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CA Intermediate · Advanced Accounting · AS 20 Earnings Per Share

Vindhya Steels Ltd. reported net profit of ₹11,30,000 for 2025-26 and had 2,00,000 weighted average equity shares. On 1 April 2025 it issued 1,00,000 10% convertible debentures of ₹10 each, each convertible into one equity share. The tax rate is 30%. No other potential equity shares exist. What is the diluted EPS?

Diluted EPS is ₹4.00. Assuming conversion from the start of the year, post-tax interest of ₹70,000 is added back to earnings, giving ₹12,00,000. Shares rise by 1,00,000 to 3,00,000. The result is lower than basic EPS of ₹5.65, so the debentures are dilutive and must be included.

  1. A₹4.00Correct
  2. B₹4.10
  3. C₹3.77
  4. D₹5.65

Explanation

Basic EPS = 11,30,000 / 2,00,000 = ₹5.65. Interest on debentures = 10,00,000 x 10% = 1,00,000; post-tax = 1,00,000 x 0.70 = 70,000. Adjusted earnings = 12,00,000. Potential shares = 1,00,000, so total = 3,00,000. Diluted EPS = ₹4.00, which is below basic EPS, so the debentures are dilutive. Adding back interest without the tax adjustment gives ₹4.10, which is wrong.

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