EARNINGS PER SHARE ACCOUNTING STANDARD20

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EARNINGS PER SHARE ACCOUNTING STANDARD-20

• PRESENTED By
• DR. RAJ K. AGARWAL
• M. Com, FCA, FCS, FICWA, LLB, Ph.D
• M/S. RAKESH RAJ ASSOCIATES
• CHARTERED ACCOUNTANTS

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ACCOUNTING STANDARD-20EARNINGS PER SHARE

• Authority ICAI
• Applicable from Accounting period
• starting
  from 1.4.2001
•    Nature Mandatory

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Objective

• to set principles for the determination
  presentation of EPS.
• to improve comparison of performance amongst
  enterprises for the same period and amongst
  different accounting periods for the same
  enterprise.

4
Applicability

• Enterprises whose equity shares or potential
  equity share are listed on Recognized Stock
  Exchange.
• Other enterprises which disclose earnings per
  share in financial statements.
• In the case of consolidated financial statements
  it should be determined presented based on
  consolidated information

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Presentation Requirements (Disclosures)

• An enterprise should present on the face of PL
  Account.
• Basic EPS wrt equity shares
• Diluted EPS wrt potential equity shares
• Potential equity share A financial instrument or
  contract that entitles or may entitle, its holder
  to equity share e.g.
• Convertible debentures or preference shares
• Share warrants or options
• ESOP
• Shares issuable upon satisfaction of certain
  conditions

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Presentation Requirements (Disclosures)

• Disclosure to be made for all periods presented
• both the amounts to be disclosed with equal
  prominence
• The information is to be presented even if the
  amount disclosed are negative (a loss per share)

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Measurement

• Basic EPS Net profit or loss for the period
  attributable to equity shareholders(A)/ W
  eighted average no of equity share
  outstanding (B).
• (A) Net profit or loss for for the period
  after deducting preference dividend
  attributable tax(CDT) thereon.
• (B) Number of equity shares outstanding at the
  beginning of the period, adjusted by the
  shares 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

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Measurement

• Basic EPS - Other Issues
• Bonus Shares
• Shares Split
• Reverse Share Split (Consolidation of Shares)
• Right Issue
• Partly paid shares

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Measurement

• Diluted EPS Diluted net profit or loss for the
  period attributable to equity
  shareholders(C) / the weighted average
  no of equity shares including shares issued
  on conversion of all the dilutive
  potential equity shares outstanding
  during the period (D).

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Measurement of Diluted EPS

• ( C ) Net profit or loss attributable to
  equity shares adjusted for the following net of
  tax
• any dividend on dilutive potential equity shares
  which has been deducted in arriving profit/loss.
• any interest relating to dilutive potential
  equity shares
• any other change in expense or income that would
  result from the conversion of dilutive potential
  equity shares.

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Measurement of Diluted EPS

• (D) Aggregate of (B) 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. (If issued during
  the period, from the date of issue).
• 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.
• 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.

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RESTATEMENT

• In case of
• bonus issue
• share split
• consolidation
• after the Balance Sheet date but before the
  adoption of accounts by the BOD, the per share
  calculations for those and prior period should be
  based on the new number of shares.
• the fact should be disclosed in Notes

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Additional Disclosures

• The amount used as numerators and If the same is
  not reported as a line item in the PL Account, a
  reconciliation should be provided.
• The weighted average number of equity shares used
  as denominators for basic and diluted EPS and a
  reconciliation of those to each other.
• The nominal value alongwith EPS figures
• If an enterprise wishes to disclose more
  information, the denominator must be as per this
  statement

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Limited Revision to AS 20

• Disclosure of basic and diluted EPS also to be
  made on the basis of earnings excluding
  extraordinary items (net of tax expense)

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ASI 12

• Every company, required to give information under
  part IV of schedule VI to the Companies Act, 1956
  to calculate and disclose EPS in accordance with
  AS 20, even if otherwise not applicable to it.

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Salient Issues

• Objective of reporting diluted EPS.
• Dividend on cumulative preference shares not
  provided for during the earlier years and this
  year, but shown as contingent liability, what is
  the treatment in adjustment of profit or loss.
• Where basic and diluted EPS is same, whether both
  need be disclosed?
• Receipt of share application money and allotments
  of shares subsequent to the date of Balance
  Sheet. Effect thereof?
• As-20 whether applicable to consolidated
  financial statements

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Case Study- IFCI Annual Report 2003-04

• Basic Earnings per share (Rs. in million)
• 31.03.2004 31.03.2003
• (a) Profit/ (Loss) Computation for
• equity shareholders
• Net profit/ (Loss) as per P L
  A/c (32,297.81) (2,596.97) Less Preference
  Dividend (456.02) (456.02)
• Net profit/(Loss) for equity (32,
  753.83) (3052.99)
• shareholders
• (b) Weighted average no. of equity
• shares o/s during the year 638,675,762
  638,675,762

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Case Study- IFCI Annual Report 2003-04

• Diluted Earnings per share (Rs. in million)
• 31.03.2004 31.03.2003
• (a) Profit/ (Loss) Computation for
• equity shareholders(including
• potential shareholders)
• Net profit/ (Loss) as per P L
  A/c (32,297.81) (2,596.97) Less Preference
  Dividend (456.02) (456.02)
• Add Intt on Conv. Debentures. 570 485.43
• Net profit/(Loss) for equity (32,
  183.83) (2567.56)
• shareholders(including
• potential shareholders)
• (b) Weighted average no. of equity
• shares o/s during the year as per
• basic EPS 638,675,762 638,675,762
• Add Potential no. of equity shares
  (CD)2375303000 2464305000
• Weighted average no. of equity 3013978762
  3102980762
• shares o/s during the year

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Case Study- IFCI Annual Report 2003-04
(Rs. in million) 31.03.2004 31.03.2003 Basic
Earnings per share (51.28) (4.78) Dilutive
Earnings per share (51.28) (4.78) Since the
convertible debentures are anti dilutive, they
have been ignored in the computation of diluted
EPS.
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• THANK YOU