A Note on AS - 20 EARNING PER SHARE

Meaning of Earning Per Share # This Accounting Standard is mandatory in nature and applicable to all entities. All companies All Non-Companies (Mutual Fund etc.) Partial Exemption is given to SMC, Level-II & III entities. Meaning of Earning Per Share EPS means Speed of earning of any entity over a period. It does not mean actual earnings are same as per EPS. EPS is of two type : Basic EPS Diluted EPS

BASIC EPS Basic EPS = Earnings attributable to Equity shareholder Wght. Avg. of Equity share outstanding during the Year Where, Earnings attributable to equity shareholder means : Profit After Tax XXX Less- Pref. dividend on Cumulative Preference Share XXX (Declared or Not) Less- Preference Dividend on Non- Cumulative Preference Share XXX Less- DDT/CDT on Preference Dividend. XXX Earnings for Equity Shareholder XXX Points to be considered: If it is not clear about Preference Share, assume it as cumulative. CDT to be deducted, If specified in question. Reserve of any nature/reason not to be deducted II. Weighted Average of outstanding Equity share during the period Consider only share capital to the extent paid-up or if shares are similar paid- up Capital shares. While calculating weighted Average outstanding share means considering time proportion of outstanding share capital.

Time Period Consideration Public Issue Date relevant Bonus Issue Date not relevant Share Split / Consolidation Date not relevant Right Issue : Paid Part Date relevant Free Part Date not relevant Amalgamation Issue: Merger Date not relevant Purchase Date relevant Share Buy-Back, Forfeiture Date relevant Underwriting Commission settled in share Share relevant

Bonus Treatment Right Share Whenever question has information regarding Bonus Share or Bonus has been calculated in Right share then ratio of previous year(s) should be Re-calculated/Re-stated/Adjusted/ This requirement of settlement is for Basic and Diluted EPS. Similar calculation are required in share split or share consolidation. Right Share Always Calculate Fair Value Post right for shares. Fair Value Post Right = (Fair Value * No. of Share) + (Right * Right) Pre-right Pre-right Price Share Total Share After Right Fair Value Pre-right also called Fair value cum right. Fair value Post-right also called Fair value ex-right. Find out Paid Part and Free Part include in Right share : Paid Part : (Right Price * Right Share) Fair value Post Right Free Part : (Right share-Paid Part)

Shares having Different Voting/Dividend Right Absolute Dividend Right : Whenever shares are having incremental dividend right then; - calculate such “Extra Dividend” - reduce such dividend from “Earnings for Equity Shareholder” - calculate BEPS from normal earnings and, include such dividend applicable to each class (B) Proportionate Right : Ratio of expected dividend is used to apportion earnings applicable to each class. Such Ratio = Share capital * Expected dividend Rate # BEPS is based on apportioned earnings

Amalgamation in the nature of Purchase Whenever shares are issued in the scheme of Amalgamation in the nature of Purchase, then such issue of shares are treated as public issue.(Date are relevant) Whenever partly paid shares are not entitled for dividend rights (until they become fully paid-up). These shares should not be considered in BEPS. Amalgamation in the nature of Merger Since AS-14 requires merger of Assets, Liabilities and Profits in accounting for amalgamation, same concept is applied while calculating BEPS : (A) Earnings of Company which has been merged will be clubbed with earnings of transferring Company. (B) No. of Shares issued will be for complete period without considering date of issue of shares.

Potential Equity Share means : DILUTED EPS Diluted EPS = Basic EPS after considering effect of Dilutive Potential Equity Shares. Diluted EPS = Earnings attributable to equity shareholder after effect of Diluted Potential equity share Weighted Average outstanding equity share during the period after considering Dilutive Potential equity Share Dilutive means- Those Potential equity shares which reduces BEPS from Continuing Ordinary Operations. Generally, DEPS less than BEPS. Potential Equity Share means : Instrument on which resources has been received in cash or kind employed in business and which entitled its holder to equity share in future. Examples : Convertible Debenture Convertible Pref. Share Employee Stock Option Share Application money used in business Partly paid shares not entitled to dividend

Following Calculations are required: Identify Potential Equity Shares (PES) Note : (a) In case of Vested ESOP ; PES = ESOP – (Exercise price * No. of Option) Avg. Fair Value of shares (b) In case of unvested ESOP PES = ZERO Identify Diluted Potential Equity Shares by applying following steps : Step-1 : Calculate Incremental EPS Incremental EPS = Effect of PES on Earnings Effect of PES on W. Avg. Shares Step- 2 : Arrange Incremental PES in order of most dilutive (Ascending ratio)

Test For Dilution ( Para- 39 ) Test each PES in order as per incremental PES on BEPS from Continuing Ordinary Operation (COO) Whenever ration declines from receiving preceding calculation it is called Dilutive PES or it ratio increases then it is called Anti- Dilutive PES. Dilutive EPS : BEPS after effect of Dilutive PES Treatment of ‘ESOP’ under AS-20 and IND AS-33 ESOPs are contract with employers wherein employees are to render services and pay exercise price against allotment of shares in future. AS per AS-20 ESOPs are to be ignored till services are yet to be performed. As soon as services have been rendered. PES in ESOP = Total ESOP Exercise price * No. of ESOP Average Fair Value

AS per IND AS-33 PES IN ESOP = Total ESOP (Exercise Price * No.of ESOP) + Assumed Proceeds Average Fair Value Where, Assumed Proceeds means value of services yet to be performed by employee.

Disclosure requirement Basic EPS should be disclosed on the face of SPL for each classes of equity Share even if BEPS is negative (Para-9) BEPS and DEPS should also be disclosed before adjusting extraordinary items (Para-48) Reconciliation statement should be given for : - Earnings of BEPS with earnings of DEPS - Weighted Average of outstanding shares of BEPS with Weighted Average of outstanding shares relating to DEPS. Par Value should be disclosed.

Partial Exemption for II, III and SMC Diluted EPS not required Reconciliation statement also not required to disclosed. Guidance note on application of AS-20 - AS-20 is applicable to all Companies - listed or unlisted - partial exemption allowed, if available.

SEBI Rules regarding Bonus on Convertible Instrument As per SEBI, if any, Companies have outstanding convertible instrument or instrument which entitles its holder to equity share in future and Company declares Bonus issue then Bonus will also be given to such instrument holder after conversion into equity share. While calculating DEPS, Potential equity share should be increased Bonus entitlement (for 12 month i.e. full period) While calculating BEPS, no treatment for Bonus entitlement, if convertible instrument get converted, bonus shares should be issued on such converted instrument full year. Thank You