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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Sunrise Textiles Ltd reports a net profit after tax of ₹14,00,000 for the year ended 31 March. It has 2,50,000 equity shares outstanding throughout the year. It also has 10% cumulative preference shares, for which the annual dividend of ₹1,50,000 was not declared this year. What is the basic EPS for the year?

Basic EPS is ₹5.00. The cumulative preference dividend of ₹1,50,000 must be deducted from the net profit of ₹14,00,000 even though it was not declared, leaving ₹12,50,000 for equity holders, which is divided by 2,50,000 equity shares.

  1. A₹5.00Correct
  2. B₹5.60
  3. C₹4.40
  4. D₹6.20

Explanation

For cumulative preference shares, the dividend for the period is deducted from net profit whether or not it is declared. Earnings for equity holders = 14,00,000 - 1,50,000 = 12,50,000. Dividing by 2,50,000 shares gives ₹5.00. Using ₹5.60 ignores the cumulative preference dividend because it was not declared.

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