of profit and loss a/c. www.professional-updates.blogspot.com APPLICABILITY

4. Basic EPS Diluted EPS www.professional-updates.blogspot.com TYPES OF EPS

5. Net Profit/Loss for the Period attributable to Equity Shareholders = Weighted average number of equity shares outstanding during the period www.professional-updates.blogspot.com CALCULATION OF BASIC EPS

6. Calculate the net Profit/loss for the period including prior period terms and extraordinary item & deduct tax Liability (Current + Deferred) Deduct preference share dividend & any attributable tax on Pre. Dividend * Dividend on non cumulative preference share is deducted if dividend is provided * In cumulative pre. Share if dividend is not provided than also it will be deducted www.professional-updates.blogspot.com CALCULATION OF NET PROFIT / LOSS FOR THE PERIOD ATTRIBUTABLE TO EQUITY SHAREHOLDER

7. Note:- If an enterprise has more than one class of equity shares, net profit or loss for the period is apportioned over the different classes of shares in accordance with their dividend rights www.professional-updates.blogspot.com

8. Weight should be given in the no. of days / months outstanding during the year www.professional-updates.blogspot.com CALCULATION OF WEIGHTED AVERAGE NUMBER OF OUTSTANDING EQUITY SHARES

9. List of shares issued, which are to be adjusted Weight to be considered from Equity shares issued in exchange of cash date of cash receivable Against conversion of debt instrument date of conversion Interest or principal of any financial Instruments interest ceases to accrue For settlement of a liability settlement becomes effective Acquisition of assets Acquisition is recognized Services rendered when service is rendered Bonus Share from the beginning of the reporting Period Amalgamation – Merger From the beginning of the reporting period Amalgamation – Purchase From date of acquisition Right Share Adjusted with Right Factor www.professional-updates.blogspot.com

10. Right issue, An offer of common stock to existing shareholder, who hold subscription rights that entitle them to buy newly issued shares at discount from the price at which they will be offered to the public later. So right issue includes the Bonus element So in calculating basic EPS for all periods prior to right issue is the number of equity shares outstanding prior to the issue multiplied by right factor which is calculated as under www.professional-updates.blogspot.com RIGHT ISSUE

11. Fair Value per share immediately prior to right issue = Theoretical ex – right fair value per share www.professional-updates.blogspot.com RIGHT FACTOR

12. Aggregate fair value of share immediately prior to the exercise of the right + Proceeds from exercise of the right = Number of shares outstanding immediately after the right issue www.professional-updates.blogspot.com THEORETICAL EX-RIGHT FAIR VALUE PER SHARE

13. On 01-01-2001 XYZ Ltd. had 500000 shares outstanding on 01-03-2001, it issued done new share for each five shares outstanding at Rs. 15. Fair value of one equity immediately before the fight issue was Rs.21. Net Profit for the year was Rs.1500000/- Calculate the basic EPS www.professional-updates.blogspot.com ILLUSTRATION

14. Theoretical ex-right fair value per share (21.00 X 500000 Sh.) + (15 X 100000 Sh.) = = Rs. 20.00 (500000 + 100000) www.professional-updates.blogspot.com SOLUTION

15. 21.00 = = 1.05 20.00 www.professional-updates.blogspot.com RIGHT FACTOR Rs . 1500000 = = Rs . 2.55 (500000 X 1.05 X 2/12) + (600000 X 10/12) BASIC EPS

16. Net profit attributable to equity shareholders (after adjustment for diluted earnings) Average no. of weighted equity shares outstanding during the period (assuming the conversion of diluted potential equity shares) Note:- Potential equity shares are diluted if their conversion into equity shares reduces the earning per share if their conversion does not decrease the EPS, rather it increases the EPS, then the potential equity shares are not to be considered dilutive www.professional-updates.blogspot.com DILUTED EPS

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