This document outlines Accounting Standard 20 on Earnings Per Share (EPS). It discusses the objective of EPS, which is to provide information on earnings available to each shareholder and improve comparability between companies and reporting periods. It applies to companies with equity shares listed on a stock exchange. EPS is calculated as basic EPS and diluted EPS. Basic EPS is calculated by dividing net profit by the weighted average number of outstanding shares. Various adjustments are discussed, such as rights issues. Diluted EPS incorporates potential dilutive shares.

1. Accounting Standard – 20
Earning Per Share
PREPARED BY: CA. JIMMIT D MEHTA
MODERATOR: SHINING STARS: A GROUP OF PROFESSIONALS

2. OBJECTIVE
• 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.

3. APPLICABILITY
• 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.

4. TYPES OF EPS
• Basic EPS
• Diluted EPS

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

6. CALCULATION OF NET PROFIT / LOSS
FOR THE PERIOD ATTRIBUTABLE TO
EQUITY SHAREHOLDER
• 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

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

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

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

10. RIGHT ISSUE
• 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

11. RIGHT FACTOR
Fair Value per share immediately prior
to right issue
=
Theoretical ex – right fair value per
share

12. THEORETICAL EX-RIGHT FAIR VALUE PER
SHARE
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

13. ILLUSTRATION
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

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

15. RIGHT FACTOR
21.00
=
= 1.05
20.00
BASIC EPS
Rs. 1500000
=
= Rs. 2.55
(500000 X 1.05 X 2/12)
+
(600000 X 10/12)

16. DILUTED EPS
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

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