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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Kaveri Engineering Ltd (year ending 31 March) had 1,00,000 equity shares at 1 April. On 1 July it issued 40,000 shares for cash at full market price, and on 1 January it bought back 20,000 shares. Net profit for equity shareholders is ₹6,25,000. What is the basic EPS?

Basic EPS is ₹5.00. The weighted average shares are 1,25,000, found by adding 9 months' weight for the 40,000 shares issued and subtracting 3 months' weight for the 20,000 shares bought back. Net profit of ₹6,25,000 divided by 1,25,000 gives ₹5.00.

  1. A₹5.00Correct
  2. B₹4.81
  3. C₹5.21
  4. D₹4.46

Explanation

The weighted average number of shares is 1,00,000 + 40,000 × 9/12 - 20,000 × 3/12 = 1,00,000 + 30,000 - 5,000 = 1,25,000. EPS = 6,25,000 / 1,25,000 = ₹5.00. Ignoring the buyback gives 1,30,000 shares and ₹4.81, which is wrong.

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