IAS 20

Accounting Standard (AS) 20

(issued 2001)

Earnings Per Share

Contents

OBJECTIVE

SCOPE Paragraphs 1-3

DEFINITIONS 4-7

PRESENTATION 8-9

MEASUREMENT 10-43

Basic Earnings Per Share 10-25

Earnings-Basic 11-14

Per Share-Basic 15-25

Diluted Earnings Per Share 26-43

Earnings-Diluted 29-31

Per Share-Diluted 32-38

Dilutive Potential Equity Shares 39-43

RESTATEMENT 44-47

DISCLOSURE 48-51

APPENDICES

The following Accounting Standards Interpretation (ASI) relates to AS 20:

 ASI 12 - Applicability of AS 20

The above Interpretation is published elsewhere in this Compendium.

Accounting Standard (AS) 20*

(issued 2001)

Earnings Per Share

(This Accounting Standard includes paragraphs set in bold italic type

and plain type, which have equal authority. Paragraphs in bold italic

type indicate the main principles. This Accounting Standard should

be read in the context of its objective and the Preface to the Statements

of Accounting Standards1 .)

Accounting Standard (AS) 20, ‘Earnings Per Share’, issued by the Council

of the Institute of Chartered Accountants of India, comes into effect in

respect of accounting periods commencing on or after 1-4-2001 and is

mandatory in nature2 from that date, in respect of enterprises whose

equity shares or potential equity shares are listed on a recognised stock

exchange in India.

An enterprise which has neither equity shares nor potential equity shares

which are so listed butwhich discloses earnings per share, should calculate

and disclose earnings per share in accordance with this Standard from

the aforesaid date3 . However, in respect of accounting periods commencing

on or after 1-4-2004, if any such enterprise does not fall in any of the

following categories, it need not disclose diluted earnings per share (both

including and excluding extraordinary items) and information required by

* A limited revision to this Standard has been made in 2004, pursuant to which

paragraphs 48 and 51 of this Standard have been revised (See footnotes 8 and 9).

1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which

Accounting Standards are intended to apply only to items which are material.

2 Reference may be made to the section titled ‘Announcements of the Council

regarding status of various documents issued by the Institute of Chartered

Accountants of India’ appearing at the beginning of this Compendium for a detailed

discussion on the implications of the mandatory status of an accounting standard.

3 See also Accounting Standards Interpretation (ASI) 12, published elsewhere in

this Compendium.

384 AS 20 (issued 2001)

paragraph 48 (ii) of this Standard4 :

(i) Enterprises whose equity securities or potential equity securities

are listed outside India and enterpriseswhose debt securities (other

than potential equity securities) are listed whether in India or

outside India.

(ii) Enterprises which are in the process of listing their equity or debt

securities as evidenced by the board of directors’ resolution in

this regard.

(iii) Banks including co-operative banks.

(iv) Financial institutions.

(v) Enterprises carrying on insurance business.

(vi) All commercial, industrial and business reporting enterprises,

whose turnover for the immediately preceding accounting period

on the basis of audited financial statements exceeds Rs. 50 crore.

Turnover does not include ‘other income’.

(vii) All commercial, industrial and business reporting enterprises having

borrowings, including public deposits, in excess ofRs. 10 crore at

any time during the accounting period.

(viii) Holding and subsidiary enterprises of any one of the above at any

time during the accounting period.

Where an enterprise (which has neither equity shares nor potential equity

shares which are listed on a recognised stock exchange in India but

which discloses earnings per share) has been covered in any one or

more of the above categories and subsequently, ceases to be so covered,

the enterprise will not qualify for exemption from the disclosure of

diluted earnings per share (both including and excluding extraordinary

items) and paragraph

48 (ii) of this Standard, until the enterprise ceases to be covered in any of

the above categories for two consecutive years.

