Advanced Accounting · AS 20 Earnings Per Share

AS 20 Objective, Scope and Definitions for CA Inter

Updated 4 October 2026 · Fact-checked

AS 20 lays down principles for computing and presenting earnings per share (EPS) so that performance can be compared across enterprises and periods. It applies to enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India. To solve questions, check applicability first, then classify each instrument.

Understand AS 20 Objective, Scope and Definitions

AS 20 deals with earnings per share. EPS tells you how much profit belongs to each equity share. Investors use it to compare one company with another, and one year with the next.

The objective of AS 20 is to set principles for determining and presenting EPS, so that comparison of performance among enterprises for the same period, and across periods, improves. EPS needs a correctly determined numerator and a correctly determined weighted average number of equity shares. The numerator is the net profit or loss for the period attributable to equity shareholders. That means net profit or loss after tax (including extraordinary items), less preference dividend and the tax on it.

The preference dividend you deduct depends on the type of preference share:

Non-cumulative preference shares: deduct the amount of dividend declared in respect of the period.
Cumulative preference shares: deduct the full dividend for the period, whether or not it is declared. Do not deduct arrears of earlier periods.

EPS is also disclosed with and without extraordinary items.

On scope: AS 20 applies to enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India. An enterprise that has no listed shares but discloses EPS voluntarily must calculate and disclose it as per AS 20. Where an enterprise presents both consolidated and separate financial statements, EPS information is required to be presented only on the basis of the consolidated financial statements. The enterprise may also disclose EPS based on the separate statements, but this is not required.

Now the key terms. An equity share is a share other than a preference share. A preference share carries preferential rights to dividend and to repayment of capital. A potential equity share is a financial instrument or other contract that entitles its holder to equity shares. Examples are convertible debentures, convertible preference shares, share warrants and employee stock options.

The other defined terms are financial instrument (any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise), share warrants or options (financial instruments that give the holder the right to acquire equity shares), fair value (the amount at which an asset could be exchanged between knowledgeable, willing parties in an arm's length deal) and put options on equity shares (contracts that give the holder the right to sell equity shares at a specified price for a given period).

Put options come up in the diluted EPS discussion, as contracts that may require the enterprise to buy back its own shares. Learn the idea behind each term. Questions often ask you to identify which instrument is a potential equity share.

Key rules to remember

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.

How to solve AS 20 Objective, Scope and Definitions questions

Use this method for any scope or definition question on AS 20.

1Read what the question gives: the enterprise, its shares and any other instruments.
2Check listing: are equity shares or potential equity shares listed on a recognised stock exchange in India?
3If not listed, check whether the enterprise voluntarily discloses EPS. If yes, it must calculate and disclose EPS as per AS 20.
4If both consolidated and separate statements exist, state that EPS information is required only on the basis of the consolidated financial statements.
5Classify each instrument: equity share, preference share, or potential equity share.
6Write the definition in one line, then apply it to the facts.
7Conclude clearly in one sentence, such as 'AS 20 applies' or 'AS 20 does not apply'.

Quickest way: Listing test and instrument tag

When to use it: Use it for MCQs and for short theory parts of 2 to 4 marks.

Ask first: listed or voluntary disclosure? If neither, AS 20 does not apply.
Tag each instrument: if it can turn into equity shares later, it is a potential equity share.
Plain preference shares that cannot convert are not equity shares and not potential equity shares.
In MCQs, eliminate options that say AS 20 applies to all companies or only to companies above a size limit.
In written answers, use three lines: provision, facts, conclusion.

Common mistakes in AS 20 Objective, Scope and Definitions

Saying AS 20 applies to every company.
Students assume every company must report EPS.
Fix: Remember the trigger: listing in India, or voluntary EPS disclosure.
Treating all preference shares as potential equity shares.
Preference shares are confused with convertible preference shares.
Fix: Only preference shares that can convert into equity shares are potential equity shares.
Defining equity share by everyday ideas instead of the AS 20 test.
Students rely on what they think equity means, such as voting rights, rather than the standard's wording.
Fix: Use the AS 20 definition: an equity share is a share other than a preference share.
Ignoring the consolidated rule.
Students compute EPS only on separate figures.
Fix: When both sets of statements are presented, EPS information is required only on the basis of the consolidated financial statements.
Forgetting that a voluntary disclosure must follow AS 20.
Students think an unlisted company can compute EPS in any way.
Fix: If an enterprise chooses to disclose EPS, it must calculate it as per AS 20.

Worked examples

Example 1

Alpha Ltd is an unlisted company. Its equity shares are not listed anywhere and it has not issued any convertible instruments. It does not plan to disclose EPS. Beta Ltd is also unlisted, but it voluntarily discloses EPS in its financial statements. State whether AS 20 applies to each company.

Show the solution

Provision: AS 20 applies to enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India. Separately, an enterprise that discloses EPS voluntarily must calculate and disclose it as per AS 20.
Alpha Ltd: shares are unlisted, there are no listed potential equity shares, and it does not disclose EPS.
So the trigger is not met for Alpha Ltd.
Beta Ltd: it is unlisted but chooses to disclose EPS, so the voluntary disclosure rule is met.
Beta Ltd must therefore calculate and disclose EPS as per AS 20.

Answer: AS 20 does not apply to Alpha Ltd. Beta Ltd must calculate and disclose EPS as per AS 20 because it discloses EPS voluntarily.

Example 2

Gamma Ltd has equity shares, 9% non-convertible preference shares, 10% convertible debentures and employee stock options. Identify which are equity shares and which are potential equity shares under AS 20.

Show the solution

Equity shares: a share other than a preference share is an equity share, so the issued equity shares are equity shares.
Non-convertible preference shares: these are preference shares, so they are not equity shares. They cannot entitle the holder to equity shares, so they are not potential equity shares either.
Convertible debentures: the holder can obtain equity shares on conversion, so these are potential equity shares.
Employee stock options: they give the holder the right to subscribe for equity shares, so these are potential equity shares.

Answer: The issued equity shares are equity shares. Convertible debentures and employee stock options are potential equity shares. The 9% non-convertible preference shares are neither.

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.

Practice questions from AS 20 Earnings Per Share

AS 20 Objective, Scope and Definitions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

AS 20 Objective, Scope and Definitions: frequently asked questions

Which enterprises must disclose EPS under AS 20?

Enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India. An enterprise that chooses to disclose EPS must also calculate and disclose it as per AS 20.

What is a potential equity share?

It is a financial instrument or contract that entitles its holder to equity shares. Convertible debentures, convertible preference shares, warrants and options are common examples.

How does AS 20 define an equity share?

AS 20 defines an equity share as a share other than a preference share. A preference share carries preferential rights to dividend and to repayment of capital. So test any share against the preference share description first.

Does AS 20 apply to an unlisted company?

Not automatically. It applies to an unlisted company only if the company discloses EPS voluntarily. In that case EPS must be computed as per AS 20.