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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sagar Textiles Ltd reported a net profit after tax of ₹12,00,000 for the year ended 31 March 2026. It has 2,00,000 equity shares outstanding throughout the year and ₹20,00,000 of 10% cumulative preference shares. The board has not declared the preference dividend for the year. What is the basic EPS under AS 20?

Basic EPS is ₹5.00. For cumulative preference shares the year's dividend of ₹2,00,000 is deducted from the net profit of ₹12,00,000 even though it is undeclared, leaving ₹10,00,000 for equity shareholders, which is divided by 2,00,000 equity shares.

  1. A₹5.00Correct
  2. B₹6.00
  3. C₹7.00
  4. D₹4.00

Explanation

For cumulative preference shares, the dividend for the period is deducted whether or not it is declared. Preference dividend = 10% of ₹20,00,000 = ₹2,00,000. Earnings for equity = 12,00,000 − 2,00,000 = ₹10,00,000. Dividing by 2,00,000 shares gives ₹5.00. ₹6.00 results from ignoring the undeclared cumulative dividend.

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