Accounting Standard (AS) 20

Earnings Per Share

Objective
The objective of this Standard is to prescribe principles for the determination and
presentation

of

earnings

per

share

which

will

improve

comparison

of

performance among different enterprises for the same period and among
different accounting periods for the same enterprise. The focus of this Standard
is on the denominator of the earnings per share calculation. Even though
earnings per share data has limitations because of different accounting policies
used

for

determining

earnings,

consistently

determined

denominator

enhances the quality of financial reporting.

Scope
1. This Standard should be applied by all the entities. However, a
Small and Medium Sized Company and a Small and Medium Sized
non-corporate entity falling in Level II or Level III, as defined in
Appendix 1 to this Compendium, Applicability of Accounting
Standards to Various Entities, may not disclose diluted earning
per share (both including and excluding extraordinary items).

Measurement
Basic Earnings Per Share
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
For the purpose of calculating basic earnings per share, the net profit
or loss for the period attributable to equity shareholders should be the
net profit or loss for the period after deducting preference dividends
and any attributable tax thereto for the period.
All items of income and expense which are recognised in a period, including tax
expense and extraordinary items, are included in the determination of the net
profit or loss for the period unless an Accounting Standard requires or permits

otherwise (see Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior
Period Items and Changes in Accounting Policies). The amount of preference
dividends and any attributable tax thereto for the period is deducted from the
net profit for the period (or added to the net loss for the period) in order to
calculate the net profit or loss for the period attributable to equity shareholders.
The amount of preference dividends for the period that is deducted from the net
profit for the period is:
(a) the amount of any preference dividends on non-cumulative preference
shares provided for in respect of the period; and
(b) the full amount of the required preference dividends for cumulative
preference shares for the period, whether or not the dividends have been
provided for. The amount of preference dividends for the period does not include
the amount of any preference dividends for cumulative preference shares paid or
declared during the current period in respect of previous periods.
If an enterprise has more than one class of equity shares, net profit or loss for
the period is apportioned over the different classes of shares in accordance with
their dividend rights.
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).

Fair value per share immediately prior to the exercise of rights

Theoretical ex-rights fair value per share

Diluted Earnings Per Share

For the purpose of calculating diluted 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.

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;
(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 which
would have been outstanding assuming the conversion of all dilutive potential
equity shares.
For the purpose of this Standard, share application money pending allotment or
any advance share application money as at the balance sheet date, which is not
statutorily required to be kept separately and is being utilised in the business of
the enterprise, is treated in the same manner as dilutive potential equity shares
for the purpose of calculation of diluted earnings per share.

Illustrations
Illustration I
Example - Weighted Average Number of Shares

1/1/2001

Balance

at

No. of Shares

No. of Shares

No. of Shares

1800

Bought Back
-

Outstanding
1800

600

2400

300

2100

300

2100

the beginning
31/5/2001

of the year
Issue
of
share

for

1/11/2001

cash
Buy back

of

31/12/2001

share
Balance

at

end of year

2400

Accounting Standard (AS) 21

Consolidated Financial Statements
Objective The objective of this Standard is to lay down principles and procedures
for

preparation

and

presentation

of

consolidated

financial

statements.

Consolidated financial statements are presented by a parent (also known as

holding enterprise) to provide financial information about the economic activities
of its group. These statements are intended to present financial information
about a parent and its subsidiary(ies) as a single economic entity to show the
economic resources controlled by the group, the obligations of the group and
results the group achieves with its resources.

Scope
1. This Standard should be applied in the preparation and presentation of
consolidated financial statements for a group of enterprises under the control of
a parent.
2. This Standard should also be applied in accounting for investments in
subsidiaries in the separate financial statements of a parent.
Definitions
For the purpose of this Standard, the following terms are used with the meanings
specified:
5.1 Control: (a) the ownership, directly or indirectly through subsidiary(ies), of
more than one-half of the voting power of an enterprise; or (b) control of the
composition of the board of directors in the case of a company or of the
composition of the corresponding governing body in case of any other enterprise
so as to obtain economic benefits from its activities.
5.2 A subsidiary is an enterprise that is controlled by another enterprise (known
as the parent).
5.3 A parent is an enterprise that has one or more subsidiaries.
Explanation: It is possible that an enterprise is controlled by two enterprises
one controls by virtue of ownership of majority of the voting power of that
enterprise and other controls, by virtue of an agreement or otherwise, the
composition of the board of directors so as to obtain economic benefit from its
activities. In such a rare situation, when an enterprise is controlled by two

enterprises as per the definition of control, the first mentioned enterprise will be
considered as subsidiary of both the controlling enterprises within the meaning
of this Standard and, therefore, both the enterprises need to consolidate the
financial statements of that enterprise as per the requirements of this Standard
A subsidiary should be excluded from consolidation when:
(a) control is intended to be temporary because the subsidiary is acquired and
held exclusively with a view to its subsequent disposal in the near future;
(b) it operates under severe long-term restrictions which significantly impair its
ability to transfer funds to the parent.