4 Originally, no exemption was available to an enterprise, which had neither equity

shares nor potential equity shares which were listed on a recognised stock exchange in

India, but which disclosed earnings per share. It is clarified that no exemption is available

even in respect of accounting periods commencing on or after 1-4-2004 to enterprises

whose equity shares or potential equity shares are listed on a recognised stock exchange

in India. It is also clarified that this Standard is not applicable to an enterprise which has

neither equity shares nor potential equity shares which are listed on a recognised stock

exchange in India and which also does not disclose earnings per share.

Earnings Per Share 385

Where an enterprise (which has neither equity shares nor potential

equity shares which are listed on a recognised stock exchange in India

but which discloses earnings per share) has previously qualified for

exemption from the disclosure of diluted earnings per share (both

including and excluding extraordinary items) and paragraph 48(ii) of this

Standard (being not covered by any of the above categories) but no longer

qualifies for exemption in the current accounting period, this Standard

becomes applicable, in its entirety, from the current period. However,

the relevant corresponding previous period figures need not be

disclosed.

If an enterprise (which has neither equity shares nor potential equity

shares which are listed on a recognised stock exchange in India but which

discloses earnings per share), pursuant to the above provisions, does not

disclose the diluted earnings per share (both including and excluding

extraordinary items) and information required by paragraph 48 (ii), it

should disclose the fact.

The following is the text of the Accounting Standard.

Objective

The objective of this Statement is to prescribe principles for the determination

and presentation of earnings per share which will improve comparison of

performance among different enterprises for the same period and among

different accounting periods for the same enterprise. The focus of this

Statement is on the denominator of the earnings per share calculation. Even

though earnings per share data has limitations because of different accounting

policies used for determining ‘earnings’, a consistently determined denominator

enhances the quality of financial reporting.

Scope

1. This Statement should be applied by enterprises whose equity shares

or potential equity shares are listed on a recognised stock 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

Statement.5

5 See also Accounting Standards Interpretation (ASI) 12, published elsewhere in

this Compendium.

386 AS 20 (issued 2001)

2. In consolidated financial statements, the information required by

this Statement should be presented on the basis of consolidated

information.6

3. This Statement applies to enterprises whose equity or potential equity

shares are listed on a recognised stock exchange in India. An enterprise

which has neither equity shares nor potential equity shares which are so

listed is not required to disclose earnings per share. However, comparability

in financial reporting among enterprises is enhanced if such an enterprise

that is required to disclose by any statute or chooses to disclose earnings per

share calculates earnings per share in accordance with the principles laid

down in this Statement. In the case of a parent (holding enterprise), users of

financial statements are usually concerned with, and need to be informed

about, the results of operations of both the enterprise itself as well as of the

group as awhole.Accordingly, in the case of such enterprises, this Statement

requires the presentation of earnings per share information on the basis of

consolidated financial statements as well as individual financial statements

of the parent. In consolidated financial statements, such information is

presented on the basis of consolidated information.

Definitions

4. For the purpose of this Statement, the following terms are used

with the meanings specified:

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 financial instrument is any contract that gives rise to both a financial

asset of one enterprise and a financial liability or equity shares of another

enterprise.

A potential equity share is a financial instrument or other contract that

entitles, or may entitle, its holder to equity shares.

6 Accounting Standard (AS) 21, 'Consolidated Financial Statements', specifies the

requirements relating to consolidated financial statements.

Earnings Per Share 387

Share warrants or options are financial instruments that give the holder

the right to acquire equity shares.

Fair value is the amount for which an asset could be exchanged, or a

liability settled, between knowledgeable, willing parties in an arm’s length

transaction.

5. Equity shares participate in the net profit for the period only after

preference shares. An enterprise may have more than one class of equity

shares. Equity shares of the same class have the same rights to receive

dividends.

6. A financial instrument is any contract that gives rise to both a financial

asset of one enterprise and a financial liability or equity shares of another

enterprise. For this purpose, a financial asset is any asset that is

(a) cash;

(b) a contractual right to receive cash or another financial asset from

another enterprise;

(c) a contractual right to exchange financial instruments with another

enterprise under conditions that are potentially favourable; or

(d) an equity share of another enterprise.

