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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Kaveri Foods Ltd (year ended 31 March) had 4,00,000 equity shares at the start of the year. On 1 October it issued 1,20,000 shares at full market price for cash. On 1 January it issued bonus shares in the ratio 1 for 4 to all shareholders then on the register. Net profit attributable to equity shareholders is ₹11,50,000. What is the basic EPS?

Basic EPS is ₹2.00. The 1:4 bonus issue is applied retrospectively, so weighted shares are (4,00,000 + 60,000) × 1.25 = 5,75,000. Dividing ₹11,50,000 by 5,75,000 gives ₹2.00, rather than weighting bonus shares only from the issue date.

  1. A₹2.33
  2. B₹2.21
  3. C₹2.50
  4. D₹2.00Correct

Explanation

A bonus issue is applied retrospectively to all shares outstanding before it, as if issued at the start of the year. Weighted shares = (4,00,000 + 1,20,000 × 6/12) × 1.25 = 4,60,000 × 1.25 = 5,75,000. EPS = 11,50,000 / 5,75,000 = ₹2.00. Weighting the bonus shares only from 1 January gives 4,92,500 shares and ₹2.33, which is wrong.

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