Advanced Accounting · AS 20 Earnings Per Share

Basic Earnings Per Share Computation under AS 20

Updated 4 October 2026 · Fact-checked

Basic EPS under AS 20 is the profit that belongs to each equity share. Take net profit or loss after tax, subtract preference dividend and related items, then divide by the weighted average number of equity shares outstanding during the period. Weight each share count by the time it was outstanding.

Understand Basic Earnings Per Share Computation

Equity shareholders own the profit left after everyone ahead of them is paid. Basic EPS measures that leftover profit per equity share. It lets investors compare companies of different sizes and track one company over time.

The top line is the earnings for equity shareholders. Start with the net profit or loss for the period after tax (including extraordinary items). Deduct the preference dividend and any tax on it. For cumulative preference shares, deduct the dividend for the year whether or not it is declared. For non-cumulative preference shares, deduct only the dividend declared for the period.

The bottom line is the weighted average number of equity shares. Shares issued during the year have not been around all year, so they count only for the part of the year they were outstanding. Shares issued for cash count from the date cash is receivable, which is usually the date of issue.

Divide earnings by the weighted average shares. The result is basic EPS. If the result is negative, it is a loss per share. This page covers the plain computation. Bonus issues, rights issues and splits need retrospective adjustment, which is a separate topic.

Key rules to remember

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.

How to solve Basic Earnings Per Share Computation questions

Use the same sequence for every basic EPS question. Write each step on its own line so you earn step marks.

1Write the net profit after tax for the period. Check whether it is already after tax and whether extraordinary items are included.
2Deduct the preference dividend for the period. Check cumulative or non-cumulative, and add any tax on dividend to the deduction. This gives earnings for equity shareholders.
3List the opening equity shares and every change in the year: issue for cash, buyback, issue for acquisition.
4Ignore bonus or rights items for now unless the question asks. If it does, adjust as per the related topic.
5Weight each block of shares by the months (or days) it was outstanding and divide by 12.
6Add up to get the weighted average number of shares.
7Divide earnings by the weighted average shares. Show the formula, substitution and result, rounded as asked (usually two decimals).
8State the answer in rupees per share and say it is a loss per share if negative.

Quickest way: Timeline-and-table method

When to use it: Use it in MCQs and in the written answer when shares change during the year.

Draw a one-line timeline of the year with each share movement marked by date.
Make a three-column table: shares, months outstanding, shares × months. Total the last column and divide by 12.
For MCQs, compute earnings first. A missed preference dividend is the commonest trap, so check it before dividing.
Eliminate options that use the closing share count or the simple average of opening and closing, unless they happen to equal the weighted figure.
In the written answer, show earnings, weighted shares and EPS as three labelled lines. Marks follow these lines.

Common mistakes in Basic Earnings Per Share Computation

Dividing profit by closing number of shares
It looks simpler and the closing count is on the balance sheet.
Fix: Always weight shares by time outstanding. Build the table every time.
Forgetting to deduct preference dividend
Students see 'net profit' and divide straight away.
Fix: Make deduction of preference dividend your first step. Then check the cumulative or non-cumulative status.
Ignoring unpaid dividend on cumulative preference shares
Students think only declared dividend is deducted.
Fix: For cumulative shares, deduct the current period's dividend whether or not declared. Arrears of earlier years are not deducted again.
Deducting dividend on equity shares
Confusing equity dividend with preference dividend.
Fix: Equity dividend is a distribution of the earnings that EPS measures. Never deduct it.
Counting shares for the wrong period
Mixing up the issue date with the financial year start, or counting months wrongly.
Fix: Count months from the issue date to the year end. For a 1 July issue in a March year-end, that is 9 months.
Using simple average of opening and closing shares
It feels like a fair shortcut.
Fix: It only works if the shares were issued exactly mid-period. Use the weighted table.

Worked examples

Example 1

For the year ended 31 March, a company reported net profit after tax of ₹14,00,000. It has 10,000, 8% cumulative preference shares of ₹100 each. Equity shares: 2,00,000 at the start of the year. On 1 July, 60,000 shares were issued for cash. Compute basic EPS. Ignore tax on preference dividend.

Show the solution

Preference dividend = 10,000 × ₹100 × 8% = ₹80,000.
Earnings for equity shareholders = ₹14,00,000 − ₹80,000 = ₹13,20,000.
Shares: 2,00,000 for 12 months = 24,00,000 share-months.
New shares: 60,000 for 9 months (1 July to 31 March) = 5,40,000 share-months.
Total share-months = 29,40,000. Weighted average shares = 29,40,000 ÷ 12 = 2,45,000.
Basic EPS = ₹13,20,000 ÷ 2,45,000 = ₹5.39 (rounded).

Answer: Basic EPS = ₹5.39 per share (approx.).

Example 2

A company has net profit after tax of ₹9,60,000 for the year ended 31 March. Preference dividend of ₹1,20,000 was declared on non-cumulative preference shares. Equity shares: 1,00,000 at 1 April. On 1 October, 40,000 shares were issued for cash. On 1 January, 20,000 shares were bought back. Compute basic EPS.

Show the solution

Earnings = ₹9,60,000 − ₹1,20,000 = ₹8,40,000. The dividend is declared, so it is deducted.
Opening 1,00,000 × 12 = 12,00,000 share-months.
Issue: 40,000 × 6 (1 Oct to 31 Mar) = 2,40,000.
Buyback: 20,000 × 3 (1 Jan to 31 Mar) = 60,000, to be deducted.
Total = 12,00,000 + 2,40,000 − 60,000 = 13,80,000 share-months.
Weighted average shares = 13,80,000 ÷ 12 = 1,15,000.
Basic EPS = ₹8,40,000 ÷ 1,15,000 = ₹7.30 (rounded).

Answer: Basic EPS = ₹7.30 per share (approx.).

Exam tips

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.
Check whether the question says the profit is before or after tax, and before or after preference dividend.
If you see bonus or rights shares in the same question, stop and apply the adjustment rules from that topic before weighting.

Practice questions from AS 20 Earnings Per Share

Basic Earnings Per Share Computation in other exams

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

Basic Earnings Per Share Computation: frequently asked questions

What is the basic EPS formula under AS 20?

Basic EPS = net profit or loss attributable to equity shareholders ÷ weighted average number of equity shares outstanding during the period. Net profit is after tax and after preference dividend. The result is shown in rupees per share.

Do I deduct preference dividend if it is not declared?

For cumulative preference shares, yes. Deduct the dividend for the period whether or not it is declared. For non-cumulative preference shares, deduct only the dividend declared for the period.

How do I calculate the weighted average number of equity shares?

Multiply each block of shares by the months it was outstanding, add the results and divide by 12. Shares issued for cash count from the date the cash is receivable. Bought-back shares stop counting from the buyback date.

Can basic EPS be negative?

Yes. If the earnings for equity shareholders are a loss, the result is a loss per share. You must still present it.