A financial liability is any liability that is a contractual obligation to deliver

cash or another financial asset to another enterprise or to exchange financial

instruments with another enterprise under conditions that are

potentially unfavourable.

7. Examples of potential equity shares are:

(a) debt instruments or preference shares, that are convertible into

equity shares;

(b) share warrants;

(c) 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

388 AS 20 (issued 2001)

(d) shares which would be issued upon the satisfaction of certain

conditions resulting fromcontractual 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.

Presentation

8. 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 basic and diluted earnings per share with

equal prominence for all periods presented.

9. This Statement requires an enterprise to present basic and diluted

earnings per share, even if the amounts disclosed are negative (a loss

per share).

Measurement

Basic Earnings Per Share

10. Basic earnings per share should be calculated by dividing the net

profit or loss for the period attributable to equity shareholders by the

weighted average number of equity shares outstanding during the period.

Earnings - Basic

11. For the purpose of calculating basic earnings per share, the net

profit or loss for the period attributable to equity shareholders should be

the net profit or loss for the period after deducting preference dividends

and any attributable tax thereto for the period.

12. 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 an Accounting

Standard requires or permits otherwise (see Accounting Standard (AS) 5,

Net Profit or Loss for the Period, Prior Period Items and Changes in

Accounting Policies). The amount of preference dividends and any

attributable tax thereto for the period is deducted from the net profit for the

Earnings Per Share 389

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.

13. The amount of preference dividends for the period that is deducted

from the net profit for the period is:

(a) 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.

14. 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.

Per Share - Basic

15. 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.

16. 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. It is the 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 forwhich 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.

Appendix I illustrates the computation ofweighted average number of shares.

17. In most cases, shares are included in the weighted average number of

shares from the date the consideration is receivable, for example:

390 AS 20 (issued 2001)

(a) equity shares issued in exchange for cash are included when cash

is receivable;

(b) equity shares issued as a result of the conversion of a debt

instrument to equity shares are included as of the date of

conversion;

(c) equity shares issued in lieu of interest or principal on other financial

instruments are included as of the date interest ceases to accrue;

(d) equity shares issued in exchange for the settlement of a liability

of the enterprise are included as of the date the settlement becomes

effective;

(e) equity shares issued as consideration for the acquisition of an

asset other than cash are included as of the date on which the

acquisition is recognised; and

(f) equity shares issued for the rendering of services to the enterprise

are included as the services are rendered.

In these and other cases, the timing of the inclusion of equity shares is

determined by the specific terms and conditions attaching to their issue.Due

consideration should be given to the substance of any contract associated

with the issue.

18. 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 because the transferee incorporates

the results of the operations of the transferor into its statement of profit and

loss as fromthe date of acquisition. Equity shares issued during the reporting

period as part of the consideration in an amalgamation in the nature ofmerger

are included in the calculation of the weighted average number of shares

from the beginning of the reporting period because the financial statements

of the combined enterprise for the reporting period are prepared as if the

combined entity had existed from the beginning of the reporting period.

Therefore, the number of equity shares used for the calculation of basic

earnings per share in an amalgamation in the nature ofmerger is the aggregate

of the weighted average number of shares of the combined

enterprises, adjusted to equivalent shares of the enterprise whose shares are

outstanding after the amalgamation.

Earnings Per Share 391

19. Partly paid equity shares are treated as a fraction of an equity share to

the extent that theywere entitled to participate in dividends relative to a fully

paid equity share during the reporting period.

Appendix II illustrates the computations in respect of partly paid equity shares.

20. Where an enterprise has equity shares of different nominal values but

with the same 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.

21. Equity shares which are issuable upon the satisfaction of certain

conditions resulting from contractual arrangements (contingently issuable

shares) are considered outstanding, and included in the computation of basic

earnings per share from the date when all necessary conditions under the

contract have been satisfied.

