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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sundaram Textiles Ltd reports a net profit after tax of ₹12,50,000 for the year ended 31 March 2026. It has 2,00,000 equity shares outstanding throughout the year. It also has 8% cumulative preference shares, and the annual preference dividend of ₹2,00,000 has not been declared for the year. What is the basic earnings per share?

Basic EPS is ₹5.25. The cumulative preference dividend of ₹2,00,000 is deducted from net profit even though it is undeclared, giving earnings of ₹10,50,000 for equity holders, which is divided by 2,00,000 equity shares.

  1. A₹6.25
  2. B₹5.25Correct
  3. C₹4.25
  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. Earnings for equity = 12,50,000 − 2,00,000 = 10,50,000. EPS = 10,50,000 / 2,00,000 = ₹5.25. ₹6.25 ignores the preference dividend, and ₹4.25 deducts it twice.

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