AS-20 Earnings per share

AS 989 views 2 replies

Guest

I have a doubt in AS-20 (Earnings per share). While reading AS-20 i came across a paragraph

calculation of weighted average number of outstanding equity shares during that period

......if an enterprise has more than one class of equity shares, net profit or loss for that period is to be apportioned over the different classes of shares in accordance with their dividend rights.

In this my doubt is

1. Whether an enterprise can have more than one class of equity share? i only heard of enterprise having more than one types of preference shares and debentures. But did not heard about more than one type of equity shares.

2. How can we apportion the profit based on their dividend rights? if possible can you please explain me with an example

Replies (2)

abhishek

CA FINAL

274 Points Joined July 2008

Hi Dinesh!

First of all I must admit your doubts are really good!

Now the solution to your doubts’

1. You are correct, not very often do we here about different types of equity shares coz generally equity shares are of only one type. But, if you understand it theoretically, A company which has 100 equity shares ,out of these shares if (lot A) 50 shares are of face value of Rs 10 per share and(Lot B) 50 shares have face value of Rs 5 per share , then these 2 lots of 50 shares become 2 different class of shares.

2. Now coming to your second doubt ,one of the reasons of having different dividend right could be difference of nominal value of shares, so if we continue the example taken above ,we could say that shares of Lot A carry 100% Dividend right ,while Lot B shares carry 50% Dividend right.

So when we try to apportion profits we will find out the Weighted Avg Number of EqUITY Shares(WANES) Outstanding, this will be done by taking into consideration the dividend rights.

Now in the above example if both Lots of shares are outstanding for 12 months the calculation of WANES will be (50*12/12)+(50*50%*12/12)=75 shares.

i hope this helps.

GOD BLESS!

Guest

Hi Abhishek, thanks for your reply.

After reading your reply one more doubt arises in my mind. Suppose if it is possible for a company to have two class of equity share means then how those shares will be traded in stock exchange.

For eg. if infosys as two class of equity shares, then whether those two types of shares will be traded seperately at different values? if yes. can you give me any practical example regarding this.