22. The weighted average number of equity shares outstanding during

the period and for all periods presented should be adjusted for events,

other than the conversion of potential equity shares, that have changed

the number of equity shares outstanding, without a corresponding change

in resources.

23. Equity shares may be issued, or the number of shares outstanding may

be reduced, without a corresponding change in resources. Examples include:

(a) a bonus issue;

(b) a bonus element in any other issue, for example a bonus element

in a rights issue to existing shareholders;

(c) a share split; and

(d) a reverse share split (consolidation of shares).

24. 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. For

392 AS 20 (issued 2001)

example, upon a two-for-one bonus issue, the number of shares outstanding

prior to the issue is multiplied by a factor of three to obtain the new total

number of shares, or by a factor of two to obtain the number of additional

shares.

Appendix III illustrates the computation of weighted average number of

equity shares in case of a bonus issue during the period.

25. The issue of equity shares at the time of exercise or conversion of

potential equity shareswill not usually give rise to a bonus element, since the

potential equity shares will usually have been issued for full value, resulting

in a proportionate change in the resources available to the enterprise. In a

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 a 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 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 fromthe exercise of the rights, and dividing by the

number of shares outstanding after the exercise of the rights. Where the

rights themselves are to be publicly traded separately from the shares prior

to the exercise date, fair value for the purposes of this calculation is

established at the close of the last day onwhich the shares are traded together

with the rights.

Appendix IV illustrates the computation of weighted average number of

equity shares in case of a rights issue during the period.

Diluted Earnings Per Share

26. For the purpose of calculating diluted 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.

Earnings Per Share 393

27. In calculating diluted earnings per share, effect is given to all dilutive

potential equity shares that were outstanding during the period, that is:

(a) the net profit for the period attributable to equity shares is:

(i) increased by the amount of dividends recognised in the period

in respect of the dilutive 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;

and

(iii) adjusted for the after-tax amount of any other changes in

expenses or income that would result from the conversion

of the dilutive potential equity shares.

(b) theweighted 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.

28. For the purpose of this Statement, share application money pending

allotment or any advance share application money as at the balance sheet

date, which is not statutorily required to be kept separately and is being

utilised in the business of the enterprise, is treated in the same manner as

dilutive potential equity shares for the purpose of calculation of diluted earnings

per share.

Earnings - Diluted

29. For the purpose of calculating diluted earnings per share, the

amount of net profit or loss for the period attributable to equity

shareholders, as calculated in accordance with paragraph 11, should

be adjusted by the following, after taking into account any attributable

change in tax expense for the period:

(a) any dividends on dilutive potential equity shares which have

been deducted in arriving at the net profit attributable to equity

shareholders as calculated in accordance with paragraph 11;

394 AS 20 (issued 2001)

(b) interest recognised in the period for the dilutive potential

equity shares; and

(c) any other changes in expenses or income that would result

from the conversion of the dilutive potential equity shares.

30. After the potential equity shares are converted into equity shares, the

dividends, interest and other expenses or income associatedwith those potential

equity shares will no longer be incurred (or earned). Instead, the new equity

shares will be entitled to participate in the net profit attributable to equity

shareholders. Therefore, the net profit for the period attributable to equity

shareholders calculated in accordance with paragraph 11 is increased by the

amount of dividends, interest and other expenses that will be saved, and

reduced by the amount of income thatwill cease to accrue, on the conversion

of the dilutive potential equity shares into equity shares. The amounts of

dividends, interest and other expenses or income are adjusted for any

attributable taxes.

Appendix V illustrates the computation of diluted earnings in case of

convertible debentures.

31. The conversion of some potential equity shares may lead to

consequential changes in other items of income or expense. For example,

the reduction of interest expense related to potential equity shares and the

resulting increase in net profit for the period may lead to an increase in the

expense relating to a non-discretionary employee profit sharing plan. For the

purpose of calculating diluted earnings per share, the net profit or loss for the

period is adjusted for any such consequential changes in income or expenses.

