AS-20

EARNINGS PER SHARE (EPS)

(Revised in 2004)

Objective:

The objective of this standard is to prescribe principles for the determination and presentation of earnings per share.

Performance can be compared among different enterprises for the same period & among different accounting periods for the same enterprise. The focus is on the denominator of the earnings per share calculation. Even though earnings per share data has limitations because of different accounting policies used for determining ‘earnings’, a consistently determined denominator enhances the quality of financial reporting.

Scope:

It deals with Basic EPS and Diluted EPS. A company should present EPS & diluted EPS on the face of the p & L account for each class of shares.

Definitions:

Equity share: It is a share other than a preference share.

Preference share: It is a share carrying preferential rights to dividends and repayment of capital.

Financial instrument: It is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity shares of another enterprise.

Potential equity share: It is a financial instrument or other contract that entitles, or may entitle, its holder to equity shares.

Formula:

                 Net profit/loss for the period attributable to equity share holders

EPS =     -----------------------------------------------------------------------

                         Weighted average no. of equity shares

                       Adjusted net profit/loss for the period attributable to equity share holders

Diluted EPS =              -------------------------------------------------------------------

Weighted average no. of (Equity shares + Dilutive potential Equity shares)

Where,

Net profit attributable to equity share holders = Profit after tax

                                                                             Less: Preference dividend

                                                                             Including dividend on

                                                                             Cumulative preference

                                                                              Shares.

Note:

Basic and Diluted EPS to be shown in financial statements even for negative amounts.

In calculation of weighted average no. of shares

Which date is relevant in taking the no. of shares?

It is depends upon the purpose for which the shares have been issued. It is given below:                                                                                           

In case of partly paid up shares:

shares are treated as a fraction of an equity share to the extent that they were

entitled to participate in dividends relative to a fully paid equity shares. 

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.               

Bonus issue, Share spilt, consolidation:

In these cases, shares are issued to existing shareholders for no additional consideration. Therefore, the number of equity shares outstanding is increased without an increase in resources.

Rights issue:

Rights issue generally contain bonus element.

Equity shares prior to right * conversion factor + right issue shares

                                        Fair value per share immediately prior to the exercise of rights

conversion factor =    -----------------------------------------------------------------

                                                     Theoretical ex-rights fair value per share

Disclosure:

The following should be disclosed:                    

1. Basic & Diluted EPS

2. Amount used as numerator & reconciliation with PAT

3. Number used as denominator for Basic & Diluted EPS & reconciliation thereon

4. Nominal value of shares along with EPS figures