AS-20 Question

CH.
LEARN CONCEPTUALLY
Rs. FROM CA CS ANSHUL AGRAWAL
1
AS-20 EARNINGS PER SHARE

Q1. ICAI RTP May 18, May 20 REG. PAGE NO.
The following information relates to M/s. XYZ Limited for the year ended 31st March, 2017:
Net Profit for the year after tax: Rs. 75,00,000
Number of Equity Shares of Rs. 10 each outstanding: Rs. 10,00,000
Convertible Debentures Issued by the Company (at the beginning of the year)
Particulars Nos.
8% Convertible Debentures of Rs. 100 each 1,00,000
Equity Shares to be issued on conversion 1,10,000
The Rate of Income Tax: 30%.
You are required to calculate Basic and Diluted Earnings Per Share (EPS).
Ans.Computation of basic earnings per share
Net profit for the current year / Weighted average number of equity shares outstanding
during the year
Rs. 75,00,000 / 10,00,000 = Rs. 7.50 per share
Computation of diluted earnings per share Adjusted net profit for the current year
Weighted average number of equity shares
Adjusted net profit for the current year Rs.
Net profit for the current year 75,00,000
Add: Interest expense for the current year 8,00,000
Less: Tax relating to interest expense (30% of Rs. 8,00,000) (2,40,000)
Adjusted net profit for the current year 80,60,000
Number of equity shares resulting from conversion of debentures

= 1,10,000 Equity shares (given in the question)
Weighted average number of equity shares used to compute diluted earnings per share
= 11,10,000 shares (10,00,000 + 1,10,000)
Diluted earnings per share
= 80,60,000/ 11,10,000 = Rs. 7.26 per share
Note: Conversion of convertible debentures into Equity Share will be dilutive potential equity shares.
Hence, to compute the adjusted profit the interest paid on such debentures will be added back as the same
would not be payable in case these are converted into equity shares
Q2. ICAI RTP Nov 18 REG. PAGE NO.

The following information is available for TON Ltd. for the accounting year 2015-16 and 2016-17:
Net profit for Rs.
Year 2015-16 35,00,000
Year 2016-17 45,00,000
No of shares outstanding prior to right issue 15,00,000 shares.
Right issue : One new share for each 3 shares outstanding i.e. 5,00,000 shares.
: Right Issue price Rs. 25
: Last date to exercise rights 31st July, 2016
Fair value of one equity share immediately prior to exercise of rights on 31.07.20 16 is Rs. 35.
You are required to compute:
(i) Basic earnings per share for the year 2015-16.
(ii) Restated basic earnings per share for the year 2015-16 for right issue.
(iii) Basic earnings per share for the year 2016-17.
Ans.Computation of Basic Earnings per Share
Year Year
2015-16 2016-17
(Rs.) (Rs.)
1. 1
(i) EPS for the year 2015-16 as originally reported
Connect CA. Anshul on CA – INTERMEDIATE: ADV. ACC. BY CA. CS. ANSHUL AGRAWAL
CH.
LEARN CONCEPTUALLY FROM CA CS ANSHUL AGRAWAL
1
= Net profit for the year attributable to equity share
holder / weighted average number of equity shares
outstanding during the year 2.33
Rs. 35,00,000/ 15,00,000 shares
(ii) EPS for the year 2015-16 restated for the right issue
Rs. 35,00,000/15,00,0000 shares x 1.08 2.16
(iii) EPS for the year 2016-17 (including effect of right issue)
Rs. 45,00,000 / [(15,00,000x1.08 x 4/12) + 2.40
(20,00,000x8/12)]
Working Notes:
1. Computation of theoretical ex-rights fair value per share =
Fair value of all outstanding shares immediately prior to exercise of rights+total amount received from
exercise / Number of shares outstanding prior to exercise + number of shares issued in the exercise
[(Rs. 35 x15,00,000) + (Rs. 25 x 5,00,000)] / (15,00,000 + 5,00,000) = Rs. 32.5
2. Computation of adjustment factorFair value per share prior to exercise of rights / Theoretical ex-rights
value per share
= Rs. 35 /32.50 = 1.08 (approx.)
Q3. ICAI RTP May 19 REG. PAGE NO.

