Summarized Notes of Accounting Standards for CA Inter / CMA Inter Students By CABL Chakravarti Visit [Link] for Video Classes, Free Video Classes, Test Series, Exam Capsules... Updated till November 2018 Exam [AS 20: Earning Per Share This AS came into effect in respect of accounting periods commencing on or after 1-4-2001 and is mandatory in nature, Applicability This Statement should be applied by enterprises whose equity shares(ordinary shares) or potential equity shares(potential ordinary shares) are listed on a recognised stack exchange in India. An enterprise which has neither equity shares nor potential equity shares which are so listed but which discloses earnings per share should calculate and disclose earnings per share in accordance with this Standard. * An equity share is a share other than a preference share, * A preference share is a share carrying preferential rights to dividends and repayment of capital. A potential equity share is 0 financial instrument or other contract that entitles, or may entitle its holder to equity shares. Examples of potential equity shares are: 2. Debt instruments or preference shares, that are convertible into equity shares; b. Share warrants; Options including employee stock option plans under which employees of an enterprise are entitled to receive equity shares as part of their remuneration and other similar plans; and d. Shares which would be issued upon the satisfaction of certain conditions resulting from contractual arrangements (contingently issuable shares), such as the acquisition of a business or other assets, or shares Issuable under a loan contract upon default of payment of principal or interest, if the contract so provides. Objective The objective of this standard is to prescribe principles for the determination and presentation of earnings per share, 50 as to improve performance comparisons between different entities in the same reporting periods for the same entity. The focus of this standard is on the denominator of the earnings per share calculation. ‘An enterprise should present basic and diluted earnings per share on the face of the statement of profit and loss for each class of equity shares that has a different right to share in the net profit for the period. An enterprise should present bosic and diluted eornings per share with equol prominence for all periods presented. Basic Earnings Per Share Basic earnings per share should be calculated by dividing the net profit or loss for the period attributable to equity shareholders of the parent entity (the numerator) by the weighted average number of equity shares outstanding (the denominator) during the period. All items of income and expense which are recognised in a period, including tax expense and extraordinary items, are included in the determination of the net profit or loss for the period unless AS ~ 5 requires or permits otherwise. The amount of preference dividends and any attributable tax thereto for the period is deducted from the net profit for the (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.1Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ;period (or added to the net loss for the period) in order to calculate the net profit or loss for the period attributable to equity shareholders. The amount of preference dividends for the period that is deducted from the net profit for the period is: 4. The amount of any preference dividends on non-cumulative preference shares provided for in respect of the period; and b. The full amount of the required preference dividends for cumulative preference shares for the period, whether or not the dividends have been provided for. The amount of preference dividends for the period does not include the amount of any preference dividends for cumulative preference shares paid or declared during the current period in respect of previous periods. If an enterprise has more than one class of equity shares, net profit or loss for the period is apportioned over the different classes of shares in accordance with their dividend rights. For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted average number of equity shares outstanding at the beginning of the period, adjusted by the number of equity shares bought back or issued during the period multiplied by the time-weighting factor. The time-weighting factor is the number of days for which the specific shares are outstanding as a proportion of the total number of days in the period; a reasonable approximation of the weighted average is adequate in many circumstances ‘= An Exposure Draft on Limited Revision on AS 20 has been issued by ICAI to address the conceptual issues in arriving at earnings for computation of EPS. According to this Exposure Draft, for purpose of calculating basic ‘earnings per share, net profit or loss for the period attributable to equity shareholders should be the net profit or loss for the period after deducting (i) preference dividends and any attributable tax thereto for the period and (Ii ) adjusting the amount in respect of an item of income or expense which is debited or credited to share premium account/ reserves, that is otherwise required to be recognized in the statement of profit and loss in accordance with ‘accounting standards. It is pertinent to note that this Limited Revision is yet to be notified by the Govt. Qi: [sm2s] Date Particular Purchased _| Sold Balance ‘st January Balance at beginning of year 1,800 1,800 “Bist May Issue of shares for cash 600 72400 ‘AstNovember | Buy Back of shares 300) 72100 Calculate Weighted Number of Shares. Sol: Computation of Weighted Average: (1,800 x 