NITIN GOEL

❏ CHARTERED ACCOUNTANT

❏ All India Rankholder

(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist

❏ Educator: CA Inter Accounts

& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience

Use Code: CANITIN to get 10% Discount

Question 1 ICAI Study Material

Date Particulars Purchased Sold Balance

1 January
st
Balance at beginning of year 1800 - 1800
31st May Issue of shares for cash 600 - 2400
1st November Buy back of shares - 300 2100
Calculate weighted number of shares. Calculate Earnings per share also if Net Profit for the year is ₹ 16,80,000.
Question 2 ICAI Study Material

Date Particulars No. of Shares Face Value Paid up Value

1st January Balance at beginning of year 1800 ₹ 10 ₹ 10
31st October Issue of shares 600 ₹ 10 ₹5
Calculate weighted number of shares.
Question 3 ICAI Study Material /Inter May 2018 (5 Marks)
As at 1st April, 2019 a company had 6,00,000 equity shares of ₹ 10 each (₹ 5 paid up by all shareholders).
On 1st September, 2019 the remaining ₹ 5 was called up and paid by all shareholders except one shareholder
having 60,000 equity shares. The net profit for the year ended 31st March, 2020 was ₹ 21,96,000 after
considering dividend on preference shares of ₹ 3,40,000.
Compute Basic EPS for the year ended 31st March, 2020 as per Accounting Standard 20 "Earnings Per Share".
Question 4 ICAI Study Material
Net profit for the year 2019 ₹ 18,00,000
Net profit for the year 2020 ₹ 60,00,000
No. of equity shares outstanding until 30th Sept 2020 20,00,000

Bonus issue 1st October 2020 was 2 equity shares for each equity share outstanding at 30th September, 2020.
Calculate Basic Earnings Per Share.
Question 5 ICAI Study Material
From the following information compute Basic and Adjusted Earnings per share:
Net Profit for 2019 ₹ 11 lakhs
Net Profit for 2020 ₹ 15 lakhs
No. of shares before Rights Issue 5 Lakhs
Rights issue Ratio One for Every 5 Held
Issue Price ₹ 15
Last Date of exercising Rights option 01-03-2020
Fair value of share before Rights Issue ₹ 21 per share
Question 6 ICAI Study Material
Calculate Diluted EPS:
₹
Net Profit for the current year 1,00,00,000
No. of Equity Shares Outstanding 50,00,000
Basic Earnings per share 2.00
No. of 12% convertible debentures of ₹ 100 each 1,00,000
Each debenture is convertible into 10 Equity Shares
Interest expense for the current year 12,00,000
Tax saving relating to interest expense (30%) 3,60,000
Question 7
Calculate the diluted earnings per share from the following information:
Net profit for the current year ₹17,10,000
No. of equity shares outstanding 4,00,000
No. of 8% convertible debentures of ₹ 100 each. 20,000
Each debenture is convertible into 10 equity shares
Interest expenses for the current year ₹ 1,20,000
Tax relating to interest expenses 30%
 1
Question 8 ICAI Study Material

Net profit for the year 2020 ₹ 12,00,000

Weighted avg. no. of equity shares outstanding during the year 2020 5,00,000 shares
Average fair value of one equity share during the year 2020 ₹ 20.00
Weighted avg. no. of shares under option during the year 2020 1,00,000 shares
Exercise price for shares under option during the year 2020 ₹ 15.00
Compute Basic and Diluted Earnings Per Share.
 1
Question 9
Calculate Basic EPS & Diluted EPS for the year 2019-20
Earnings ₹ 10 Lacs
01/04/2019 Equity Shares 2,00,000 shares
8% Convertible Debentures ₹ 3,00,000 (convertible into 50,000 equity shares)
9% Convertible Preference Shares ₹ 4,00,000 (convertible into 1,000 equity shares)
01/07/2019 Shares Warrants Issues 10,000
Consider tax rate of 30%
 Practice Questions
Question 1 Inter Nov 2019 (5 Marks)
Following information is supplied by K Ltd.:
Number of shares outstanding prior to right issue - 2,50,000 shares.
Right issue - two new share for each 5 outstanding shares (i.e. 1,00,000 new shares)
Right issue price – ₹ 98
Last date of exercising rights - 30-06-2019.
Fair value of one equity share immediately prior to exercise of right on 30-06-2019 is ₹ 102.
Net Profit to equity shareholders:
2018-2019 – ₹ 50,00,000
2019-2020 ₹ 75,00,000
You are required to calculate the basic earnings per share as per AS-20 Earnings per Share.

Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to exercise of rights + Total amount received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise
= (102.00 x 2,50,000 shares) + ( 98.00 x 1,00,000 shares)
2,50,000 shares + 1,00,000 shares

Theoretical ex-rights fair value per share = ₹ 100.86

Paid Part in Right Issue = 1,00,000 * 98/100.86 = 97,164 shares
Bonus Part in Right Issue = 1,00,000 – 97,164 = 2,836 shares

Computation of earnings per share

Year 18 – 19 Year 19 – 20
EPS for the year 18 - 19 as originally reported:
20.00
(₹ 50,00,000/2,50,000 shares)
EPS for the year 18 - 19 restated for rights issue:
19.78
[₹ 50,00,000/(2,50,000 shares + 2,836 shares)]
EPS for the year 19-20 including effects of rights issue
75,00,000 . 23.03
{(2,50,000 + 2,836)*12/12}+ (97,164 x 9/12)

Question 2 RTP Nov 2020

A-One Limited supplied the following information. You are required to compute earnings per share as
per AS 20. Net Profit attributable to equity shareholders
Year 2018-19 1,00,00,000
Year 2019-20 1,50,00,000
No of shares outstanding prior to right issue 50,00,000 shares.
Right issue : One new share for each four shares outstanding i.e. 12,50,000 shares.
: Right Issue price ₹ 96
: Last date to exercise right 30th June, 2019
Fair value of one equity share immediately prior to exercise of rights on 30.06.2019 is ₹ 101.

Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to exercise of rights + Total amount received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise
= (101.00 x 50,00,000 shares) + ( 96.00 x 12,50,000 shares)
50,00,000 shares + 12,50,000 shares

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Theoretical ex-rights fair value per share = ₹ 100
Paid Part in Right Issue = 12,50,000 * 96/100 = 12,00,000 shares
Bonus Part in Right Issue = 12,50,000 – 12,00,000 = 50,000 shares

Computation of earnings per share

Year 18 – 19 Year 19 – 20
EPS for the year 18 - 19 as originally reported:
2.00
(₹ 1,00,00,000/50,00,000 shares)
EPS for the year 18 - 19 restated for rights issue:
1.98
[₹ 1,00,00,000/(50,00,000 shares + 50,000 shares)]
EPS for the year 19-20 including effects of rights issue
1,50,00,000 . 2.52
{(50,00,000 + 50,000)*12/12}+ (12,00,000 x 9/12)

Question 3 Inter Nov 2018 (5 Marks)

From following information given by Sampark Ltd., Calculate Basis EPS and Diluted EPS as per AS 20:
₹
Net Profit for the current year 2,50,00,000
No. of Equity Shares Outstanding 50,00,000
No. of 12% convertible debentures of ₹ 100 each 50,0000
Each debenture is convertible into 8 Equity Shares
Interest expense for the current year 6,00,000
Tax saving relating to interest expense (30%) 1,80,000

Solution
Calculation of Basic Earning Per Share
Net Profit for the current year
Basic EPS = No. of Equity Shares
2,50,00,000
=
50,00,000
Basic EPS per share = ₹5
Calculation of Diluted Earning Per Share
Adjusted net profit for the current year
Diluted EPS = Weighted average no. of Equity Shares
Adjusted net profit for the current year ₹
Net profit for the current year 2,50,00,000
Add: Interest expenses for the current year 6,00,000
Less: Tax saving relating to Tax Expenses (1,80,000)
2,54,20,000
No. of equity shares resulting from conversion of debentures: 4,00,000 Shares
Weighted average no. of equity shares used to compute diluted EPS: (50,00,000 + 4,00,000) = 54,00,000
Equity Shares
Diluted earnings per share: (2,54,20,000/54,00,000) = ₹ 4.71 (Approx.)

Question 4 RTP May 2019

“While calculating diluted EPS, effect is given to all dilutive potential equity shares that were
outstanding during that period.” Explain this statement in the light of relevant AS.
Also calculate the diluted earnings per share from the following information:
Net profit for the current year (after tax) ₹1,00,00,000
No. of equity shares outstanding 10,00,000
No. of 10% convertible debentures of ₹ 100 each. 1,00,000
(Each debenture is compulsorily & fully convertible into 10 equity shares)
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 Debenture interest expenses for the current year ₹ 5,00,000
Assume applicable income tax rate @ 30%

Solution
“In calculating diluted earnings per share, effect is given to all dilutive potential equity shares that were
outstanding during the period.” As per AS 20 ‘Earnings per Share’, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding during the
period should be adjusted for the effects of all dilutive potential equity shares for the purpose of
calculation of diluted earnings per share.
Computation of diluted earnings per share = Adjusted net profit for the current year
Weighted average number of equity shares
Net profit for the current year 1,00,00,000
Add: Interest expense for the current year 5,00,000
Less: Tax relating to interest expense (30% of ₹ 5,00,000) (1,50,000)
Adjusted net profit for the current year 1,03,50,000
Note: Conversion of convertible debentures into Equity Share is a dilutive potential equity shares. Hence,
to compute the adjusted profit the interest paid on such debentures will be added back as the same would
not be payable in case these are converted into equity shares.
Weighted average number of equity shares
Number of equity shares resulting from conversion of debentures = 1,00,000 X 100 = 10,00,000 shares
10
Weighted average number of equity shares used to compute diluted earnings per share
= [(10,00,000 x 12) + (10,00,000 x 6*)]/12 = 15,00,000 shares
*Interest on debentures for full year amounts to ₹ 10,00,000 (i.e. 10% of ₹ 1,00,00,000). However,
interest expense amounting ₹ 5,00,000 has been given in the question. It may be concluded that
debentures have been issued during the year and interest has been provided for 6 months.
Diluted earnings per share = 1,03,50,000
15,00,000 shares
= ₹ 6.90 per share

Question 5 RTP May 2021

In the following list of shares issued, for the purpose of calculation of weighted average number of
shares, from which date weight is to be considered:
a) Equity Shares issued in exchange of cash,
b) Equity Shares issued as a result of conversion of a debt instrument,
c) Equity Shares issued in exchange for the settlement of a liability of the enterprise,
d) Equity Shares issued for rendering of services to the enterprise,
e) Equity Shares issued in lieu of interest and/or principal of an other financial instrument,
f) Equity Shares issued as consideration for the acquisition of an asset other than in cash.

Solution
The following dates should be considered for consideration of weights for the purpose of calculation of
weighted average number of shares in the given situations:
a) Date of Cash receivable
b) Date of conversion
c) Date on which settlement becomes effective
d) When the services are rendered
e) Date when interest ceases to accrue
f) Date on which the acquisition is recognised.

The copyright of these notes is with C.A. Nitin Goel

No part of these notes may be reproduced in any manner without his prior permission in writing