Per Share - Diluted

32. For the purpose of calculating diluted earnings per share, the number

of equity shares should be the aggregate of the weighted average number

of equity shares calculated in accordance with paragraphs 15 and 22, 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.

Dilutive potential equity shares should be deemed to have been converted

into equity shares at the beginning of the period or, if issued later, the date

of the issue of the potential equity shares.

33. The number of equity shares which would be issued on the conversion

Earnings Per Share 395

of dilutive potential equity shares is determined fromthe terms of the potential

equity shares. The computation assumes the most advantageous conversion

rate or exercise price fromthe standpoint of the holder of the potential equity

shares.

34. Equity shareswhich are issuable upon the satisfaction of certain conditions

resulting from contractual arrangements (contingently issuable shares) are

considered outstanding and included in the computation of both the basic

earnings per share and diluted earnings per share from the date when the

conditions under a contract are met. If the conditions have not been met, for

computing the diluted earnings per share, contingently issuable shares are

included as of the beginning of the period (or as of the date of the contingent

share agreement, if later).Thenumber of contingentlyissuable shares included

in this case in computing the diluted earnings per share is based on the number

of shares that would be issuable if the end of the reporting period was the end

of the contingency period. Restatement is not permitted if the conditions are

not met when the contingency period actually expires subsequent to the end

of the reporting period. The provisions of this paragraph apply equally to

potentialequityshares thatareissuableuponthesatisfactionof certainconditions

(contingently issuable potential equity shares).

35. For the purpose of calculating diluted earnings per share, an

enterprise should assume the exercise of dilutive options and other

dilutive potential equity shares of the enterprise. The assumed proceeds

from these issues should be considered to have been received from the

issue of shares at fair value. The difference between the number of

shares issuable and the number of shares that would have been issued

at fair value should be treated as an issue of equity shares for no

consideration.

36. Fair value for this purpose is the average price of the equity shares

during the period. Theoretically, everymarket transaction for an enterprise’s

equity shares could be included in determining the average price. As

a practical matter, however, a simple average of last six months weekly

closing prices are usually adequate for use in computing the average price.

37. Options and other share purchase arrangements are dilutive when they

would result in the issue of equity shares for less than fair value. The amount

of the dilution is fair value less the issue price. Therefore, in order to calculate

diluted earnings per share, each such arrangement is treated as consisting

of:

396 AS 20 (issued 2001)

(a) a contract to issue a certain number of equity shares at their

average fair value during the period. The shares to be so issued

are fairly priced and are assumed to be neither dilutive nor antidilutive.

They are ignored in the computation of diluted earnings

per share; and

(b) a contract to issue the remaining equity shares for no consideration.

Such equity shares generate no proceeds and have no effect on

the net profit attributable to equity shares outstanding. Therefore,

such shares are dilutive and are added to the number of equity

shares outstanding in the computation of diluted earnings per share.

Appendix VI illustrates the effects of share options on diluted earnings per

share.

38. To the extent that partly paid shares are not entitled to participate in

dividends during the reporting period they are considered the equivalent of

warrants or options.

Dilutive Potential Equity Shares

39. Potential equity shares should be treated as dilutive when, and

only when, their conversion to equity shares would decrease net profit

per share from continuing ordinary operations.

40. An enterprise uses net profit fromcontinuing ordinary activities as “the

control figure” that is used to establish whether potential equity shares are

dilutive or anti-dilutive. The net profit fromcontinuing ordinary activities is

the net profit from ordinary activities (as defined in AS 5) after deducting

preference dividends and any attributable tax thereto and after excluding

items relating to discontinued operations7 .

41. Potential equity shares are anti-dilutive when their conversion to equity

shares would increase earnings per share from continuing ordinary activities

or decrease loss per share fromcontinuing ordinary activities. The effects of

anti-dilutive potential equity shares are ignored in calculating diluted earnings

per share.