5/12) + (2,400 x 5/12) + (2,100 x 2/12) = 2,100 shares. Or The weighted average number of shares can alternatively be computed as follows: (1,800 x12/12) + (600 x 7/12) - (300 x 2/12) = 2,100 shares, Uist of shares Issued Weight to be considered from Equity shares issued in exchange for cash Date of cash receivable Equity shares issued as a result of the conversion of a debt | Date of conversion instrument Equity shares issued in liew of interest or principal on other | Date when interest ceases to accrue financial instruments [Link] Page 1.2Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Equity shares issued in exchange for the settlement of a | Date on which the settlement becomes effective liability of the enterprise Equity shares issued as consideration for the acquisition of an | Date on which the acquisition is recognized asset other than cash Equity shares Issued for the rendering of services to the | When the services are rendered enterprise Equity shares issued as part of the consideration in an amalgamation in the nature of purchase are included in the weighted average number of shares as of the date of the acquisition and in an amalgamation in the nature of merger are included in the calculation of the weighted average number of shares from the beginning of the reporting period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting period. Where an enterprise has equity shares of different nominal volues but with the some dividend rights, the number of equity shares is calculated by converting all such equity shares into equivalent number of shares of the same nominal value. Equity shares may be issued, or the number of shares outstanding may be reduced, without a corresponding change in resources. Examples include: a. Abonus issue; b. Abonus element in any other issue, for example a bonus element in a rights issue to existing shareholders; & Ashare split; and d. Areverse share split (consolidation of shares). Q2:_[sm26] Date Particular No, of Shares | Face Value | Paid Up Value ‘Ast January Balance at beginning of year 7,800 10 10 Bist October__| Issue of shares for cash 600 10 5 Calculate Weighted Number of Shares. ‘Assuming that partly paid shares are entitled to participate in the dividend to the extent of amount paid, number of partly paid equity shares would be taken as 300 for the purpose of calculation of earnings per share. Computation of weighted average would be os follows: (4,800 x 12/12) + (300 x 2/12) = 1,850 shares Sol: In case of a bonus issue or a share split, equity shares are issued to existing shareholders for no additional consideration. Therefore, the number of equity shares outstanding is increased without an increase in resources. The number of equity shares outstanding before the event is adjusted for the proportionate change in the number of equity shares outstanding as if the event had occurred at the beginning of the earliest period reported Q3: [sm27] Net profit for the year 2011 18,00,000 Net profit for the year 2012 *60,00,000 ‘No. of equity shares outstanding until 30th September 2012 20,00,000 (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.3Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Bonus issue 1st October 2012 was 2 equity shares for each equity share outstanding at 30th September, 2012. Calculate Basic Earnings Per Share. Sol: No. of Bonus Issue 20,00,000 x 2 = 40,00,000 shares 60,00,00 ‘apo.000--40,00,000) ~ Earnings per share for the year 2012 = 1.00 Adjusted earnings per share for the year 2011 £0.30 ‘pv, 000-440500,500) Since the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to the beginning of the year 2011, the earliest period reported. In rights issue, on the other hand, the exercise price is often less than the fair value of the shares. Therefore, a rights issue usually includes @ bonus element. The number of equity shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of equity shares outstanding prior to the issue, multiplied by the following adjustment factor: Fair value per share immediately prior to the exercise of rights Theoretical ex-rights fair value per share The theoretical ex-rights fair value per share is calculated by adding the aggregate fair value of the shares immediately prior to the exercise of the rights to the proceeds from the exercise of the rights, and dividing by the number of shares outstanding after the exercise of the rights. Qa: [sm28] (sm 36] [Net profit for the year 2011 ¥11,00,000 Net profit for the year 2012 15,00,000 No. of shares outstanding prior to rights issue 5,00,000 shares Rights issue price 15.00 Last date to exercise rights Ast March 2012 Rights issue is one new share for each five outstanding (i.e. 1,00,000 new shares) Fair value of one equity share immediately prior to exercise of rights on Ast March 2012 was ¥ 21.00. Compute Basic Earnings Per Share. 