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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Shree Ganga Textiles Ltd. reported a net profit after tax of ₹12,00,000 for the year ended 31 March 2026. It has 10% cumulative preference shares carrying an annual dividend of ₹2,00,000. The board did not declare any preference dividend for the year. The weighted average number of equity shares was 2,00,000 and there were no potential equity shares. What is the basic EPS under AS 20?

Basic EPS is ₹5. Under AS 20, the dividend on cumulative preference shares is deducted from net profit even if undeclared. Earnings available to equity shareholders are ₹10,00,000, and dividing by 2,00,000 weighted shares gives ₹5. Ignoring the undeclared dividend would wrongly give ₹6.

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

Explanation

For cumulative preference shares, the dividend for the period is deducted from net profit whether or not it is declared. Earnings for equity = 12,00,000 - 2,00,000 = 10,00,000. Basic EPS = 10,00,000 / 2,00,000 = ₹5. ₹6 results from ignoring the undeclared cumulative dividend, which is the key error.

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