“While calculating diluted EPS, effect is given to all dilutive potential equity shares that were outstanding
during the period.” Explain this statement in the light of relevant AS.
Also calculate the diluted EPS from the following information:
Net Profit for the current year (After Tax) Rs. 1,00,00,000
No. of Equity shares outstanding Rs.10,00,000
No. of 10% Fully Convertible Debentures of Rs. 100 each Rs.1,00,000
(Each Debenture is compulsorily & fully convertible into 10 equity
shares issued at the mid of the year)
Debenture interest expense for the current year Rs. 5,00,000
Assume applicable Income Tax rate @ 30%.
Ans. As per AS 20 ‘Earnings per Share’, the net profit or loss for the period attributable to equity
shareholders and the weighted average number of shares outstanding during the period should be
adjusted for the effects of all dilutive potential equity shares for calculation of diluted earnings per share.
Hence, “in calculating diluted earnings per share, effect is given to all dilutive potential equity shares that
were outstanding during the period.
Computation of diluted earnings per share=Adjusted net profit for the current year
Net profit for the current year (after tax) 1,00,00,000
Less: Tax relating to interest expense (30% of Rs.5,00,000) (1,50,000)
Adjusted net profit for the current year 1,03,50,000
1,00,000 x100
10
= 10,00,000 Equity shares
= [(10,00,000 x 12) + (10,00,000 x 6)]/12 = 15,00,000 equity shares
Diluted earnings per share = Rs. 1,03,50,000 / 15,00,000 shares = Rs. 6.90 per share

The following information relates to M/s. XYZ Limited for the year ended 31st March, 2019:
Net Profit for the year after tax: Rs. 37,50,000
Number of Equity Shares of Rs. 10 each outstanding: Rs. 5,00,000
1. 2
Convertible Debentures Issued by the Company (at the beginning of the year)
Particulars Nos.
CA – INTERMEDIATE: ADV. ACC. BY CA. CS. ANSHUL AGRAWAL Connect CA. Anshul on
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LEARN CONCEPTUALLY
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8% Convertible Debentures of Rs. 100 each 50,000
Equity Shares to be issued on conversion 55,000
The Rate of Income Tax: 30%.
You are required to calculate Basic and Diluted Earnings Per Share (EPS).
Ans. Computation of basic earnings per share
Net profit for the current year / Weighted average number of equity shares outstanding
during the year
Rs. 37,50,000 / 5,00,000 = Rs. 7.50 per share
Computation of diluted earnings per share Adjusted net profit for the current year/ Weighted average
number of equity shares
Net profit for the current year 37,50,000
Less: Tax relating to interest expense (30% of Rs. 4,00,000) (1,20,000)
Adjusted net profit for the current year 40,30,000

= 55,000 Equity shares (given in the question)
= 5,55,000 shares (5,00,000 + 55,000)
Diluted earnings per share
= 40,30,000/ 5,55,000 = Rs. 7.26 per share
Note: Conversion of convertible debentures into Equity Share will be dilutive potential equity shares. Hence,
to compute the adjusted profit the interest paid on such debentures will be added back as the same
would not be payable in case these are converted into equity shares.

A-One Limited supplied the following information. You are required to compute the earnings per share as
per AS 20:
Net profit attributable to equity shareholders Year 2017-18: Rs. 1,00,00,000
Year 2018-19 : Rs. 1,50,00,000
Number of shares outstanding prior to Right Issue 50,00,000 shares
Right Issue: One new share for each four outstanding shares i.e., 12,50,000 shares
Right Issue Price - Rs. 96
Last date of exercising rights - 30-06-2018
Fair value of one equity share immediately prior to exercise of rights on 30-06-2018 was Rs. 101.
Ans.
Year Year
2017-18 2018-19
(Rs.) (Rs.)
(i) EPS for the year 2017-18 as originally reported:
(Rs. 1,00,00,000 / 50,00,000 shares) 2.00
(ii) EPS for the year 2017-18 restated for rights issue:
Rs.1,00,00,000 / (50,00,000 shares x 1.01)* 1.98
(iii) EPS for the year 2018-19 including effects of rights issue
Rs. 1,50,00,000/ (50,00,000 x 1.01 x 3/12)+ (62,50,000 x 2.52
9/12)
*Computation of earnings per share in case of Rights Issue requires computation of adjustment
factor which is given as working note.
Working Notes:
1. Computation of theoretical ex-rights fair value per shareFair value of all outstanding shares immediately
1. 3
prior to exercise of rights+total amount received from exercise/ Number of shares outstanding prior to
exercise + Number of shares issued in the exercise
( 101 x 50,00,000 shares) + ( 96 x 12,50,000 shares)/ 50,00,000 shares + 12,50,000 shares
CH.
1
= Rs. 62,50,00,000 / 62,50,000 = Rs.100
Therefore, theoretical ex-rights fair value per share is = Rs. 100
2. Computation of adjustment factor
Fair value per share prior to exercise of rights/ Theoretical ex-rights value per share
=(101) /(100)=1.01

