Skip to content

CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sunrise Textiles Ltd reported a net profit after tax of ₹12,00,000 for the year. It has 10% cumulative preference shares carrying an annual dividend of ₹2,00,000, which the Board has not declared for the year. The weighted average number of equity shares outstanding was 2,00,000. What is the basic EPS under AS 20?

Basic EPS is ₹5.00. The cumulative preference dividend of ₹2,00,000 must be deducted from net profit even though it is undeclared, leaving ₹10,00,000 for equity shareholders, which is divided by 2,00,000 weighted average equity shares.

  1. A₹6.00
  2. B₹5.00Correct
  3. C₹4.00
  4. D₹5.50

Explanation

For cumulative preference shares, the dividend for the year is deducted from net profit whether or not it is declared. Earnings for equity = 12,00,000 − 2,00,000 = 10,00,000. EPS = 10,00,000 / 2,00,000 = ₹5.00. ₹6.00 wrongly ignores the undeclared cumulative dividend, and ₹4.00 deducts it twice.

Did you get it right without looking?

One question tells you little. A timed set on AS 20 Earnings Per Share shows your real accuracy, how long you take and where you lose marks.

Practise AS 20 Earnings Per ShareFree diagnostic mock

More AS 20 Earnings Per Share questions