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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sundaram Textiles Ltd had 2,00,000 equity shares outstanding throughout the year ended 31 March 2026, with no change in number. Its net profit after tax was ₹12,00,000. It also has 5,00,000 of 10% cumulative preference share capital. The preference dividend for the year was not declared. What is the basic EPS under AS 20?

Basic EPS is ₹5.75. The dividend on cumulative preference shares, ₹50,000, must be deducted from net profit even though it was not declared. Earnings available to equity shareholders are ₹11,50,000, which divided by 2,00,000 equity shares gives ₹5.75.

  1. A₹6.25
  2. B₹6.00
  3. C₹5.75Correct
  4. D₹5.50

Explanation

For cumulative preference shares, the dividend for the period is deducted from net profit whether or not it is declared. Dividend = 10% × 5,00,000 = ₹50,000. Earnings for equity = 12,00,000 − 50,000 = ₹11,50,000. EPS = 11,50,000 ÷ 2,00,000 = ₹5.75. Ignoring the undeclared dividend gives ₹6.00, which is wrong.

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