In the following list of shares issued, for the purpose of calculation of weighted average number of shares,
from which date, weight is to be considered:
(i) Equity Shares issued in exchange of cash,
(ii) Equity Shares issued as a result of conversion of a debt instrument,
(iii) Equity Shares issued in exchange for the settlement of a liability of the enterprise,
(iv) Equity Shares issued for rendering of services to the enterprise,
(v) Equity Shares issued in lieu of interest and/or principal of an other financial instrument,
(vi) Equity Shares issued as consideration for the acquisition of an asset other than in cash.
Ans. The following dates should be considered for consideration of weights for the purpose of calculation
of weighted average number of shares in the given situations:
(i) Date of Cash receivable
(ii) Date of conversion
(iii) Date on which settlement becomes effective
(iv) When the services are rendered
(v) Date when interest ceases to accrue
(vi) Date on which the acquisition is recognised.

AB Limited is a company engaged in manufacturing industrial packaging equipment. As per the terms of
an agreement entered with its debenture holders, the company is required to appropriate adequate
portion of its profits to a specific reserve over the period of maturity of the debentures such that, at the
redemption date, the reserve constitutes at least half the value of such debentures. As such appropriations
are not available for distribution to the equity shareholders, AB Limited has excluded this from the
numerator in the computation of Basic EPS. Is this treatment correct as per provisions of AS 20?
Ans. The appropriation made to such a mandatory reserve created for the redemption of debentures would
be included in the net profit attributable to equity shareholders for the computation of Basic EPS. AS 20
states that “For the purpose of calculating basic earnings per share, the net profit or loss for the period
attributable to equity shareholders should be the net profit or loss for the period after deducting
preference dividends and any attributable tax thereto for the period”. With an emphasis on the
phrase attributable to equity shareholders, it may be construed that such amounts appropriated to
mandatory reserves, though not available for distribution as dividend, are still attributable to equity
shareholders. Accordingly, these amounts should be included in the computation of Basic EPS. In view of
this, the treatment made by the company is not correct.

(a) Stock options have been granted by AB Limited to its employees and they vest equally over 5 years, i.e.,
20 per cent at the end of each year from the date of grant. The options will vest only if the employee is still
employed with the company at the end of the year. If the employee leaves the company during the vesting
period, the options that have vested can be exercised, while the others would lapse. Currently, AB
Limited includes only the vested options for calculating Diluted EPS. Should only completely vested options
be included for computation of Diluted EPS? Is this in accordance with the provisions of AS 20? Explain.
(b) X Limited, as at March 31, 2021, has income from continuing ordinary operations of Rs. 2,40,000, a loss
from discontinuing operations of Rs. 3,60,000 and accordingly a net loss of Rs. 1,20,000. The Company has
1,000 equity shares and 200 potential equity shares outstanding as at March 31, 2021. You are required
to compute Basic and Diluted EPS?
Ans.(a) The current method of calculating Diluted EPS adopted by AB limited is not in accordance with AS
20. The calculation of Diluted EPS should include all potential equity shares, i.e., all the stock options
1. 4
granted at the balance sheet date, which are dilutive in nature, irrespective of the vesting pattern. The
options that have lapsed during the year should be included for the portion of the period the same were
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outstanding, pursuant to the requirement of the standard. AS 20 states that “A potential equity share is a
financial instrument or other contract that entitles, or may entitle, its holder to equity shares”. Options
including employee stock option plans under which employees of an enterprise are entitled to receive
equity shares as part of their remuneration and other similar plans are examples of potential equity shares.
Further, for the purpose of calculating diluted earnings per share, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding during the
period should be adjusted for the effects of all dilutive potential equity shares.
(b) As per AS 20 “Potential equity shares should be treated as dilutive when, and only when, their
conversion to equity shares would decrease net profit per share from continuing ordinary operations”. As
income from continuing ordinary operations, Rs. 2,40,000 would be considered and not Rs. (1,20,000), for
ascertaining whether 200 potential equity shares are dilutive or anti-dilutive. Accordingly, 200 potential
equity shares would be dilutive potential equity shares since their inclusion would decrease the net profit
per share from continuing ordinary operations from Rs. 240 to Rs. 200. Thus the basic E.P.S would be Rs.
(120) and diluted E.P.S. would be Rs. (100)
Q9. ICAI New May 18 REG. PAGE NO.