7 Accounting Standard (AS) 24, ‘Discontinuing Operations’, specifies the

requirements in respect of discontinued operations.

Earnings Per Share 397

42. Inconsideringwhetherpotentialequitysharesaredilutiveoranti-dilutive,

each issue or series of potential equity shares is considered separately rather

than in aggregate. The sequence in which potential equity shares are

considered may affect whether or not they are dilutive. Therefore, in order

to maximise the dilution of basic earnings per share, each issue or series of

potential equity shares is considered in sequence from the most dilutive to

the least dilutive. For the purpose of determining the sequence from

most dilutive to least dilutive potential equity shares, the earnings per

incremental potential equity share is calculated. Where the earnings per

incremental share is the least, the potential equity share is considered most

dilutive and vice-versa.

AppendixVII illustrates themanner of determining the order inwhich dilutive

securities should be included in the computation ofweighted average number

of shares.

43. Potential equity shares are weighted for the period they were

outstanding. Potential equity shares that were cancelled or allowed to lapse

during the reporting period are included in the computation of diluted earnings

per share only for the portion of the period during which they were

outstanding. Potential equity shares that have been converted into equity

shares during the reporting period are included in the calculation of diluted

earnings per share fromthe beginning of the period to the date of conversion;

from the date of conversion, the resulting equity shares are included in

computing both basic and diluted earnings per share.

Restatement

44. If the number of equity or potential equity shares outstanding

increases as a result of a bonus issue 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. When per share calculations reflect such changes

in the number of shares, that fact should be disclosed.

45. An enterprise does not restate diluted earnings per share of any prior

period presented for changes in the assumptions used or for the conversion

of potential equity shares into equity shares outstanding.

398 AS 20 (issued 2001)

46. An enterprise is encouraged to provide a description of equity share

transactions or potential equity share transactions, other than bonus issues,

share splits and reverse share splits (consolidation of shares) which occur

after the balance sheet date when they are of such importance that

non-disclosurewould affect the ability of the users of the financial statements

to make proper evaluations and decisions. Examples of such transactions

include:

(a) the issue of shares for cash;

(b) the issue of shares when the proceeds are used to repay debt or

preference shares outstanding at the balance sheet date;

(c) the cancellation of equity shares outstanding at the balance sheet

date;

(d) the conversion or exercise of potential equity shares, outstanding

at the balance sheet date, into equity shares;

(e) the issue of warrants, options or convertible securities; and

(f) the satisfaction of conditions that would result in the issue of

contingently issuable shares.

47. Earnings per share amounts are not adjusted for such transactions

occurring after the balance sheet date because such transactions do not

affect the amount of capital used to produce the net profit or loss for the

period.

Disclosure

48. In addition to disclosures as required by paragraphs 8, 9 and 44

of this Statement, an enterprise should disclose the following:

(i) where the statement of profit and loss includes extraordinary

items (within the meaning of AS 5, Net Profit or Loss for the

Period, Prior Period Items and Changes in Accounting

Policies), the enterprise should disclose basic and diluted

earnings per share computed on the basis of earnings

excluding extraordinary items (net of tax expense); and

Earnings Per Share 399

(ii) (a) 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;

(b) 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

(c) the nominal value of shares along with the earnings per

share figures.8

49. Contracts generating potential equity shares may incorporate terms

and conditions which affect the measurement of basic and diluted earnings

per share. These terms and conditions may determine whether or not any

potential equity shares are dilutive and, if so, the effect on the weighted

average number of shares outstanding and any consequent adjustments to

the net profit attributable to equity shareholders. Disclosure of the terms

and conditions of such contracts is encouraged by this Statement.