1. Computation of theoretical ex-rights fair value per share = Fair value of all oustanding shares immediately prior to exercise of rights + total amount received from exercise . ‘Number of shares outstanding prior to exercise +number of shares (stued in the exerete = (E212 5,00,000 shares) + (£15 x 100,000 shares) 5,00,000 shares +1,00,000 shares 20.00 value per share prior to exercise of rights _ 21 2. Computation of adjustment factor =?" whe rer shete re eee ot = 1.05 Approx + The number of equity shares to be used in colculating basic earnings per shore for periods prior to the rights issue is the number of equity shares outstanding prior to the issue, multiplied by the adjustment factor. The adjustment factor has been calculated in Working Note 2. [Link] Page 1.4Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Computation of basic earnings per share (EPS) EPS for the year 2011 as originally reported Net profit attributable to equity shareholders Weighted average wumber of equity shares outstanding during the year 14,00,000| Sp000 shares “2-20 1.05 Shares EPS for the yeor 2011 restated for rights issue = Tapa EPS for the year 2012 including effects of right issue = Diluted Earnings Per Share In calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordinary equity shareholders of the parent entity, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shores Dilution is @ reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions. Effect is given to all dilutive potential equity shares that were outstanding during the period, that is: 2. The net profit forthe period attributable to equity shares is: i, Increased by the amount of dividends recognised in the period in respect of the dlilutive potential equity shares as adjusted for any attributable change in tax expense for the period: ii, Increased by the amount of interest recognised in the period in respect of the dilutive potential equity shares as adjusted for any attributable change in tax expense for the period; ond ii, Adjusted for the after-tox amount of any other changes in expenses or income that would result from the conversion of the dilutive potential equity shares. . The weighted average number of equity shares outstanding during the period is increased by the weighted average number of additional equity shares which would have been outstanding assuming the conversion of all dilutive potential equity shares. Qs: [sm29][PM45] ‘Net profit for the current year 1,00,00,000 No. of equity shares outstanding 50,00,000 Basic earnings per share 52.00 No. of 1256 convertible debentures of € 100 each 1,00,000 Each debenture is convertible into 10 equity shares Interest expense for the current year + 12,00,000 Tax relating to interest expense (30%) 360,000 Compute Diluted Earnings Per Shore. (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.5Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter 560,000) =X 1,08, 40,000 ‘Adjusted net profit for the current year (1,00,00,000 + 12,00,000 No. of equity shares resulting from conversion of debentures _: 10,00,000 Shares No. of equity shares used to compute diluted EPS (50,00,000 + 10,00,000) = 60,00,000 Shares Diluted earnings per share + (1,08,40,000/60,00,000) = ¥ 1.81 Restatement If the number of equity or potential equity shares outstanding increases as a result of a bonus issue, capitalisation or share split or decreases as a result of a reverse share split (consolidation of shares), the calculation of basic and diluted earnings per share should be adjusted for all the periods presented. If these changes occur after the balance sheet date but before the date on which the financial statements are approved by the board of directors, the per share calculations for those financial statements and any prior period financial statements presented should be based on the new number of shares. Disclosure ‘An enterprise should disclose the following: 2. The amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to the net profit or loss for the period; 6. The weighted average number of equity shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other; and The nominal value of shares along with the earnings per share figures. @: [smo] Net profit for the year 2012 12,00,000 Weighted average number of equity shares outstanding during the year 2012 5,00,000 shares Average fair value of one equity share during the year 2012 20.00 Weighted average number of shares under option during the year 2012 41,00,000 shares Exercise price for shares under option during the year 2012 15.00 Compute Basic and Diluted Earnings Per Share. ‘Ans: Computation of Earnings Per Share Earnings Shares Earnings per x share . ‘Net Profit for the year 2012 72,00,000 Weighted average number of shares outstanding 5,00,000 during the year 2012 Bac Earning Per Shore = EOE 240 Number of shares under option 7,00,000 ‘Number of shares thot would have been issued at fair value =100000x 3 (75,000) (As indicated in Working Note) Diluted Earnings Per Shore = 220800 7700,000 [525000 [2.28 Note: The earnings have not been increased as the total number of shares has been increased only by the number of shares deemed for the purpose of the computation to have been issued for no consideration [Link] Page 1.6Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Sol: as: Ans: RTP M 14 ‘No. of equity shares outstanding 30,00,000 Basic earnings per share 5.00 No. of 1236 convertible debentures of € 100 each 50,000 Each debenture is convertible into 10 equity shares. Tax Rate 30% Compute Diluted Earnings per Share, Working nate should form part of the answer. Earnings for the year = No. of Shares x Basic EPS = 30,00,000 shares x * 5 per share = %1,50,00,000 Adjusted net profit for the current year = Earnings for the year + Interest on debentures net of tax = 1,50,00,000 + (6,00,000 - 1,80,000) = & 1,54,20,000 No. of equity shares resulting from conversion of debentures= 50,000 x 10 shares = 5,00,000 shares Total No. of equity shares for diluted EPS. = 30,00,000 + §,00,000 = 35,00,000 shares Diluted earnings per share = € 1,54,20,000/ 35,00,000 shares = ¥ 4.4 per share. 