As at 1st April, 2016 a company had 6,00,000 equity shares of Rs. 10 each ( Rs. 5 paid up by all
shareholders). On 1st September, 2016 the remaining Rs. 5 was called up and paid by all shareholders
except one shareholder having 60,000 equity shares. The net profit for the year ended 31st March, 2017
was Rs. 21,96,000 after considering dividend on preference shares and dividend distribution tax on such
dividend totalling to Rs. 3,40,000.
Compute Basic EPS for the year ended 31st March, 2017 as per Accounting Standard 20 "Earnings Per
Share".
Ans. Basic Earnings per share (EPS) =Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding during the year
21,96,000
4,57,500 Shares (as per working note)
= Rs. 4.80 per share
Working Note:
Calculation of weighted average number of equity shares
As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated as a fraction of equity share to the
extent that they were entitled to participate in dividend relative to a fully paid equity share during the
reporting period. Assuming that the partly paid shares are entitled to participate in the dividend to the
extent of amount paid, weighted average number of shares will be calculated as follows:
Date No. of Equity Amount paid per Weighted Average no. of Equity Shares
Shares (Rs.) share (Rs.)
1.4.2016 6,00,000 5 6,00,000 х 5/10 х 5/12 = 1,25,000
1.9.2016 5,40,000 10 5,40,000 х 7/12 = 3,15,000
1.9.2016 60,000 5 60,000 х 5/10 х 7/12 = 17,500
Total weighted average equity shares 4,57,500
Q10. ICAI New May 19 REG. PAGE NO.

From the following information given by Sampark Ltd., Calculate Basis EPS and Diluted EPS as per AS 20 :
Rs.
Net Profit for the current year 2,50,00,000
No. of Equity Shares Outstanding 50,00,000
No. of 12% convertible debentures of Rs.100 each 50,000
Each debenture is convertible into 8 Equity Shares
Interest expense for the current year 6,00,000
Tax saving relating to interest expense (30%) 1,80,000
Ans. (a) Calculation of Basic Earning Per Share
Basic EPS = Net Profit for the Current Year
No. of Equity Shares
1. 5
2,50,00,000
50,00,000
CH.
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Basic EPS per share = Rs.5
Calculation of Diluted Earning Per Share
Diluted EPS = Adjusted Net Profit for the Current Year
Weighted Average no. of Equity Shares
Adjusted net profit for the current year .

Net profit for the current year 2,50,00,000
Add: Interest expenses for the current year 6,00,000
Less: Tax saving relating to Tax Expenses (1,80,000)
2,54,20,000
No. of equity shares resulting from conversion of debentures: 4,00,000 Shares
Weighted average no. of equity shares used to compute diluted EPS: (50,00,000 + 4,00,000)
= 54,00,000 Equity Shares
Diluted earnings per share: (2,54,20,000/54,00,000) = Rs. 4.71 (Approx.)
Q11. ICAI New Nov 19 REG. PAGE NO.

