accounting standard 20 - earning per share

Accounting Standard – 20

Earning Per Share

PREPARED BY: CA. JIMMIT D MEHTAMODERATOR: SHINING STARS: A GROUP OF PROFESSIONALS

www.profess ional -updates .blogspot .com

• 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.

OBJECTIVE


• 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.


APPLICABILITY

• Basic EPS• Diluted EPS


TYPES OF EPS

Net Profit/Loss for the Period attributable to Equity Shareholders

= Weighted average number of equity

shares outstanding during the period


CALCULATION OF BASIC EPS

• 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


CALCULATION OF NET PROFIT / LOSS FOR THE PERIOD ATTRIBUTABLE TO

EQUITY SHAREHOLDER

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


Weight should be given in the no. of days / months outstanding during the year


CALCULATION OF WEIGHTED AVERAGE NUMBER OF OUTSTANDING EQUITY

SHARES

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 www.profess ional -updates .blogspot .com

• 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


RIGHT ISSUE

Fair Value per share immediately prior to right issue

= Theoretical ex – right fair value per

share


RIGHT FACTOR

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


THEORETICAL EX-RIGHT FAIR VALUE PER SHARE

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


ILLUSTRATION

Theoretical ex-right fair value per share

(21.00 X 500000 Sh.) + (15 X 100000 Sh.) = = Rs. 20.00 (500000 + 100000)


SOLUTION

21.00= = 1.05 20.00


RIGHT FACTOR

Rs. 1500000 = = Rs. 2.55 (500000 X 1.05 X 2/12) + (600000 X 10/12)

BASIC 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


DILUTED EPS

JOIN OUR GROUP ON WHATSAPP:


THANK YOU !!!

SEND MESSAGE TO +96894185332WITH YOUR NAME, MOBILE NUMBER

AND EMAIL ID

JOIN OUR GROUP ON FACEBOOK:

www.facebook.com/professionalupdates

VISIT OUR WEBSITE FOR MORE DETAILS

accounting standard 20 - earning per share

Education