113, 10, 5M] Net profit for the year 2012 +€24,00,000 Weighted average number of equity shares outstanding during the year 2012 410,00,000 ‘Average Fair value of one equity share during the year 2012 25.00 Weighted average number of shares under option during the year 2012 2,00,000 Exercise price for shares under option during the year 2012 20.00 Compute Basic and diluted earnings per share. Computation of Earnings Per Share Famings Shares Eamings per : share x Net Profit for the year 2012 24,00,000 Weighted average number of shares outstanding 10,00,000 during the year 2012 Basic Earning er Share = RE 240 Number of shares under option 2,00,000 Number of shares that would have been issued at Jair value =200000x 22 (1,60,000) (As indicated in Working Note) Dilated Earnings Pershore = = 74500,000 | 1040,000 [2.31 Working Note: The earnings have not been increased as the total number of shares has been Increased only by the number of shares (40,000) deemed for the purpose of the computation to have been issued for no consideration (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.7Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Sol: quo: Ans : [RTP N13] [PM 64] Explain the concept of ‘weighted average number of equity shares outstanding during the period’. State how would you compute, based on AS-20, the weighted average number of equity shares in the following case: No. of shares Ist Apri, 2012 Balance of equity shares 7,20,000 ‘Bist August, 2012 Equity shares issued for cash 240,000, ‘Ast February, 2013, Equity shares bought back 1,20,000 ‘Bist March, 2013 Balance of equity shares 40,000 Ref Q. 11 [m2, td, 5M] Explain the concept of ‘weighted average number of equity shares outstanding during the period’ fi) State how would you compute, based on AS-20, the weighted average number of equity shares in the following case: No. of shares Ist April, 2011 Balance of equity shares 480,000 Bist August, 2011 Equity shares issued for cash 3,60,000 ist February, 2012 Equity shares bought back 7,80,000 ‘Bist March, 2012 Balance of equity shares 660,000 Compute adjusted earnings per share and basic EPS based on the following information: ‘Net profit 2010-11 ¥11,40,000 Net profit 2011-12 *¥22,50,000 No. of equity shares outstanding until 31st December, 2010 500,000 Bonus issue on Ast January, 2012, 2 equity shares for each equity share outstanding at 31st December, 2011. (i) As per para 16 of AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding dling the period reflects the fact that the amount of shareholders’ capital may have varied during the period as a result of a larger or less number of shares outstanding at any time. For the purpose of calculating basic earnings per share, the number of equity shares should be the weighted average number of equity shares outstanding during the period. Weighted average number of equity shares Ist April, 2011 to 31st August, 2011 80,000 X 5/12 = 00,000 shares 01" September 2011 to Ist February, 2012 {840,000 X 5/12 = '3,50,000 shares ‘ist February, 2012 to 31st March, 2012 6 60,000 X 2/1: 7,10,000 shares 660,000 shares (ii) Earning per share Basic EPS 2010-11, = €11,40,000/5,00,000 = € 2.28 Basic EPS 2011-12 = € 22,50,000/10,00,000 = € 2.25 Adjusted EPS 2010-11 11,40,000/10,00,000 = 1.14 Since the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to the beginning of the year 2010-11, the earliest period reported. [Link] Page 1.8Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Q11: [PM 64] [RTP N 13] Explain the concept of ‘weighted average number of equity shares outstanding during the period’. (i) State how would you compute, based on AS-20, the weighted average number of equity shares in the following case: No. of shares Ist April, 2010 Balance of equity shares 7,20,000 “ist August, 2010 Equity shares issued for cash 240,000 Ist February, 2011 Equity shares bought back ,20,000 ‘Bist March, 2011 Balance of equity shares 840,000 (i) Compute adjusted earnings per share and basic EPS based on the following information: ‘Net profit 2009-10 *7,20,000 ‘Net profit 2010-11 ¥24,00,000 No, of equity shares outstanding until 31st December, 2010 ,00,000 Bonus issue on Ist January, 2011, 2 equity shares for each equity share outstanding at 31st December, 2010. ‘Ans: (i) As per para 16 of AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding during the period reflects the fact that the amount of shareholders’ capital may have varied during the period as @ result of a larger or less number of shares outstanding at any time. For the purpose of calculating basic earnings per share, the number of equity shares should be the weighted average number of equity shares outstanding during the period. Weighted average number of equity shares 7,20,000X 5/12 = 3,00,000 shares '9,60,000X 5/12 = 4,00,000 shares 8,40,000X 2/12 = 140,000 shares 840,000 shares (ii) Earning per share Basic EPS 2010-11 = € 24,00,000/24,00,000 = € 1 Adjusted EPS 2009-10 = € 7,20,000/24,00,000 = € 0.30 Since the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to the beginning of the year 2009-10, the earliest period reported. P —_INI5, 70, aM). What do you mean by “Weighted average number of equity shares outstanding during the period” and why is it required to be calculated? Compute weighted average number of equity shares in the following case: No. of shares Ast April, 2014 Balance of Equity Shares '5,00,000 30th June, 2014 Balance Shares issued for cash 1,00,000 ‘5th January, 2015 | Equity Shares bought back 50,000 Bist March, 2015 Balance of Equity Shares 550,000 Ans: As per AS 20, “Earnings Per Share”, the weighted average number of equity shares outstanding during the period reflects the fact that the amount of shareholders’ capital may have varied during the period as a result of a larger or lesser number of shares outstanding at any time. (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.9Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Fort