EARNINGS PER SHAREACCOUNTING STANDARD-20 PRESENTED By: DR. RAJ K. AGARWAL M. Com, FCA, FCS, FICWA, LLB, Ph.D M/S. RAKESH RAJ & ASSOCIATES CHARTERED ACCOUNTANTS
ACCOUNTING STANDARD-20EARNINGS PER SHARE • Authority : ICAI • Applicable from: Accounting period starting from 1.4.2001 • Nature : Mandatory
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.
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
Presentation Requirements (Disclosures) An enterprise should present on the face of P&L 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
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)
Measurement • Basic EPS = Net profit or loss for the period attributable to equity shareholders(A)/ Weighted 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
Measurement Basic EPS - Other Issues • Bonus Shares • Shares Split • Reverse Share Split (Consolidation of Shares) • Right Issue • Partly paid shares
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).
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.
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 Equityshares 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.
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
Additional Disclosures • The amount used as numerators and If the same is not reported as a line item in the P&L 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
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)
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.
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
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
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
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.