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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Lakshmi Textiles Ltd had 4,00,000 equity shares throughout the year ended 31 March 2026. Its net profit after tax was Rs 12,00,000. It also has 20,000 cumulative preference shares of Rs 100 each carrying a 10% dividend. The board declared no dividend on these shares for the year. What is the basic EPS under AS 20?

Basic EPS is Rs 2.50. For cumulative preference shares, the year's dividend of Rs 2,00,000 is deducted from net profit even though it was not declared. Earnings for equity holders are Rs 10,00,000, which divided by 4,00,000 weighted equity shares gives Rs 2.50.

  1. ARs 2.50Correct
  2. BRs 3.00
  3. CRs 3.50
  4. DRs 2.00

Explanation

Preference dividend for cumulative shares is deducted whether or not declared. 20,000 x Rs 100 x 10% = Rs 2,00,000. Earnings for equity = 12,00,000 - 2,00,000 = Rs 10,00,000. EPS = 10,00,000 / 4,00,000 = Rs 2.50. Rs 3.00 wrongly ignores the undeclared cumulative dividend.

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