he purpose of calculating basic earnings per share, the number of equity shares should be the weighted average number of equity shares outstanding during the period. Computation of weighted average number of shares outstanding during the period Q13: Ans: Date No, of equity shares | Period Weights | Weighted average eutstanding | (months) | number of shares a 2) a) (4) (5) = (2)x(4) 1stApril 2014 | 5,00,000 (Opening) _| 3 months 3/2 125,000 30th June 2014 6,00,000 (after | 6.5months | 65/12 325,000, Additional issue) sth Tan, 2015 | 5,50,000 (after Buy | 25months | 25/12 14 583 back) Bist March, 2015 | 5,50,000 (Balance) | O month Oz 5 Total 564,583 [PMs7} In April, 2010, A Limited issued 18,00,000 Equity shares of % 10 each, % 5 per share was called up on that date which was paid by all the shareholders. The remaining % 5 was called up on 1-9-2010. All the Shareholders {except one having 3,60,000 shares) paid the sum in September 2010. The net profit for the year ended 31-3- 2011 is © 33 lakhs after dividend on preference shares and dividend distribution tax of € 6.60 lakhs. Compute the basic EPS for the year ended 31st March, 2011 as per AS 20. Net profit attributable to equity shareholders Basic Eamings per share (EPS) = 75 hsca aneroge miler of equity shares etstanding daring tha year _ 33,00,000 © 73,20,000 Shares (as per working note) = ¥25 per share Working Note: Calculation of weighted average number of equity shares As per para 19 of AS 20 ‘Earnings Per Share’, partly paid equity shares are treated as a fraction of equity share to the extent that they were entitled to participate in dividend relative to a fully paid equity share during the reporting period, Assuming that the partly paid shares are entitled to participate in the dividend to the extent of amount paid, weighted average number of shares will be calculated as follows: Date No. of equity) Amount paid per | Weighted average no. of equity shares shares share x x x 14.2010 118,00,000 5 118,00,000 x 5/10x 5/12 375,000 19.2010 14,40,000 70 14,40,000 x 7/12 = 840,000 13.2010 3,60,000 5 3,60,000x 5/10 x 7/12 = 105,000 Total shares = 13,20,000 ‘[Link] Page 1.10Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter 1M 58] “while calculating diluted earning per share, effect is given to all dilutive potential equity shares that were outstanding during that period.” Explain. Also calculate the diluted earnings per share from the following information: [Net profit for the current year = 85,50,000 No. of equity shares outstanding 20,00,000 No. of 896 convertible debentures of €100 each _1,00,000 Each debenture is convertible into 10 equity shares Interest expenses for the current year = 6,00,000 Tax relating to interest expenses 30% Ans: “In calculating diluted earnings per share, effect is given to all dilutive potential equity shares that were outstanding during the period.” As per para 26 of AS 20 ‘Earnings per Share’, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity shares for the purpose of calculation of diluted earnings per share. Computation of diluted earnings per share (OEPS) Adjusted Net Profit for the current year ~ Weighted average number of equity shares = RU = £3.26 per share Adjusted net profit for the current year x [Net profit for the current year (assumed to be after tax) 85,50,000 Add: Interest expense for the current year 6,00,000 Less: Tax relating to interest expense (30% of ® 6,00,000) (1,80,000) Adjusted net profit for the current year 89,70,000 Weighted average number of equity shares umber of equity shoes resting from conversion of debentures use 8 19,00000 Eat shares Weighted overage numberof equity shoes used to compte dues earnings per share + Weighted average number of equity shares outstanding during the period is increased by the weighted average number of additional equity shares which would have been outstanding assuming the conversion of all dilutive potential equity shares. = [{20,00,000 x 12) + (10,00,000 x 9 »)|/12 = 27,50,000 shares ‘+* Interest on debentures for full year amounts to % 8,00,000 (i.e. 8% of & 1,00,00,000). However, interest expense ‘amounting ¥ 6,00,000 has been given in the question. It may be concluded that debentures have been issued during the year and interest has been provided for 9 months. CA. BL Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 111Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Q15: [M11, 10, 5M] [PM 62] The following information is available for Raja Ltd. for the accounting year 2009-10 and 2010-11 Net profitfor x Year 2009-10 25,00,000 Year 2010-11 40,00,000 No. of shares outstanding prior to right issue 12,00,000 shares. Right issue ‘One new share for each three outstanding i.e. 4,00,000 shares Right issue price €22 Last date to exercise rights 30-6-2010 Fair value of one equity share immediately prior to exercise of rights on 30-6-2010 = & 28. You are required to compute the basic earnings per share for the years 2009-10 and 2010-11. ‘Ans: (a) Computation of basic earnings per share (EPS) Year Year 2009-10] Year 2010-11 @) a PS for the year 2009-10 as originally reported Net profit atr table to equty shareholders Weighted average number of equity shares outstanding during the year 25,00,000 2.08 12,00,000 Shares PS for the year 2009-10 restated for rights Issue 25,0000 1.97 Approx Gzpoa00 x Los hares EPS for the year 2010-11 including effects of right issue 00000 2.64 Appro Ton000 106 «3) +(asn0m00% F5) Working Notes: 1. Computation of theoretical ex-rights fair value per share Fale value of all oustanding shares immediately prior to exercise of rights + total amount received from exercise ‘Nuriber of shares outstanding prior t exercise =Timber of shares issued in the exercise {428 x 12,00,000 shares) + 422 x4,00,000 shares) 12,0,000 shares +4,00,000 shares 26.50 Fair value per share prior to exercise of rights _ 20 Theoretical ex=right value per share 65 + The number of equity shares to be used in calculating basic earnings per share for periods prior to the rights issue is the number of equity shares outstanding prior to the issue, multiplied by the adjustment factor. The adjustment factor has been calculated in Working Note 2. 