AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
Earnings Per Share
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....are calculation. Even though earnings per share data has limitations because of different accounting policies used for determining 'earnings , a consistently determined denominator enhances the quality of financial reporting. Scope 1. This Standard should be applied by all companies. However, a Small and Medium Sized company, as defined in the Notification, may not disclose diluted earnings per share (both including and excluding extraordinary items). 2. In consolidated financial statements, the information required by this Statement should be presented on the basis of consolidated information.^[1] 3. In the case of a parent (holding enterprise), users of financial statements are usually concerned with, and need to be informed about, the results of operations of both the enterprise itself as well as of the group as a whole. Accordingly, in the case of such enterprises, this Standard requires the presentation of earnings per share information on the basis of consolidated financial statements as well as individual financial statements of the parent. In consolidated financial statements, such information is presented on the basis of consolidated information. Definitions....
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.... similar plans; and (d) shares which would be issued upon the satisfaction of certain conditions resulting from contractual arrangements (contingently issuable shares), such as the acquisition of a business or other assets, or shares issuable under a loan contract upon default of payment of principal or interest, if the contract so provides. Presentation 8. An enterprise should present basic and diluted earnings per share on the face of the statement of profit and loss for each class of equity shares that has a different right to share in the net profit for the period. An enterprise should present basic and diluted earnings per share with equal prominence for all periods presented. 9. This Standard requires an enterprise to present basic and diluted earnings per share, even if the amounts disclosed are negative (a loss per share). Measurement Basic Earnings Per Share 10. Basic earnings per share should be calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Earnings - Basic 11. For the purpose of calcula....
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....tor. The time-weighting factor is the number of days for which the specific shares are outstanding as a proportion of the total number of days in the period; a reasonable approximation of the weighted average is adequate in many circumstances. Illustration I attached to the Standard illustrates the computation of weighted average number of shares. 17. In most cases, shares are included in the weighted average number of shares from the date the consideration is receivable, for example: (a) equity shares issued in exchange for cash are included when cash is receivable; (b) equity shares issued as a result of the conversion of a debt instrument to equity shares are included as of the date of conversion; (c) equity shares issued in lieu of interest or principal on other financial instruments are included as of the date interest ceases to accrue; (d) equity shares issued in exchange for the settlement of a liability of the enterprise are included as of the date the settlement becomes effective; (e) equity shares issued as considera....
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.... earnings per share from the date when all necessary conditions under the contract have been satisfied. 22. 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. 23. Equity shares may be issued, or the number of shares outstanding may be reduced, without a corresponding change in resources. Examples include: (a) a bonus issue; (b) a bonus element in any other issue, for example a bonus element in a rights issue to existing shareholders; (c) a share split; and (d) a reverse share split (consolidation of shares). 24. In case of a bonus issue or a share split, equity shares are issued to existing shareholders for no additional consideration. Therefore, the number of equity shares outstanding is increased without an increase in resources. The number of equity shares outstanding before the event is adjusted f....
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....ve potential equity shares. 27. In calculating diluted earnings per share, effect is given to all dilutive potential equity shares that were outstanding during the period, that is: (a) the net profit for the period attributable to equity shares is: (i) increased by the amount of dividends recognised in the period in respect of the dilutive potential equity shares as adjusted for any attributable change in tax expense for the period; (ii) increased by the amount of interest recognised in the period in respect of the dilutive potential equity shares as adjusted for any attributable change in tax expense for the period; and (iii) adjusted for the after-tax amount of any other changes in expenses or income that would result from the conversion of the dilutive potential equity shares. (b) the weighted average number of equity shares outstanding during the period is increased by the weighted average number of additional equity shares w....
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.... of interest expense related to potential equity shares and the resulting increase in net profit for the period may lead to an increase in the expense relating to a non-discretionary employee profit sharing plan. For the purpose of calculating diluted earnings per share, the net profit or loss for the period is adjusted for any such consequential changes in income or expenses. Per Share - Diluted 32. For the purpose of calculating diluted earnings per share, the number of equity shares should be the aggregate of the weighted average number of equity shares calculated in accordance with paragraphs 15 and 22, 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. 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. 33. The number of equity shares which would be issued on the conversion of dilutive potential equity shares is determined from the terms of the potential equity shares. The computation assumes the most advantageous conversion....
