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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Himalaya Pharma Ltd reports a profit after tax of ₹32,00,000 and has paid or is liable for a preference dividend of ₹2,00,000 for the year. It has 10,00,000 weighted average equity shares. It also has ₹50,00,000 of 10% convertible debentures outstanding all year, convertible into 2,50,000 equity shares. The tax rate is 30%. What is the diluted EPS?

Diluted EPS is ₹2.68. Earnings of ₹30,00,000 after the preference dividend are increased by post-tax debenture interest of ₹3,50,000 to ₹33,50,000. Dividing by 12,50,000 shares, which includes 2,50,000 conversion shares, gives ₹2.68, below the basic EPS of ₹3.00.

  1. A₹2.68Correct
  2. B₹2.80
  3. C₹2.40
  4. D₹2.84

Explanation

Earnings for equity = 32,00,000 − 2,00,000 = 30,00,000. Post-tax interest saved = 5,00,000 × (1 − 0.30) = 3,50,000. Diluted earnings = 33,50,000. Diluted shares = 10,00,000 + 2,50,000 = 12,50,000. Diluted EPS = ₹2.68. ₹2.80 adds back interest before tax, and ₹2.84 adds the interest to profit before deducting the preference dividend.

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