2. Computation of adjustment factor = = 1.06 Approx 16: [M111, 70, 4m] [PM 63] XYZ Ltd. had issued 30,000, 15% convertible debentures of € 100 each on 1st April, 2008. The debentures are due for redemption on 1st March, 2011. The terms of issue of debentures provided that they were redeemable at a premium of 5% and also conferred option to the debentureholders to convert 20% of their holding into equity shares (Nominal Value € 10) at a price of © 15 per share. Debentureholders holding 2500 debentures did not exercise the option. Calculate the number of equity shares to be allotted to the Debentureholders exercising the option to the maximum. [Link] Page 1.12Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Ans: Calculation of number of equity shares allotted to be debentureholders No. of debenture Total number of debentures 30,000 ‘Less: Debentureholders not opted for conversion 72,500) 27,500 Option for conversion 20% ‘Number of debentures for conversion = 5,500 Redemption value at a premium of 5% (5,500 x® 105) 577,500 38,500 shares ‘Number of equity shares to be allotted = 17: [PM 59] [N 09, 6b (i), 5M] Compute Basic Earnings per share from the following information: Date Particulars No. of shares Ist Apri, 2008 Balance at the beginning of the year 7,500 Ist August, 2008 Issue of shares for cash 600 ‘Bist March, 2009 ‘Buy back of shares 500) Net profit for the year ended 31st March, 2009 was ® 2, 75,000, ‘Ans: Computation of weighted average number of shares outstanding during the period Date (No. of equity shares Period Weights | Weighted average no. of g Outstanding __| (months)\_| shares @. @ 8) (4) (= (20x04) ‘Ist April, 2008 1,500 (Opening) ‘12 months 12/2 1,500 Ist August, 2008 | 600 (Additional issue) ‘Bmonths ez 400 “Bist March, 2009 | 500 (Buy back) Omonths ofi2 Total 1,900 Net profit or Loss attributable_to equity shareholders Weighted average number of equlty shares oustanding during the year 275,000 1900 Shares = € 144,74 per share Bosic Earnings per share (EPS) (CA. BL. Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.13Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Q18: N10, 7b, 4M] [PM 60] Ram Ltd, had 12,00,000 equity shares on April 1, 2009. The company earned a profit of € 30,00,000 during the year 2009-10. The average fair value per share during 2009-10 was * 25. The company has given share option to its employees of 2,00,000 equity shares at option price of € 15. Calculate bosic E.P.S. and diluted E.P.S. Ans: (0) Computation of Earnings Per Share Earnings ‘Shares Earnings per « share x ‘Net Profit for the year 2009-10 30,00,000 Weighted average numberof shares 12,00,000 dutstanding during the year 2009-10 Basie Earning Per Share = SH 250 Number of shares under option 2,00,000 Number of shares that would have been issued at fair value =200000x 32 (2,20,000) (As indicated in Working Note) Diluted Earnings Per Share = OE 30,00,000 12,80,000 2.34 Working Note: The earnings have not been Increased as the total number of shares has been Increased only by the number of shares (80,000) deemed for the purpose of the computation to have been issued for no consideration Que: [M15, 1d, 5M] M/s. A Ltd. had 8,00,000 Equity Shares outstanding on 1st April, 2013. The Company earned a profit of ¥20,00,000 during the year 2013-14. The average fair value per share during 2013-14 was *40. The Company has given Share Option to its employees of 1,00,000 Equity Shares at option price of $20. Calculate Basic EPS and Diluted EPS. ‘Ans: Computation of Earnings Per Share Earnings ‘Shares | Earnings per share = x ‘Net Profit for the year 2013-14 20,00,000, ‘Number of shares outstanding during %3,00,000 the year 2013-14 Basic Earnings Per Share _ 2090,000 250 ‘Number of shares under option 700,000, ‘Number of shares that would have (50,000) been issued at fair value (Refer Note) [1,00,000 x 20/40}, Diluted Earnings Per Share ae 20,00,000 | 850,000 2.35 Note: The earnings have not been increased as the total number of shares has been increased only by the number of shares (50,000) deemed for the purpose of the computation to have been issued for no consideration, [Link] Page 1.14Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter @ 19: [PM 61]From the following information relating to Y Ltd. Calculate Earnings Per Share (EPS): Rin crores Profit before VIR. payments but after depreciation 75.00 Depreciation 10.00 VRS payments 32.10 Provision for taxation 10.00 Fringe benefit tox 5.00 Paid up share capital (shares of € 10 each fully paid) 93.00 Answer Rin crores Profit before VRS. payments but after depreciation 75:00 Tess: Depreciation ess: VRS payments (32.10 Less: Provision for taxation (110.00 Tess: Fringe benefit tax 15.00 ‘Net Profit Available to Equity Shareholders 27.90 ‘No. of shares 9.30 crores 9.30 craves Earning Per Share = DS PHI = UIT ps 3 per share Woof Shares = 930 Gr 20: [pmes} The following information is available for AB Ltd. for the accounting year 2012-13 and 2013- 44: ‘Net Profit [Year 2012-13: €22,00,000 : Year 