AS 20 Earnings Per Share

Earnings Per Share (EPS)

EPS is one of the criteria for measuring the performance of a company. If EPS increases, the possibility of a higher dividend paid by the company increases. However, it should be kept in mind that EPS of different companies may vary from company to company due to following of different practices followed by different companies regarding stock in trade, depreciation etc.

Earning per share is a financial ratio that gives the information regarding earning available to each equity share. It is very important financial ratio for assessing the state of market price of share. This accounting standard gives computational metholodology for the determination and presentation of EPS, which will improve the comparison of EPS. The statement is applicable to enterprise who’s equity share of potential equity shares are listed in stock exchange

1. This Standard should be applied by all companies.

2. In consolidated financial statements, the information required by this Statement should be presented on the basis of consolidated information.

1. Basic EPS

2. Diluted EPS

1. 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. An enterprise should present basic and diluted earnings per share with equal prominence for all periods presented.

2. 'This Standard requires an enterprise to present basic and diluted earnings per share, even if the amounts disclosed are negative (a loss per share).

1. Basic EPS:

Net profit/loss for the period= attributable to equity shareholders

Weighted average number of equity shares outstanding during the period.

2. Diluted EPS:

Net profit attributed to equity shareholders

= (after adjustment for diluted earning)

Average number of weighted equity shares outstanding during the period (assuming the conversion of diluted potential equity shares)

Q NDA ltd had outstanding equity shares of 5000000 on 01-01-2001. Net profit for year is Rs.1,00,00,000; NDA ltd had 12% 100000 convertible debentures outstanding of 100 each to be converted into 10 equity shares. Tax rate is 30%. Calculate,

i. Basic EPS

ii. Diluted EPS

Basic earnings per share (1,00,00,000/50,00,000) Rs. 2.00

Number of 12% convertible debentures of Rs. 100 each 1,00,000

Each debenture is convertible into 10 equity shares Interest expenses for the current

year Rs. 12,00,000 Tax relating to interest

expense (30%) Rs. 3,60,000

Adjusted net profit for the current year Rs.(10,000,000 + 12,00,000 – 3,60,000)

= Rs. 1,08,40,000 Number of equity shares resulting from

conversion of debentures 10,00,000 Number of equity shares used

to compute diluted EPS(50,00,000 + 10,00,000) = Rs.

60,00,000 Diluted EPS

(1,08,40,000/60,00,000) = Rs. 1.81

Disclosures of Numerator & Reconciliation

the amount used as numerator for calculating basic and diluted EPS and its reconciliation. With net profit or loss for the period

Disclosures of Denominator & Reconciliation

Weighted average number of shares used as denominators for calculating basic and diluted EPS and reconciliation of their denominator to each other.

Nominal value of shares with EPS. Basic earnings per share computed on the basis of

earnings including extraordinary items.(net of tax expense)

Diluted earning per share on the basis of earnings excluding extraordinary items (net of tax expense)