Following information is supplied by K Ltd.:
Number of shares outstanding prior to right issue - 2,50,000 shares.
Right issue - two new share for each 5 outstanding shares (i.e. 1,00,000 new shares)
Right issue price - Rs. 98
Last date of exercising rights - 30-06-2018.
Fair value of one equity share immediately prior to exercise of right on 30-06-2018 isRs. 102.
Net Profit to equity shareholders:
2017-2018 - Rs. 50,00,000
2018-2019 - Rs. 75,00,000
You are required to calculate the basic earnings per share as per AS-20 Earnings per Share.
Ans. Fair value of shares immediately prior to exercise of rights + Total amount received from exercise
Number of shares outstanding prior to exercise + Number of shares issued in the exercise
102 x 2,50,000 Shares + Rs.98 x 1,00,000 shares
3,50,000 shares
Theoretical ex-rights fair value per share = Rs. 100.86
Computation of adjustment factor:Fair value per share prior to exercise of rights
Theoretical ex - rights value per share
= 102/100.86 = 1.01
Computation of earnings per share:
EPS for the year 2017-18 as originally reported: Rs. 50,00,000/2,50,000 shares = Rs. 20
EPS for the year 2017-18 restated for rights issue: =Rs. 50,00,000/ (2,50,000 shares x 1.01) = Rs. 19.80
EPS for the year 2018-19 including effects of rights issue:
EPS = 75,00,000/3,25,625* = Rs. 23.03
* [(2,50,000 x 1.01 x 3/12) + (3,50,000 x 9/12)] =63,125 + 2,62,500 = 3,25,625 shares
Note: Financial year (ended 31st March) is considered as accounting year while giving the
above answer.
Q12. ICAI New Dec 21 REG. PAGE NO.

“At the time calculating diluted earnings per share, effect is given to all dilutive potential equity shares that
are outstanding during the period”. Comment and also calculate the basic and diluted earnings per share
for the year 2020-21 from the following information:
(i) Net profit after tax for the year Rs. 64,12,500
(ii) No. of equity shares outstanding 15,00,000
(iii) No. of 9% convertible debentures of Rs. 100 issued on 75,000
1st July,2020
(iv) Each debenture is convertible into 8 Equity Shares
(v) Tax relating to interest expenses 35%
Ans.In calculating diluted earnings per share, effect is given to all dilutive potential equity shares that were
1. 6
outstanding during the period.” As per AS 20 ‘Earnings per Share’, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding during the
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period should be adjusted for the effects of all dilutive potential equity shares for the purpose of calculation
of diluted earnings per share.
Basic EPS for the year 2020-21= 64,12,500/15,00,000 = Rs. 4.275 or Rs. 4.28
Computation of diluted earnings per share for year 2020-21
Adjusted net profit for the current year
Adjusted net profit for the current year will be (64,12,500 + 5,06,250 – 1,77,188) = Rs. 67,41,562
No. of equity shares resulting from conversion of debentures: 6,00,000 Shares (75,000 × 8)
Weighted average no. of equity shares used to compute diluted EPS:
(15,00,000 X12/12+ 6,00,000X9/12)
= 19,50,000 Shares
Diluted earnings per share: (67,41,562/19,50,000) = Rs. 3.46
Working Note:
Interest expense for 9 months = 75,00,000×9%×9/12 =Rs. 5,06,250
Tax expense 35 % on interest is Rs.1,77,188 (5,06,250 x 35%)
1. 7

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CH.

AS-20 EARNINGS PER SHARE

Number of equity shares resulting from conversion of debentures

Q2. ICAI RTP Nov 18 REG. PAGE NO.

(i) EPS for the year 2015-16 as originally reported

Q3. ICAI RTP May 19 REG. PAGE NO.

Q4. ICAI RTP Nov 19 REG. PAGE NO.

Number of equity shares resulting from conversion of debentures

Q5. ICAI RTP Nov 20 REG. PAGE NO.

Q6. ICAI RTP May 21 REG. PAGE NO.

Q7. ICAI RTP Nov 21 REG. PAGE NO.

Q8. ICAI RTP May 22 REG. PAGE NO.

Q9. ICAI New May 18 REG. PAGE NO.

Q10. ICAI New May 19 REG. PAGE NO.

Adjusted net profit for the current year .

Q11. ICAI New Nov 19 REG. PAGE NO.

Q12. ICAI New Dec 21 REG. PAGE NO.

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