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Earnings
Per Share
Objective:
To
set principles for the determination and presentation
of EPS
AS-20
EARNINGS PER SHARE
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Issuing
Authority:
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The
Institute of Chartered Accountants of India.
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Applicable
to:
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Accounting
period starting from 1.4.2001.
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Nature:
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Mandatory
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Scope
Enterprises
whose equity shares or potential equity shares are listed.
Other enterprises which disclose earning per shares
due to mandatory requirement
or otherwise .
Clarification-
AS 20: Every Company which is required to give information
under part IV of Schedule VI to Companies Act should
calculate and disclose earnings per share in accordance
with AS-20.
Requirements
An
enterprise should present on the face of P&L Account.
For each
class of equity shares that has a different right to
share in net profit.
In the case of nominal value of shares being different,
no. of equity shares should be calculated after conversion
into same nominal value.
This information is to be presented even if the amount
disclosed is negative (a loss per share).
Definition
of Basic EPS = (A) / (B)
Basic
EPS= Net profit or loss attributable to equity shareholders(A)/
Weighted average no of equity shares outstanding during
the year(B).
(A) = Net profit or loss for the period after deducting
preference dividend (provided in respect of the period,
whether cumulative or not) and tax thereon.
(B) = It is the number of equity shares outstanding
at the beginning of the period, adjusted by the numbers
bought back or issued during the period multiplied by
the time weighting factor.
Time weighting
factor is the number of days for which the specific
shares are outstanding as a proportion to total number
of days in the period.
It should
be adjusted for events (other than conversion of potential
equity shares) that changed the number of equity shares
outstanding, without corresponding change in resources
(such as bonus shares, share split etc.) for all reporting
periods.
Partly - paid equity shares are treated as a fraction
of an equity share to the extent hat they were entitled
to participate in dividend relative to a fully paid
equity share during the reporting period.
Definition
of Diluted EPS = (C) / (D)
(C)
= Net profit or loss for the period after deducting
preference dividend (provided in respect of the period,
whether cumulative or not)
and any attributable tax thereon adjusted for the following
effect of all dilutive potential equity shares after
taking into account any attributable change in tax expense
for the period:
- any
dividend on dilutive potential equity shares which
have been deducted in arriving profit/loss.
- any
interest
- any
other change in expense or income that would result
from the conversion of dilutive potential equity shares.
(D) = Aggregate
of the number of equity shares outstanding at the beginning
of the period, adjusted by the numbers bought back or
issued during the period multiplied by the time weighting
factor and the weighted average number of equity shares
which would be issued on the conversion of all the dilutive
potential equity shares into equity shares at the beginning
of the period unless issued during the period and in
that case from the date of issue.
Contingently
issuable shares are to be computed in the calculation
of :
- (a)
Basic EPS, only when all necessary conditions are
satisfied
- (b)
Diluted EPS, whether or not all necessary conditions
are satisfied
Equity
shares which are issuable upon satisfaction of certain
conditions resulting from contractual arrangements are
called Contingently issuable shares.
Share
application money or advance Share application money
should be considered for calculating Diluted EPS
only if it is being utilized in the business of the
enterprise.
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Dilutive Potential Equity shares shall be treated as
such only when their conversion to equity shares would
decrease net profits per shares from continuing ordinary
operations (Each issue should be considered separately
to determine whether they are dilutive or not)
It shall be presumed that exercise of dilutive options
shall be exercised. It shall also be assumed that issue
of shares shall be at fair value and assumed proceeds
shall be received.
Statement
If
the number of equity or potential equity shares increases
or decreases (as a result of bonus issue, share split
or reverse share split) after the Balance Sheet date
but before the adoption of accounts by the Board Of
Directors, the per shares calculations for those and
prior period should be based on the new number of shares.
The fact should be disclosed.
Disclosures
- The
amount used as numerators and a reconciliation of
that amount to the net profit/loss for the period.
- The
number used as denominators and a reconciliation of
those to each other.
- The
nominal value along with EPS figures.
- If
a component of net profit is used which is not reported
as a line item in the P&L Account, a reconciliation
should be provided.
Practical
Application in some cases:
- Bonus
Issue: For computing EPS, no. of shares should
be increased, but, no corresponding in Net Profit/Loss
should be done as such an issue does not increase
the enterprise's resources.
- Rights
Issue: In a rights issue, the exercise price is
often less than the fair value of shares. Hence, no.
of equity shares outstanding for all periods prior
to the rights issue is multiplied by this factor:
Fair
value per share immediately prior to the exercise of
rights
Theoretical ex-rights fair value per share
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 no. of shares
outstanding after the exercise of the rights.
Options:
For the purpose of computing EPS, no. of shares that
would have been issued at fair value should be considered,
remaining shares assumed to be issued for no consideration,
hence, such shares are dilutive.
Differences
Between IAS, USGAAP & AS20
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IAS-33
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FAS--128,133
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AS-20
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| Enterprises
whose ordinary & potential ordinary shares are
publicly traded or those who are in the process
of issuing such in future. |
Entitles
with publicly held common stock or potential common
stock. |
Enterprises
whose equity shares or potential equity shares are
listed on a recognised stock exchange. |
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IAS
-33
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FAS
-128,135
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AS
- 20
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| Need
to be presented only on the basis of consolidated
information when both parent & consolidated
financial statements are presented. |
Need
to be presented only on the basis of consolidated
information when both parent & consolidated
financial statements are presented. |
Need
to be presented based on both the statements. |
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