Accounting Standard 20 - free full versions - Earning Per Share (AS 20 )

In the series of Accounting Standards of India’s simple explanation, we have already written and published 19 Accounting Standards and After writing all Accounting Standards in simple explanation, it will become free full versions source for all students from 10+2 to post graduate level, accountants and also auditors because basic knowledge of all accounting standards is also very necessary for becoming accountant or auditor.

Today we discuss Accounting standard 20 , It explains the methods to calculate Earning per share in different situations .

1. Normal EPS

If there is not any existence of bonus or right shares, Calculation of EPS is very easy. For calculation EPS , the following formula will apply .

2. If issues of shares are on different period

If company issues shares at different period, then first of all accountant will calculate number of shares on the basis of weighted average suppose in the beginning 1 Jan. Company has 100 shares after this , 1 July company issues 50 more shares and 1 Nov. company issues 50 more shares , total net profit is Rs. 1000

Weighted Average of Shares = ( 100 X 6/ 12 ) + ( 150 X 4 / 12 ) + ( 200 X 2 / 12 )

= 50 + 50 + 33.33

= 133.33

Earning per share = 1000 / 133.33 = 7.5

3. Earning per share if company issue bonus shares

Bonus shares are those shares which are given existing share holder without getting any amount from shareholders, so it will increase the number of equity shares and decrease the value of EPS .

For example

Suppose company has equity shares 100 and company has issued 1 share as bonus to every 2 shares holding with existing shareholder. Net profit of company Rs. 1000


Total no. of shares = 100 + 100 X ½

EPS = 1000 / 150 = 6.6

4. Earning per share if company issue right shares

If company issues right shares to existing share holders at that time calculation of EPS is some difficult. You must follow the following procedure for calculating EPS in 4th situation.

1st step

Calculate theoretical ex – right fair value of share

2nd Step

Calculation of adjusted factor

3rd step

Calculation of EPS

For example

Suppose company has 100 shares, and company issues right share of 1 for every 2 holding
Fair value of share is Rs. 10 and value of right share is Rs. 5. Calculate the value of EPS If net profit is Rs. 1000

Theoretical ex – right value per share = 100 X 10 + 50 X 5 / 100 + 50 = 8.33

Calculation of adjusted factor = 10 / 8.33 = 1.2

Value of EPS = 1000/ 100 + 1000 / 100 X 1.2 = 18.3


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Accounting Education: Accounting Standard 20 - free full versions - Earning Per Share (AS 20 )
Accounting Standard 20 - free full versions - Earning Per Share (AS 20 )
Accounting Education
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