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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Godavari Retail Ltd incurred a net loss of ₹6,00,000 for the year. It had 2,00,000 equity shares outstanding throughout the year. It also has convertible preference shares, with no dividend payable, that would convert into 1,00,000 equity shares. What should the company report as basic and diluted EPS under AS 20?

Basic and diluted EPS are both a loss of ₹3.00 per share. Converting the preference shares would shrink the loss to ₹2.00 per share, which is anti-dilutive. AS 20 ignores potential equity shares that reduce a loss per share, so diluted equals basic.

  1. ABasic ₹(3.00); diluted ₹(2.00)
  2. BBasic ₹(3.00); diluted ₹(3.00)Correct
  3. CBasic ₹(2.00); diluted ₹(2.00)
  4. DBasic ₹(3.00); diluted ₹(1.00)

Explanation

Basic loss per share = 6,00,000 ÷ 2,00,000 = ₹(3.00). Including the 1,00,000 potential shares would give ₹(2.00), which reduces the loss per share and so is anti-dilutive. AS 20 allows potential equity shares to be treated as dilutive only if they reduce net profit per share or increase net loss per share. Therefore they are ignored and diluted EPS equals basic at ₹(3.00).

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