AS 20: EPS

Accounting Standard 20: Earnings Per Share

· Focus is on denominator to be adopted for earnings per share (EPS) calculation.

· In case of enterprises presenting consolidated financial statements EPS to be calculated on the basis of consolidated information, as well as individual financial statements.

· Requirement is to present basic and diluted EPS on the face of Profit and Loss statement with equal prominence to all periods presented.

· EPS required being presented even when negative.

· Basic EPS is calculated by dividing net profit or loss for the period attributable to equity shareholders by weighted average of equity shares outstanding during the period. Basic & Diluted EPS to be computed on the basis of earnings excluding extraordinary items (net of tax expense). (Limited Revision w.e.f 1-4-2004)

· Earnings attributable to equity shareholders are after
the preference dividend for the period and the attributable tax.

· The weighted average number of shares for all the periods presented is adjusted for bonus issue, share split and consolidation of shares. In case of rights issue at price lower than fair value, there is an embedded bonus element for which adjustment is made.

· For calculating diluted EPS, net profit or loss attributable to equity shareholders and the weighted average number of shares are adjusted for the effects of dilutive potential equity shares (i.e., assuming conversion into equity of all dilutive potential equity).

· Potential equity shares are treated as dilutive when their conversion into equity would result in a reduction in profit per share from continuing operations.

· Effect of anti-dilutive potential equity share is ignored in calculating diluted EPS.

· In calculating diluted EPS each issue of potential equity share is considered separately and in sequence from the most dilutive to the least dilutive.

· This is determined on the basis of earnings per incremental potential equity.

· If the number of equity shares or potential equity shares outstanding increases or decreases on account of bonus, splitting or consolidation during the year or after the balance sheet date but before the approval of financial statement, basic and diluted EPS are recalculated for all periods presented. The fact is also disclosed.

· Amounts of earnings used as numerator for computing basic and diluted EPS and their reconciliation with Profit and Loss statement are disclosed. Also, the weighted average number of equity shares used in calculating the basic EPS and diluted EPS and the reconciliation between the two EPS is to be disclosed.

· Nominal value of shares is disclosed along with EPS.

· It has been clarified that if an enterprise discloses EPS for complying with requirements of any source or otherwise, should calculate and disclose EPS as per AS 20. Disclosure under Part IV of Schedule VI to the Companies Act, 1956 should be in accordance with AS 20 (ASI-12).

Note: Earnings Per Share apply to the enterprise whose equity shares and potential equity shares are listed on a recognised stock exchange. If the enterprise is not so covered but chooses to present EPS, then it should calculate EPS in accordance with the standard.