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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Himalaya Foods Ltd (year ended 31 March) had 1,00,000 equity shares outstanding. On 1 October it made a rights issue of 1 new share for every 1 held, at ₹60 per share. The fair value of one share immediately before exercise of rights was ₹100. Net profit for the year was ₹8,12,500. What is the basic EPS for the year, as per AS 20?

Basic EPS is ₹5.00. The rights issue has a bonus element, so pre-rights shares are multiplied by 100/80 = 1.25. Weighted shares are 62,500 plus 1,00,000, which is 1,62,500, and ₹8,12,500 divided by this gives ₹5.00.

  1. A₹5.42
  2. B₹5.00Correct
  3. C₹4.06
  4. D₹6.50

Explanation

Theoretical ex-rights price = (100 + 60) / 2 = ₹80. Adjustment factor = 100/80 = 1.25. Weighted shares = 1,00,000 × 1.25 × 6/12 + 2,00,000 × 6/12 = 62,500 + 1,00,000 = 1,62,500. EPS = 8,12,500 / 1,62,500 = ₹5.00. ₹5.42 treats the rights issue as at full price with no bonus element (1,50,000 shares).

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