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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sundaram Engineering Ltd earned a net profit of ₹60,00,000 for the year, with 10,00,000 weighted average equity shares (basic EPS ₹6.00). It has (i) 10% convertible debentures of ₹20,00,000 convertible into 2,00,000 equity shares, tax rate 30%, and (ii) 1,00,000 share options with exercise price ₹50, average fair value of an equity share for the year being ₹100. What is the diluted EPS, rounded to two decimals?

Diluted EPS is ₹4.91. Options add 50,000 free shares with no earnings change, and the debentures add 2,00,000 shares with post-tax interest of ₹1,40,000. Earnings of ₹61,40,000 divided by 12,50,000 shares gives ₹4.91, and both instruments are dilutive.

  1. A₹4.91Correct
  2. B₹4.96
  3. C₹5.12
  4. D₹4.72

Explanation

Options: free shares = 1,00,000 − (1,00,000 × 50 / 100) = 50,000, with no earnings effect, so EPS becomes 60,00,000 / 10,50,000 = ₹5.71 (included first). Debentures: post-tax interest = 20,00,000 × 10% × 70% = ₹1,40,000, or ₹0.70 per incremental share, which is dilutive. Diluted EPS = 61,40,000 / 12,50,000 = ₹4.91. Ignoring tax gives ₹4.96, and ignoring the options gives ₹5.12.

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