AS-20 EARNING PER SHARE

Kalpesh Chauhan, (Tax Assistant (Accounting Technician CA FINAL CS PROF. PROG. B.Com))   (8310 Points)

15 August 2010  

 

                           AS-20 EARNING PER SHARE                      

 

THERE ARE TWO TYPES OF METHOD TO COMPUTE EARNING PER

 1) BASIC EPS

 2) DILUTED EPS

 

 

(1) BASIC EPS

 

1) BASIC EPS =               Net Profit Attributable To Equity Share Holders

                                        Weighted Average No Of Equity Shares (WANES)

 

 NET PROFIT ATTR ESH    =                Net Profit after Tax                  XXX

                                                    LESS    Preference Dividend                 XXX

                                                    LESS    Dividend Distribution Tax        XXX

                                                                                                                    XXX          

PREFERENCE DIVIDEND = 1) Incase of Cumulative Preference Share, Dividend 

                                                      Should be Deducted Whether it is Declared or Not.

                                                

                                                  2) Incase of Non-Cumulative Preference Share

                                                      It should be Deducted Only When it is Declared

                                                 

                                                  3) Current Year Dividend only should be Deducted.

                            

                                WANES = Total No of Equity Shares Outstanding at the end.

 

► In Case of issue of shares at the middle of the year then it should be calculated by taking the holding period in to consideration.

 

Example for calculation of WANES

                                                

On 1-04-2009 Y LTD issued 20000 shares of 10 each and on 1- 10-2009 issued 5000 shares of  10 each.

 

 

WANES = 20000*12/12*10/10 = 20000

                   5000*6/12*10/10    =   2500

                                                      22500

 

►Incase of partly paid up shares in the above example as RS.7 and RS. 6

 

WANES = 20000*12/12*7/10  =  14000

                   5000* 6/12*6/10    =     1500

                                                        15500

 

►Effective dates for issue of shares.

 

1)     Issue of shares for cash                                         ;  The date on which the cash is received.

               

         

2)     Issue of shares for purchase of Asset                     ; The date on which Asset purchased

 

3)     Issue of shares incase of settlement of Liablity       ;  The date in which interest ceases to accrue.

 

4)     Issue of shares in Amalgamation in the nature ;  The date in which Purchase is made.

Of Purchase.

 

5)      Issue of shares in Amalgamation in the nature ; First day of the Accounting Year.

Merger.

 

6)     Issue of shares in conversion of debenture in to ; The date in which the conversion is made .

Equity 

       

     7)  Issue of Bonus shares                                          ; From the Beginning of the Previous Reporting

                                                                                         period.

 

BONUS SHARES

 

In case of bonus shares issued then the EPS is calculated for the current year and for previous year also because the effect of bonus should be reported to know the difference between EPS for previous year and current year.

 

BONUS  ELEMENT  IN  RIGHT  ISSUE

 

 

Bonus factor = Fair value prior to Rights 

                        Theoretical Ex right price

 

►Bonus factor will be calculated only when issue price is less than fair value

 

   Theoretical Ex right price = No. of Shares Prior to Right * Fair value + Right share * Issue Price

                                                 No. of Share Prior to Right + Right Shares

 

WANES CALCULATION = No. of shares prior to bonus*Bonus factor*Period of holdings+

                                                   Total shares including Bonus share*Period of holding after bonus

 

Example;

 

40 lac equity shares @ Rs.3.50 = 140 lac .9 months later the co had issued 1 share for every 4 share held

and given right to existing shareholders @ Rs.2.8 .Find out bonus element and wanes.

  

Bonus factor = Face value prior to Rights 

                        Theoretical Ex right price

               

Theoretical Ex right price = No. of Shares Prior to Right * Fair value + Right share * Issue Price

                                                 No. of Share Prior to Right + Right Shares

 

                                          = 14000000+*3.5+1000000*2.8

                                                4000000+1000000

 

                                          = 3.36

Bonus factor                      = 3.5/3.36 = 1.0417  

 

 

WANES = No. of shares prior to bonus * Bonus factor * Period of holdings+

                   Total shares including Bonus share * Period of holding after bonus

 

               = 4000000 * 1.0417 * 9/12+5000000 * 3/12

 

               = 4375000.

 

                                      DILUTED EPS

 

Shares Issued within the resources of the company, which makes the company earnings to be reduced and that should be reported.

 

Example; Conversion Debenture in to Shares etc.

  

DILUTED EPS = Basic earnings + Interest  after tax

                              Basic Wanes+ Adjusted Wanes

 

Basic earnings = Net Profit Attributable To Equity Share Holders

 

Interest after Tax = Interest saved because of conversion of Debentures less tax should be paid.

 

Basic Wanes = Weighted Average No of Equity Shares

                

Adjusted Wanes = Converted no of Equity shares.

 

Example

 

Find diluted earnings

Net profit = 100 lac

No. of shares=50 lac

12% convertible debenture Rs.100 lac of Rs.100 each

Each Debenture convertible in 10 equity shares

IT=30%

 

BASIC EPS =         100 lac

                           50 lac shares

                      

                     =   2 per share

 

DILUTED EPS = Basic earnings + Interest  after tax

                              Basic Wanes+ Adjusted Wanes

 

                          = 100lac+100lac(debenture) * 12%(interest)*70%(after tax)

                             50lac(existing shares)+10lac(converted shares)

 

                         =      108.4lac          

                             50 lac shares

 

 

                        = 1.81 per share

 

Impact of Dilution is  = 2   less 1.81  = 0.19

 

 

►In case of convertible shares issued but the conversion is not take place then the shares will be taken for calculating Diluted EPS only. If the conversion is take place in the same year then it should be taken for calculating Basic EPS as well as Diluted EPS.

 

 

                                                   OPTION

 

►In case of  Option to find the incremental EPS, Ranking should be done .Option will always ranked first .

 

.