This document discusses the calculation and presentation of earnings per share (EPS) according to Accounting Standard 20. It defines EPS as a financial ratio that shows earnings available to each equity shareholder. It discusses the applicability of EPS reporting and the types of EPS - basic and diluted. The key steps for calculating basic EPS are determining net profit attributable to equity shareholders and calculating the weighted average number of outstanding shares. Right shares must be adjusted for in the weighted average calculation. Diluted EPS factors in additional shares that could be issued from convertible instruments.

1. EARNING PER SHARE Presented By :- Praveen Kumar Nahata ASA & Associates Bangalore Accounting Standard – 20

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 shareholders 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 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

7. Calculation of Weighted Average number of outstanding equity shares Weight should be given in the no. of days / months outstanding during the year

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

9. 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

10. Right Issue 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

17. Thank you