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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sundaram Textiles Ltd had a net profit after tax of ₹12,00,000 for the year. It has 2,50,000 equity shares outstanding throughout the year. It also has ₹20,00,000 of 10% cumulative preference share capital, and the preference dividend for the year was not declared. What is the basic earnings per share as per AS 20?

Basic EPS is ₹4.00. For cumulative preference shares, AS 20 requires the year's preference dividend of ₹2,00,000 to be deducted from net profit even if undeclared, leaving ₹10,00,000 for equity shareholders, which is divided by 2,50,000 equity shares.

  1. A₹4.00Correct
  2. B₹4.80
  3. C₹3.20
  4. D₹5.00

Explanation

For cumulative preference shares, the dividend for the period is deducted from net profit whether or not it is declared. Preference dividend = 10% × 20,00,000 = 2,00,000. Earnings for equity = 12,00,000 − 2,00,000 = 10,00,000. EPS = 10,00,000 ÷ 2,50,000 = ₹4.00. ₹4.80 results from ignoring the undeclared dividend.

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