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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Kaveri Foods Ltd had 3,00,000 equity shares outstanding throughout the year ended 31 March. Its net profit for the year was ₹9,00,000. After the year-end but before the financial statements were approved by the board, it issued bonus shares in the ratio 1:3 (one bonus share for every three held). What basic EPS should be reported for the year?

Basic EPS is ₹2.25. A bonus issue before approval of the accounts is applied retrospectively as if made at the start of the year, so shares become 4,00,000 (3,00,000 plus 1,00,000 bonus shares) with no time weighting, and ₹9,00,000 divided by 4,00,000 gives ₹2.25.

  1. A₹3.00
  2. B₹2.25Correct
  3. C₹1.80
  4. D₹2.57

Explanation

A bonus issue made after the balance sheet date but before approval of the financial statements is adjusted retrospectively, as if issued at the start of the earliest period presented. Bonus shares = 3,00,000 ÷ 3 = 1,00,000, so shares = 4,00,000. EPS = 9,00,000 ÷ 4,00,000 = ₹2.25. ₹3.00 ignores the adjustment, and ₹2.57 wrongly time-weights the bonus shares.

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