CA Intermediate · Advanced Accounting

AS 20 Earnings Per Share: formula sheet

Full chapter guide

Key formulas

Scope rule: AS 20 applies if equity shares or potential equity shares are listed on a recognised stock exchange in India. An enterprise that discloses EPS voluntarily must calculate and disclose it as per AS 20; Unlisted enterprises that do not disclose EPS need not apply it.
Equity share: Equity share = share other than a preference share; This is the AS 20 definition. Preference shares carry preferential rights to dividend and to repayment of capital.
EPS numerator: Numerator = net profit or loss after tax (including extraordinary items) attributable to equity shareholders, less preference dividend and the tax thereon; Non-cumulative preference shares: deduct the dividend declared for the period. Cumulative preference shares: deduct the full dividend for the period, whether or not declared, excluding arrears of earlier periods. EPS is also disclosed with and without extraordinary items.
Potential equity share: Potential equity share = instrument that entitles its holder to equity shares; Examples: convertible debentures, convertible preference shares, warrants, options.
Consolidated basis: If both consolidated and separate statements are presented, EPS information is required only on the basis of the consolidated financial statements; The enterprise may also disclose EPS based on separate statements, but this is not required.
Basic EPS: Basic EPS = Net profit or loss attributable to equity shareholders ÷ Weighted average number of equity shares outstanding during the period; Report it even when negative (a loss per share).
Earnings for basic EPS: Earnings = Net profit after tax (incl. extraordinary items) − Preference dividend − Tax on preference dividend; Cumulative preference: deduct the dividend for the period, declared or not. Non-cumulative: deduct only if declared.
Weighted average shares: Σ (Shares outstanding × Number of months outstanding) ÷ 12; You can use days instead of months. Be consistent.
Alternative form: Opening shares + Σ (New shares × Time-weighting factor) − Σ (Shares bought back × Time-weighting factor); The time-weighting factor is months outstanding ÷ 12 for that block.
Theoretical ex-rights fair value per share (TERP): TERP = (Fair value of all shares before rights + Total amount received from rights) ÷ (Shares before rights + New shares issued in rights); Fair value before rights is the market price just before the exercise date (cum-rights price) × old shares.
Adjustment (bonus) factor for rights issue: Factor = Fair value per share just before exercise of rights ÷ TERP; Factor is more than 1 when the rights price is below fair value. Multiply shares outstanding before the rights issue, and prior-year EPS divisor, by this factor.
Restated prior-period EPS for rights issue: Restated EPS = Previously reported EPS ÷ Adjustment factor; Equivalent to using the adjusted share count in the denominator.
Weighted shares in the rights issue year: (Shares before rights × Factor × Months before rights ÷ 12) + (Shares after rights × Months after rights ÷ 12); Shares after rights = old shares + new shares. The factor applies only to the pre-rights period.
Bonus issue or share split: New shares are treated as outstanding for the whole period; restated prior EPS = Old EPS × Old shares ÷ New shares; No weighting by date. Apply to all periods presented.
Buyback: Weighted shares = Shares × time-weight, reducing shares from the buyback date; No retrospective restatement because resources leave the company.
Diluted EPS: Diluted EPS = (Profit attributable to equity shareholders + Adjustments) ÷ (Weighted average equity shares + Weighted average potential equity shares); Use only the potential equity shares that pass the anti-dilution test. Show the answer to two decimal places unless told otherwise.
Adjustment for convertible debentures: Add back: Interest × (1 − tax rate); Also add or deduct any other income or expense that changes on conversion, net of tax.
Adjustment for convertible preference shares: Add back: Preference dividend on the convertible shares; Use the dividend that was deducted to arrive at profit for equity shareholders.
Options and warrants: shares for no consideration: Shares for no consideration = Shares under option × (Fair value − Exercise price) ÷ Fair value; Same as shares under option − (shares under option × exercise price ÷ fair value). Use the average fair value for the period. Ignore the option if fair value is not above the exercise price.
Earnings per incremental share: Earnings per incremental share = Earnings added back ÷ Incremental shares; Rank from lowest to highest. A low figure means more dilutive and is tested first.
Anti-dilution rule: Dilutive only if EPS from continuing ordinary operations falls after including the instrument; The control figure is net profit from continuing ordinary operations, after preference dividend. Compare each step with the previous EPS.
Timing of conversion: Assume conversion at the start of the period, or the issue date if later; Weight the shares for the part of the period they were outstanding.
Basic EPS: Basic EPS = (Net profit or loss for the period attributable to equity shareholders) ÷ (Weighted average number of equity shares outstanding); The numerator is after preference dividends and after extraordinary items. This is the figure you present on the face.
Diluted EPS: Diluted EPS = (Adjusted net profit attributable to equity shareholders) ÷ (Weighted average equity shares + dilutive potential equity shares); Include only potential equity shares that reduce EPS from continuing ordinary operations. Show it with equal prominence to basic EPS.
Numerator adjustment for convertible debentures: Add back interest × (1 − tax rate); Adjust the numerator for the post-tax interest saved if the debentures are assumed converted.
Face presentation rule: Basic and diluted EPS: each class of equity shares, every period presented, equal prominence, shown even if negative; Applies on the face of the statement of profit and loss.
Note disclosures: Numerators + reconciliation to net profit; weighted average shares for basic and diluted + reconciliation; nominal value per share; Disclose material post-balance-sheet share transactions separately.
Optional component EPS: Component per share = (Component attributable to equity shareholders) ÷ (Same weighted average number of shares); Disclose it in the notes with equal prominence. State whether it is before or after tax, and reconcile to a line item if the component is not reported on the face.