2013-14 : ¥30,00,000 (No. of shares outstanding prior to Right Issue $10,00,000 shares Right issue One new share for each Five outstanding i.e, 2,00,000 shares. Right Issue price - €25 Last date of exercise rights ~ 31.7.2013, Fair rate of one Equity share immediately priorto | =€32 exercise of rights on 31.7.2013 You are required to compute: (i) Basic earnings per share for the year 2012-13. (i) Restated basic earnings per share forthe yeor 2012-13 for right issue. (i) Basic earnings per share for the year 2013-14. A BL Chakravarti (BSc, MS, FCA, CPA, CAN) Page 115Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Solution Computation of Basic Earnings Per Share (as per paragraphs 10 and 26 of AS 20 on Earnings Per Share) Year 2012. | Year 2013 13% 14x 7S for the year 2012-13 as originally reported Net profit of the year attributable to equity shareholders * Weighted average number of equity shares outstanding during the year 2200000 220 = To00000 EPS for the year 2012-13 restated for ight issue ZZ00000 22 Gon9000x 104) approx.) 7S for the year 2013 Including effects of rights sue — 3000000 262 © (1000000 x 1.04% + 1200000. Approx Working Notes: 1. Computation of theoretical ex-rights fair value per share: = Fate value ofall oustanding shares immediately prior to exercise of rights + total amount received from exercise Number of shares outstanding prior ta exercise +mumber of shares (sued inthe exercise = (182 10,00,000 shares) + 25 x 200,000 shares) 10,00,000 shares +2,00,000 shares 30.83 air value yer shave prior to exercise of rights 32 2. Computation of adjustment factor = rae seticalex-right vale per share om Q21: [sM41] X-Co, Ltd. supplied the following information. You are required to compute the basic earning per share: (Accounting year 1.1.2012 ~ 31.12.2012) Net Profit Year 2072 : ¥20,00,000 : Year 2013 : € 30,00,000 ‘No. of shares outstanding prior to Right Issue + 10,00,000 shares Right issue One new share for each four outstanding ive,, 2,50,000 shares. Right issue price -® 20 Last date of exercise rights ~ 31.3.2013. Fair rate of one Equity share immediately prior to 525 exercise of rights on 31.3.2013 You are required to compute ()) Basic earings per share for the year 2012 (ii) Restated basic earnings per share for the year 2012 for right issue. (ii) Basic earnings per share forthe year 2013, [Link] Page 1.16Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Solution Computation of Basic Earnings Per Share (as per paragraphs 10 and 26 of AS 20 on Earnings Per Share) Year 2012 | Year 03 x x TP or the year 2012 os original reported Net profit ofthe year attributable to equity shareholders > Weighted average number of equity shares outstanding during the year 2000000 2 000000 EPS for the year 2012 restated for rights issue ——FO0UOTG iz = (000000x 1.04) (approx.) EPS for the year 2013 including effects of rights issue 3000000 TI Go00000% 104% + 12500005) ‘Approx Working Note 1. Computation of theoretical ex-rights fair value per share: Fale value ofall oustanding shaves immediately prior to exercise of rights + total amount received from exercise Number of shares outstanding prior ta exerlee mumnber of shares Issued inthe exeretee 425 x 10,06,000 shares) + (420 2,50.000 shares) 10,00.000 shares +2.50,00 shares = 824 ‘air value per share prior to exercise of rights _ 25 Theoretié al ex-right value per share En 2. Computation of adjustment factor = 1.04 Approx P22: IN 16, 10, 5M). “While calculating diluted EPS, effect is given to all dilutive potential equity shares that were outstanding during the period.” Explain this statement in the light of relevant AS. Also calculate the diluted EPS from the following information: ‘Net Profit for the current year (After Tax) €7,00,00,000 ‘No. of Equity shares outstanding 10,00,000, ‘No. of 10% Fully Convertible Debentures of © 100 each 71,00,000 (Each Debenture is compulsorily & fully convertible into 10 equity shares) Debenture interest expense for the current year €5,00,000 ‘Assume applicable Income Tax rate @ 30% Ans: As per AS 20 ‘Earnings per Share’, the net profit or loss for the period attributable to equity shareholders and the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity shares for calculation of diluted earnings per share. Hence, “in calculating diluted earnings per share, effect is given to all dilutive potential equity shares that were outstanding during the period.” Adjusted net profit for the current year Weighted average mumber of equlty shares Computation of diluted earnings per shai CA. BL Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.17Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter ‘Adjusted net profit for the current year = ‘Net profit for the current year (after tax) 1,00,00,000 ‘Add: Interest expense for the current year 500,000 Less: Tax relating to interest expense (30% of ®5,00,000) (1,50,000), ‘Adjusted net profit for the current year 1,03,50,000 Weighted average number of equity shares Number of equity shares resulting from conversion of debentures 2000810 490,00 Equity shares Weighted average number of equity shares used to compute diluted earnings per share = [(10,00,000 x 12) + (10,00,000 x 6)]/12 = 15,00,000 equity shares Diluted earnings per share = € 1,03,50,000 / 15,00,000 shares = ¥ 6.90 per share Note: Interest on debentures for full year amounts to € 10,00,000 (i.e. 10% of € 1,00,00,000). However, interest ‘expense amounting %5,00,000 has been given in the question. It may be concluded that debentures have been issued ‘at the mid of the year and interest has been provided for 6 months. P23: (N17, 10, 5M] From the following