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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sundaram Textiles Ltd. earned a net profit after tax of Rs 12,00,000 for the year ended 31 March 2026. Its capital consists of 2,00,000 equity shares of Rs 10 each (unchanged during the year) and 50,000 8% cumulative preference shares of Rs 100 each. No preference dividend was declared for the year. What is the basic EPS for the year?

Basic EPS is Rs 4.00. For cumulative preference shares the year's dividend of Rs 4,00,000 is deducted from net profit even though it was not declared, leaving Rs 8,00,000 for equity holders, which is divided by 2,00,000 equity shares.

  1. ARs 6.00
  2. BRs 4.00Correct
  3. CRs 2.00
  4. DRs 3.00

Explanation

Preference dividend for a cumulative class is deducted whether or not it is declared: 50,000 x 100 x 8% = Rs 4,00,000. Earnings for equity holders = 12,00,000 - 4,00,000 = Rs 8,00,000. EPS = 8,00,000 / 2,00,000 = Rs 4.00. Rs 6.00 results from ignoring the undeclared cumulative dividend.

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