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 .
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