50. If an enterprise discloses, in addition to basic and diluted earnings

per share, per share amounts using a reported component of net profit

other than net profit or loss for the period attributable to equity

shareholders, such amounts should be calculated using the weighted

average number of equity shares determined in accordance with this

Statement. If a component of net profit is used which is not reported as

8 As a limited revision to AS 20, the Council of the Institute decided to revise this

paragraph in 2004. This revision comes into effect in respect of accounting periods

commencing on or after 1.4.2004. General Clarification (GC) - 10/2002, on AS 20

issued by the Accounting Standards Board, in October 2002, stands withdrawn

from that date (See ‘The Chartered Accountant’, February 2004, pp. 817). The

erstwhile paragraph was as under:

“48. In addition to disclosures as required by paragraphs 8, 9 and 44 of this

Statement, an enterprise should disclose the following:

(a) 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;

(b) 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

(c) the nominal value of shares along with the earnings per share figures.”

400 AS 20 (issued 2001)

a line item in the statement of profit and loss, a reconciliation should be

provided between the component used and a line item which is reported

in the statement of profit and loss. Basic and diluted per share amounts

should be disclosed with equal prominence.

51. An enterprisemaywish to disclosemore information than this Statement

requires. Such information may help the users to evaluate the performance

of the enterprise and may take the form of per share amounts for various

components of net profit. Such disclosures are encouraged.However,when

such amounts are disclosed, the denominators need to be calculated in

accordance with this Statement in order to ensure the comparability of the

per share amounts disclosed.9

9 As a limited revision to AS 20, the Council of the Institute decided to revise this

paragraph in 2004. This revision comes into effect in respect of accounting periods

commencing on or after 1.4.2004. General Clarification (GC) - 10/2002, on AS 20

issued by the Accounting Standards Board, in October 2002, stands withdrawn

from that date (See ‘The Chartered Accountant’ February 2004, pp. 817). The

erstwhile paragraph was as under:

“51. An enterprise may wish to disclose more information than this Statement

requires. Such information may help the users to evaluate the performance of the

enterprise and may take the form of per share amounts for various components of

net profit, e.g., profit from ordinary activities. Such disclosures are encouraged.

However, when such amounts are disclosed, the denominators need to be calculated

in accordance with this Statement in order to ensure the comparability of the per

share amounts disclosed.”

Appendices

Earnings Per Share 401

Note: These appendices are illustrative only and do not form part of the

Accounting Standard. The purpose of the appendices is to illustrate the

application of the Accounting Standard.

Appendix I

Example -Weighted Average Number of Shares

(Accounting year 01-01-20X1 to 31-12-20X1)

No. of Shares

Issued

No. of Shares

Bought Back

No. of

Shares

Outstanding

1st January,

20X1

Balance at

beginning

of year

1,800 - 1,800

31st May,

20X1

Issue of

shares

for cash

600 - 2,400

1st Nov.,

20X1

Buy Back

of shares

- 300 2,100

31st Dec.,

20X1

Balance at

end of year

2,400 300 2,100

Computation ofWeighted Average:

(1,800 x 5/12) + (2,400 x 5/12) + (2,100 x 2/12) = 2,100 shares.

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

402 AS 20 (issued 2001)

Appendix II

Example – Partly paid shares

(Accounting year 01-01-20X1 to 31-12-20X1)

No. of shares

issued

Nominal value

of shares

Amount

paid

1st January,

20X1

Balance at

beginning

of year

1,800 Rs. 10 Rs. 10

31st October,

20X1

Issue of

Shares

600 Rs. 10 Rs. 5

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 as follows:

(1,800x12/12) + (300x2/12) = 1,850 shares.

Earnings Per Share 403

Appendix III

Example - Bonus Issue

(Accounting year 01-01-20XX to 31-12-20XX)

Net profit for the year 20X0 Rs. 18,00,000

Net profit for the year 20X1 Rs. 60,00,000

No. of equity shares

outstanding until

30th September 20X1

20,00,000

Bonus issue 1st October 20X1 2 equity shares for each equity share

outstanding at 30th September, 20X1

20,00,000 x 2 = 40,00,000

Earnings per share for the

year 20X1

Rs. 60,00,000 = Re. 1.00

( 20,00,000 + 40,00,000 )

Adjusted earnings per share

for the year 20X0

Rs. 18,00,000 = Re. 0.30

(20,00,000 + 40,00,000)

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 20X0, the earliest

period reported.

