AS 20 – Earnings Per Share

Effective Date: This Accounting Standard comes into effect from periods commencing on or after 1st April, 2001. It is mandatory in nature.

Objective: To prescribe principles for determination and presentation of earnings per share to enable comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise.

Scope

This Accounting Standard is to be applied by the following categories of enterprises:

  1. An enterprise whose equity shares or potential equity shares are listed on a recognised stock exchange in India.
  2. An enterprise whose equity shares or potential equity shares are not listed, but which discloses earnings per share.

In respect of consolidated financial statements, the information required to be presented by this standard will be on the basis of consolidated information.

Definitions:

  1. An Equity Share is a share other than a preference share.

  2. A Preference Share is a share carrying preference rights to dividends and repayment of capital.

  3. 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.

  4. A Potenital Equity Share is a financial instrument or other contract that entitles, or may entitle, its holder to equity shares.

  5. Share Warrants or Share Options are financial instruments that give the holder the right to acquire equity shares.

  6. 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.

Presentation

An enterprise should present basic & diluted earnings per share on the face of the statement of profit and loss for each class of equity shares.

This information should be presented with equal prominence for all periods reported.

This information should be presented irrespective of whether the amount disclosed is positive or negative (i.e. profit per share or loss per share)

Measurement

Basic Earnings Per Share

Basic Earnings Per Share = Net Profit or Loss attributable to Equity Shareholders
Weighted Average number of Equity Shares outstanding during the period
Net Profit or Loss attributable to equity shareholders = Net Profit or Loss
- Preference Dividend
- Tax thereon
Net Profit or Loss To be determined after taking into account all items of income and expense which are recognised in a period, including tax expenses and extraordinary items unless an Accounting Standard requires or permits otherwise.
Preference Dividend Preference dividend on non-cumulative preference shares provided during the period; and
Preference dividend on cumulative preference shares whether or not provided for during the period.
The net profit or loss arrived at as above is to be apportioned between different classes of equity shareholders in the proportion of their dividend rights.
Weighted Average number of Equity Shares outstanding = Number of Equity Shares outstanding at beginning
+ Number of Equity Shares issued during the period X Days/Months remaining after relevant date
365 days / 12 months
- No. of Equity Shares bought back during the period X Days/Months remaining after relevant date
365 days / 12 months
Relevant Date
  1. In most cases it is the date on which consideration is receivable, subject to the substance of the contract associated with the issue.
  2. In case of Amalgamation:
    • equity shares are issued a part of consideration, the relevant date is the date of acquisition.
    • where the amalgamation is an amalgamation in the nature of merger and equity shares are issued during the reporting period, the relevant date is the beginning of the reporting period.
    • where equity shares are contingently issueable the relevant date is the date on which all the necessary conditions have been satisfied.

Notes:

  1. Number of Equivalent Shares
    1. In the case of partly paid shares, the equivalent number of fully paid shares is to be calculated to the extent that they are entitled to participate in dividends.
    2. In case of equity shares with different nominal values but same dividend rights, the equivalent number of shares of the same nominal value is to be calculated.
  2. Weighted Average number of Equity Shares outstanding
    1. 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.
    2. Bonus Issue: Weighted average number of equity shares outstanding should be adjusted for the proportionate change in the number of equity shares outstanding as if the event has occurred at the beginning of the earliest period reported i.e. the adjusted weighted average number of equity shares outstanding will be considered for calculating earnings per share of all reported periods.
    3. Rights Issue:
      Weighted Average no. of Equity Shares outstanding for all periods prior to the rights issue = No. of Equity Shares outstanding prior to the issue X Fair Value / Share prior to Rights Issue
      Theoritical Ex-Rights Fair Value / Share
      Theoritical Ex-Rights Fair Value / Share = F.V. of all outstanding shares immediately prior to exercise of rights + Total amount received from exercise of rights
      Face Value of outstanding shares prior to Rights Issue + No. of Shares Issued in the exercise

Diluted Earnings Per Share

Diluted Earnings Per Share = Adjusted Net Profit or Loss attributable to Equity Shareholders
Adjusted Weighted Average number of Equity Shares outstanding during the period
Adjusted Net Profit or Loss attributable to equity shareholders = Net Profit or Loss attributable to Equity Shareholders
+ Dividend recogined in the period for dilutive potential equity shares as adjusted for attributable change in tax expense for the period
+ Interest recognised in the period for dilutive potential equity shares as adjusted for attributable change in tax expense for the period
+/- After tax amount of any other changes in income or expenses as a result of conversion of diluted potential equity shares
Adjusted Weighted Average number of Equity Shares outstanding = Number of Equity Shares outstanding during the period
+ Weighted Avergage Number of additional Equity Shares which would have been outstanding assuming the conversion of all dilutive potential equity shares

Notes:

  1. 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 earning per share.
  2. 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.

Diluted Earnings

To calculate the diluted earnings per share, the amount of net profit or loss for the period attributable to equity shareholders should be adjusted after taking into account any attributable change in tax expense for the period:

  1. any dividends on dilutive potential equity shares which have been deducted in arriving at the net profit attributable to equity shareholders,
  2. interest recognised in the period for the dilutive potential equity shares, and
  3. any other changes in expenses or income that would result from the conversion of the dilutive potential equity shares.

Per Share - Diluted

To calculate the diluted earnings per share, the weighted average number of equity shares 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, should be considered.

To calculate the diluted earnings per share, an enterprise should exercise the dilutive options.

Dilutive Potential Equity Shares

Potential equity shares become dilutive only when their conversion to equity shares would decrease net profit per share from continuing ordinary operations.

Restatement: If the 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. The fact of per share calculations, which reflect the changes in the number of shares, should be disclosed.

Disclosures

  1. 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.
  2. 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.

  3. The nominal value of shares along with the earnings per share figures.

  4. Basic and diluted per share amounts should be disclosed with equal prominence.

Full Text of AS 20 - Earnings Per Share
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