Quick revision

Basic EPS = (net profit after tax − preference dividend) ÷ weighted average number of equity shares.
Earnings for basic EPS belong to equity shareholders only, so deduct preference dividend for the period.
Weight shares by the period they were outstanding, from the date consideration is receivable, except bonus issues and splits, which are treated as outstanding from the start.
Bonus issue and share split: restate shares as if issued at the start of the earliest period, with no change in resources.
Rights issue at a price below fair value: multiply the shares outstanding before the rights issue by the adjustment factor and weight them for the period before the issue. Weight the shares after the issue from the date of the rights issue. Restate comparative EPS by dividing it by the same factor.
Adjustment factor = fair value per share immediately before exercise of rights ÷ theoretical ex-rights fair value per share.
Diluted EPS counts potential equity shares such as convertible debentures, convertible preference shares, options and warrants.
For convertibles, add back post-tax interest or dividend saved to earnings and add the converted shares.
Treat potential equity shares as dilutive only when they reduce (or increase the loss per share of) net profit per share from continuing ordinary activities. Include only dilutive ones in diluted EPS.
Disclose basic and diluted EPS on the face of the Statement of Profit and Loss, even if negative.
Disclose the earnings used, the weighted average shares, and the nominal value per share. Also give a reconciliation of the earnings used in basic and diluted EPS to the net profit or loss for the period.
Restate EPS of earlier periods for bonus, split and similar events.

Common mistakes

Saying AS 20 applies to every company. Fix: Remember the trigger: listing in India, or voluntary EPS disclosure.
Treating all preference shares as potential equity shares. Fix: Only preference shares that can convert into equity shares are potential equity shares.
Dividing profit by closing number of shares Fix: Always weight shares by time outstanding. Build the table every time.
Forgetting to deduct preference dividend Fix: Make deduction of preference dividend your first step. Then check the cumulative or non-cumulative status.
Time-weighting bonus shares from the date of issue Fix: No cash comes in, so treat the bonus shares as outstanding from the start of the earliest period presented.
Using the rights issue price instead of TERP to compute the factor Fix: Always compute TERP from the cum-rights market price and the rights price, then divide cum-rights price by TERP.
Adding back interest without deducting tax. Fix: Always add back interest × (1 − tax rate), unless the question says the interest is already net of tax.
Including every potential equity share without the anti-dilution test. Fix: Compute earnings per incremental share and compare it with the running EPS. Drop any instrument that raises EPS.
Leaving out diluted EPS on the face when there are no dilutive items, or treating diluted EPS as a note-only item. Fix: State that both basic and diluted EPS are shown on the face of the statement of profit and loss with equal prominence. If nothing is dilutive, diluted EPS equals basic EPS and is still presented.
Skipping the presentation of a negative EPS. Fix: Present loss per share. AS 20 requires basic and diluted EPS to be shown even when they are negative.

Exam tips

Start every scope answer with the trigger: listing in India or voluntary EPS disclosure.
Expect MCQs asking which instrument is a potential equity share. Check for the right to receive equity shares.
Write definitions in one clean line. Marks go to the exact idea, not length.
Use the provision-facts-conclusion order in written answers, so each step earns a mark.
Link this topic to basic and diluted EPS questions, which use these same terms.
MCQs often hide the trick in the earnings line, such as cumulative preference dividend or tax on dividend. Check that first.
In written answers, show the weighted average working as a table. It earns marks even if the final division slips.
Read the share issue dates carefully. Many questions use 1 July, 1 October or 1 January for easy month counts.