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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Godavari Pharma Ltd. had 2,00,000 equity shares at the start of 2025-26. On 1 October 2025 it made a rights issue of 1 share for every 1 held, at ₹60 per share. The fair value of a share immediately before the exercise of rights was ₹100. All rights were exercised. Net profit for the year ended 31 March 2026 was ₹13,00,000. What is the basic EPS?

Basic EPS is ₹4.00. A rights issue below fair value contains a bonus element. The theoretical ex-rights price is ₹80, so pre-rights shares are scaled by 100/80. Weighted shares come to 3,25,000, and ₹13,00,000 divided by that figure gives ₹4.

  1. A₹4.00Correct
  2. B₹4.33
  3. C₹3.55
  4. D₹3.25

Explanation

Theoretical ex-rights price = (100 x 1 + 60 x 1) / 2 = ₹80. Adjustment factor = 100/80 = 1.25. Weighted shares = 2,00,000 x 1.25 x 6/12 + 4,00,000 x 6/12 = 1,25,000 + 2,00,000 = 3,25,000. EPS = 13,00,000 / 3,25,000 = ₹4. Ignoring the bonus element gives 3,00,000 shares and ₹4.33, which is wrong.

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