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....eated as consisting of: (a) a contract to issue a certain number of equity shares at their average fair value during the period. The shares to be so issued are fairly priced and are assumed to be neither dilutive nor anti-dilutive. They are ignored in the computation of diluted earnings per share; and (b) a contract to issue the remaining equity shares for no consideration. Such equity shares generate no proceeds and have no effect on the net profit attributable to equity shares outstanding. Therefore, such shares are dilutive and are added to the number of equity shares outstanding in the computation of diluted earnings per share. Illustration VI attached to the Standard illustrates the effects of share options on diluted earnings per share. 38. To the extent that partly paid shares are not entitled to participate in dividends during the reporting period they are considered the equivalent of warrants or options. Dilutive Potential Equity Shares 39. Potential equity shares should be treated as dilutive when, and only when, their conversion to equity shares would decrease net profit per share from contin....
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....uted earnings per share. Restatement 44. If the number of equity or potential equity shares outstanding increases as a result of a bonus issue or share split or decreases as a result of a reverse share split (consolidation of shares), the calculation of basic and diluted earnings per share should be adjusted for all the periods presented. If these 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. When per share calculations reflect such changes in the number of shares, that fact should be disclosed. 45. An enterprise does not restate diluted earnings per share of any prior period presented for changes in the assumptions used or for the conversion of potential equity shares into equity shares outstanding. 46. An enterprise is encouraged to provide a description of equity share transactions or potential equity share transactions, other than bonus issues, share splits and reverse share splits (consolidation of shares) which occur after....
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....which affect the measurement of basic and diluted earnings per share. These terms and conditions may determine whether or not any potential equity shares are dilutive and, if so, the effect on the weighted average number of shares outstanding and any consequent adjustments to the net profit attributable to equity shareholders. Disclosure of the terms and conditions of such contracts is encouraged by this Standard. 50. If an enterprise discloses, in addition to basic and diluted earnings per share, per share amounts using a reported component of net profit other than net profit or loss for the period attributable to equity shareholders, such amounts should be calculated using the weighted average number of equity shares determined in accordance with this Standard. If a component of net profit is used which is not reported as a line item in the statement of profit and loss, a reconciliation should be provided between the component used and a line item which is reported in the statement of profit and loss. Basic and diluted per share amounts should be disclosed with equal prominence. 51. An enterprise may wish to disclose more information than this Standard requires. Such inform....
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....0,000+40,00,000 ) = Re. 1.00 Adjusted earnings per share for the year 20X0 Rs. 18,00,000 (20,00,000 + 40,00,000) = Re. 0.30 Since the bonus issue is an issue without consideration, the issue is treated as if it had occurred prior to the beginning of the year 20X0, the earliest period reported. Illustration IV Example - Rights Issue (Accounting year 01-01-20XX to 31-12-20XX) Net profit Year 20X0 : Rs. 11,00,000 Year 20X1 : Rs. 15,00,000 No. of shares outstanding prior to rights issue 5,00,000 shares Rights issue One new share for each five outstanding (i.e. 1,00,000 new shares) Rights issue price : Rs. 15.00 Last date to exercise rights: 1st March 20X1 Fair value of one equity share immediately prior to exercise of rights on 1st March 20X1 Rs. 21.00 Computation of theoretical ex-rights fair value per share Fair value of all outstanding shares immediately prior to exercise of rights + total amount received from exercise Number of shares outstanding prior to exercise + number of shares issued in the exercise (Rs. 21.00 x 5,00,000 shares) + (Rs. 15.00 x 1,00,000 shares) 5,00,000 shares + ....
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....are Rs. 2.40 Number of shares under option 1,00,000 Number of shares that would have been issued at fair value: (100,000 x 15.00)/20.00 * (75,000) Diluted earnings per share Rs. 12,00,000 5,25,000 Rs. 2.29 *The earnings have not been increased as the total number of shares has been increased only by the number of shares (25,000) deemed for the purpose of the computation to have been issued for no consideration {see para 37(b)} Illustration VII Example - Determining the Order in Which to Include Dilutive Securities in the Computation of Weighted Average Number of Shares (Accounting year 01-01-20XX to 31-12-20XX) Earnings, i.e., Net profit attributable to equity shareholders Rs. 1,00,00,000 No. of equity shares outstanding 20,00,000 Average fair value of one equity share during the year Rs. 75.00 Potential Equity Shares Options 1,00,000 with exercise price of Rs. 60 Convertible Preference Shares ....