information compute Basic and Diluted Earnings Per Share (EPS) of M/s. XYZ Limited for the year ‘ended 31st March, 2017. Net Profit for the year after tax: = 75,00,000 Number of Equity Shares of ® 10 each outstanding: % 10,00,000 Convertible Debentures issued by the Company: Particulars Nos. ‘8% Convertible Debentures of € 100 each 100,000. Equity Shares to be issued on conversion 110,000 Rate of Income Tax: 30%. Solution Computation of basic earnings per share [Net profit for the current year / Weighted average number of equity shares outstanding during the year 75,00,000 / 10,00,000 = § 7.50 per share Computation of diluted earnings per share asied net profit for she cwrent Year — Weighted average mamber of equity shares Adjusted net profit for the current year x ‘Net profit for the current year 75,00,000 ‘Add: Interest expense for the current year 8,00,000 Less: Tax relating to interest expense (30% of € 800,000) (2,40,000), ‘Adjusted net profit for the current year 80,560,000) ‘Number of equity shares resulting from conversion of debentures = 1,10,000 Equity shares (given in the question) Weighted average number of equity shares used to compute diluted earnings per share = 11,10,000 shares (10,00,000 + 1,10,000) Diluted earnings per share = € 80,60,000/ 11,10,000 7.26 per share [Link] Page 1.18Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter 1 Conversion of convertible debentures into Equity Share will be dilutive potential equity shares. Hence, to compute the adjusted profit the interest paid on such debentures will be added back as the same would not be payable in case these are converted into equity shares. 2. The date of issue of convertible debentures is not given in the question. It has been assumed that debentures were issued at the beginning of the year. P:28 [M18*, 1b, SM] As at 1st April, 2016 a company had 6,00,000 equity shares of € 10 each (8 5 paid up by all shareholders). On 1st September, 2016 the remaining 5 was called up and paid by all shareholders except one shareholder having 60,000 equity shares. The net profit for the year ended 31st March, 2017 was % 21,96,000 after considering dividend on preference shores and dividend distribution tax on such dividend totalling to & 3,40,000, Compute Basic FPS for the year ended 31st March, 2017 as per Accounting Standard 20 "Earnings Per Share". Ans: Net profit ate ‘number of equity shares outstanding during the year 4.80 per share Basic Eomings per share (EPS) (able to equity shareholders Weighted average Working Note: Calculation of weighted average number of equity shares As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated as a fraction of equity shore to the extent that they were entitled to participate in dvidend relative to a fully paid equity share diuring the reporting period. Assuming that the partly paid shares are entitled to participate in the dividend to the extent of amount paid, weighted average number of shares will be calculated os lows: Date No. of equity shares | Amount paid per Weighted average na. share of equity shares x x x 142016 00,000 5 {6,00,000 x 5/10 x 5/12 1,25,000 19.2016 540,000 70 540,000 x 7/12 = 3,15,000 19.2016 60,000 5 {60,000 x 5/10 x 7/12 17,500. Total weighted average equity shares 4,57,500 P25:: N18*, 10, 5M] From the following information given by Sampark Ltd., Calculate Basis EPS and Diluted EPS as per AS 20: < Net Profit for the current year 2,50,00,000 No. of Equity Shares Outstanding 50,00,000_ [Link] 12% convertible debentures of 100 each 50,000 Each debenture is convertible into 8 Equity Shares Interest expense for the current year 6,00,000_ Tax saving relating to Interest expense 30%) 380,000 CA. BL Chakravarti ([Link], [Link], FCA, CPA, CAIIB) Page 1.19Summarized Notes of AS by CA BL Chakravarti for CA Inter/CMA Inter Calculation of Basic Earning Per Share bose Slee a an Calculation of Diluted Earning Per Share Adjusted net proftt for the current year uted EPS Weighted average noof Equity shares Adjusted net profit for the current year x Net profit for the current year 2,50,00,000 Add: Interest expenses for the current year 6,00,000 Less: Tax saving relating to Tax Expenses (1,80,000) 2,54,20,000 No. of equity shares resulting from conversion of debentures: 4,00,000 Shares Weighted average no. of equity shares used to compute diluted EPS (50,00,000 + 4,00,000) = 54,00,000 Equity Shares Diluted earnings per share: (2,54,20,000/54,00,000) = % 4.71 (Approx.) P26: [N14, 7c, 4M] In the following list of shares issued, for the purpose of calculation of weighted average number of shares, from which date weight isto be considered: Equity Shares issued in exchange of cash, Equity Shares issued as a result of conversion of @ debt instrument, Equity Shares issued in exchange for the settlement of a liability of the enterprise, Equity Shares issued for rendering of services to the enterprise, Equity Shares issued in lieu of interest and/or principal of another financial instrument, Equity Shares issued as consideration for the acquisition of an asset other than in cash Also define Potential Equity Share. ‘Ans: The following dates should be considered for consideration of weights for calculation of weighted average number of shares in the given situations: (i) Date of Cash receivable (ii) Date of conversion (ill) Date on which settlement becomes effective (iv) When the services are rendered (v) Date when interest ceases to accrue (vi) Date on which the acquisition is recognised. A Potential Equity Share is a financial instrument or other contract that entitles, or may entitle its holder to equity shares, [Link] Page 1.20