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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Kaveri Auto Ltd (year ended 31 March) had 1,00,000 equity shares at the start of the year. It issued 20,000 shares at full market price on 1 October. On 15 May, after the year-end but before the financial statements were approved by the board, it announced a bonus issue of 1 share for every 5 held. Net profit for the year was ₹6,60,000 and there are no preference shares. What is the basic EPS to be reported for the year?

Basic EPS is ₹5.00. The post-year-end bonus issue is treated as if it had occurred at the start of the earliest period. Weighted shares of 1,10,000 become 1,32,000 after the 1:5 bonus, and ₹6,60,000 divided by 1,32,000 gives ₹5.00.

  1. A₹6.00
  2. B₹5.00Correct
  3. C₹5.50
  4. D₹4.58

Explanation

A bonus issue after the balance sheet date but before approval of the financial statements is adjusted retrospectively, and the bonus factor applies to all shares. Weighted shares before bonus = 1,00,000 + 20,000 × 6/12 = 1,10,000. After the 1:5 bonus = 1,10,000 × 1.2 = 1,32,000. EPS = 6,60,000 / 1,32,000 = ₹5.00. ₹6.00 ignores the bonus issue.

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