CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share
Gangotri Engineering Ltd had 4,00,000 equity shares outstanding throughout FY 2025-26 and earned a net profit of ₹24,00,000. On 1 April 2025 it had issued ₹10,00,000 of 10% convertible debentures, convertible into 1,00,000 equity shares. The tax rate is 30%. What is the diluted EPS?
Diluted EPS is ₹4.94. Assuming conversion, the post-tax interest of ₹70,000 is added back to earnings, giving ₹24,70,000, and 1,00,000 potential shares are added to 4,00,000, giving 5,00,000 shares. Since this is below the basic EPS of ₹6.00, it is dilutive.
- A₹5.00
- B₹4.80
- C₹4.94Correct
- D₹6.00
Explanation
Basic EPS = 24,00,000 / 4,00,000 = ₹6.00. Interest = ₹1,00,000; after-tax saving = ₹70,000. Diluted EPS = (24,00,000 + 70,000) / (4,00,000 + 1,00,000) = 24,70,000 / 5,00,000 = ₹4.94, which is dilutive. ₹5.00 adds back the interest without tax adjustment.
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