404 AS 20 (issued 2001)

Appendix IV

Example - Rights Issue

(Accounting year 01-01-20XX to 31-12-20XX)

Net profit Year 20X0 : Rs. 11,00,000

Year 20X1 : Rs. 15,00,000

No. of shares outstanding

prior to rights issue

5,00,000 shares

Rights issue One new share for each five

outstanding (i.e. 1,00,000 new shares)

Rights issue price : Rs. 15.00

Last date to exercise rights:

1st March 20X1

Fair value of one equity share

immediately prior to exercise

of rights on 1st March 20X1

Rs. 21.00

Computation of theoretical ex-rights fair value per share

Fair value of all outstanding shares immediately prior to exercise of

rights+total amount received from exercise

Number of shares outstanding prior to exercise + number of shares issued

in the exercise

(Rs. 21.00 x 5,00,000 shares) + (Rs. 15.00 x 1,00,000 shares)

5,00,000 shares + 1,00,000 shares

Theoretical ex-rights fair value per share = Rs. 20.00

Computation of adjustment factor

Fair value per share prior to exercise of rights Rs. (21.00) = 1.05

Theoretical ex-rights value per share Rs.(20.00)

Computation of earnings per share

Year 20X0 Year 20X1

EPS for the year 20X0 as

originally reported:

Rs.11,00,000/5,00,000 shares Rs. 2.20

Earnings Per Share 405

EPS for the year 20X0 restated for

rights issue: Rs.11,00,000/

(5,00,000 shares x 1.05)

Rs. 2.10

EPS for the year 20X1 including effects

of rights issue

Rs. 15,00,000 _

(5,00,000 x 1.05 x 2/12)+ (6,00,000 x 10/12)

Rs. 2.55

406 AS 20 (issued 2001)

Appendix V

Example - Convertible Debentures

(Accounting year 01-01-20XX to 31-12-20XX)

Net profit for the current year Rs. 1,00,00,000

No. of equity shares outstanding 50,00,000

Basic earnings per share Rs. 2.00

No. of 12% convertible debentures of

Rs. 100 each

Each debenture is convertible into

10 equity shares

1,00,000

Interest expense for the current year Rs. 12,00,000

Tax relating to interest expense (30%) Rs. 3,60,000

Adjusted net profit for the current year Rs. (1,00,00,000 + 12,00,000 -

3,60,000) = Rs. 1,08,40,000

No. of equity shares resulting from

conversion of debentures

10,00,000

No. of equity shares used to compute

diluted earnings per share

50,00,000 + 10,00,000 =

60,00,000

Diluted earnings per share 1,08,40,000/60,00,000 =

Re. 1.81

Earnings Per Share 407

Appendix VI

Example - Effects of Share Options on Diluted Earnings Per Share

(Accounting year 01-01-20XX to 31-12-20XX)

Net profit for the year 20X1 Rs. 12,00,000

Weighted average number of equity shares

outstanding during the year 20X1

5,00,000 shares

Average fair value of one equity share during the

year 20X1

Rs. 20.00

Weighted average number of shares under option

during the year 20X1

1,00,000 shares

Exercise price for shares under option during the

year 20X1

Rs. 15.00

Computation of earnings per share

Earnings Shares Earnings

per share

Net profit for the year 20X1 Rs. 12,00,000

Weighted average number

of shares outstanding

during year 20X1

5,00,000

Basic earnings per share Rs. 2.40

Number of shares under

option

1,00,000

Number of shares

that would have been issued

at fair value:

(100,000 x 15.00)/20.00

* (75,000)

Diluted earnings per share Rs. 12,00,000 5,25,000 Rs. 2.29

*The earnings have not been increased as the total number of shares has

been increased only by the number of shares (25,000) deemed for the

purpose of the computation to have been issued for no consideration {see

para 37(b)}