Earnings per share under AS 20: basic, diluted and the Schedule III disclosure

Earnings per share is the last line of the Statement of Profit and Loss and often the last figure computed — usually as profit divided by the shares at the year end, which is right only when nothing happened to the share capital during the year. Earnings per share under AS 20 is a weighted-average calculation, it restates last year's figure when there is a bonus or rights issue, and it has a diluted version that small companies may or may not have to give. This guide covers the basic and diluted EPS calculation under AS 20, the Schedule III presentation, the SMC relaxation, and two worked examples — a bonus issue and a rights issue at a discount — with every number shown.

Earnings per share in Schedule III: what the face shows

Division I of Schedule III ends the Statement of Profit and Loss with line XVI:

The figures are from Example 1 below; the previous-year figure is the restated one. The format does not tell you how to compute the numbers — ICAI's Guidance Note on Division I (para 9.11) says basic and diluted EPS are computed under AS 20, and that the nominal value of equity shares must be disclosed along with the EPS figures. EPS is a per-share amount in rupees, not in the lakhs or crores the rest of the statement uses. AS 20 also requires basic and diluted EPS to be shown with equal prominence for every period presented, for each class of equity shares with a different right to share in profit, and even when the figure is negative (a loss per share).

EPS calculation under AS 20: basic EPS and the weighted average number of shares

Numerator. Net profit or loss for the period attributable to equity shareholders — profit after tax, including extraordinary items, less preference dividends and any attributable tax (para 11). For preference dividends (para 13):

• Non-cumulative preference shares: deduct the dividend provided for in respect of the period.
• Cumulative preference shares: deduct the full dividend for the period whether or not it has been provided for. Arrears for earlier years paid this year are not deducted again.

Since dividend distribution tax under section 115-O applies only to dividends declared, distributed or paid up to 31 March 2020, the "attributable tax" on preference dividends is usually nil today.

Denominator. The weighted average number of equity shares outstanding during the period (paras 15–16): shares at the start of the year, plus shares issued (and less shares bought back) multiplied by a time-weighting factor — days outstanding ÷ days in the period. AS 20 accepts a reasonable approximation, so months are commonly used. Shares count from the date the consideration is receivable (para 17): cash issues when cash is receivable, conversions from the conversion date, shares for an asset from the date the acquisition is recognised.

• Partly paid shares count as a fraction of a share, to the extent they rank for dividend relative to a fully paid share (para 19).
• Contingently issuable shares count only from the date all conditions are met (para 21).
• Shares of different nominal value with the same dividend rights are converted to an equivalent number of shares of one nominal value (para 20).

Bonus issue and rights issue: the retrospective adjustment

Paragraph 22 requires the weighted average for all periods presented to be adjusted for events that change the number of shares without a corresponding change in resources: a bonus issue, a share split, a reverse split (consolidation) and the bonus element in a rights issue (para 23).

• Bonus issue or split. The shares outstanding before the event are adjusted as if the event had occurred at the beginning of the earliest period reported (para 24). A 1:2 bonus multiplies every pre-bonus share — including shares issued earlier in the same year — by 1.5. Last year's EPS is restated, and paragraph 44 requires the fact to be disclosed.
• After the year end. If the bonus, split or consolidation happens after the balance sheet date but before the Board approves the statements, EPS for both years is computed on the new number of shares (para 44). Other post-balance-sheet share issues (for cash, conversions, new options) do not change EPS (para 47); disclosure is encouraged where material (para 46).
• Rights issue. If the exercise price is below fair value, the issue contains a bonus element (para 25). Shares outstanding before the issue, for all periods before it, are multiplied by:

Adjustment factor = fair value per share immediately before exercise of rights ÷ theoretical ex-rights fair value (TERP) per share

TERP = (fair value of all shares immediately before exercise + proceeds from the rights) ÷ shares outstanding after exercise. For a listed company with separately traded rights, fair value is the closing price on the last day shares trade together with the rights. AS 20 defines fair value only in general terms (para 4.6: an arm’s length exchange amount between knowledgeable, willing parties), so for an unlisted company fair value needs a supportable basis — a recent valuation, for example — and that basis belongs in the working paper. A rights issue at or above fair value has no bonus element and is weighted like any other cash issue.

Worked example 1: EPS with a bonus issue and a cash issue

A Pvt Ltd, year ended 31 March 2026:

• 1 April 2025: 10,00,000 equity shares of ₹10 each, fully paid.
• 1 August 2025: 2,00,000 shares issued for cash, fully paid.
• 1 December 2025: bonus issue 1:2 (one bonus share for every two held) — 6,00,000 bonus shares. Shares at 31 March 2026: 18,00,000.
• 50,000 8% cumulative preference shares of ₹100 each, outstanding both years; preference dividend ₹4,00,000 a year (not declared this year).
• Profit after tax: FY 2025-26 ₹84,00,000; FY 2024-25 ₹60,00,000. No potential equity shares.

Points to note: the preference dividend is deducted even though not declared, because the shares are cumulative. The cash issue of August is multiplied by 1.5 too, because those shares also received bonus shares. A day count (243 of 365 days) gives 16,99,726 shares and the same ₹4.71. Last year's EPS, originally ₹5.60 (56,00,000 ÷ 10,00,000), is restated to ₹3.73. A tempting shortcut — counting the bonus shares only from 1 December — gives 13,33,333 shares and an EPS of ₹6.00, which overstates EPS by more than a quarter.

Worked example 2: rights issue at a discount, with diluted EPS

B Pvt Ltd, year ended 31 March 2026:

• 8,00,000 equity shares of ₹10 each outstanding from the start of FY 2024-25.
• Rights issue 1 for 4 at ₹40 per share; fair value immediately before exercise ₹60. 2,00,000 shares allotted, with the money receivable, on 1 January 2026.
• ₹20,00,000 9% convertible debentures, outstanding throughout both years, convertible into 40,000 equity shares (the conversion terms are not adjusted for the rights issue). Tax rate assumed 25%.
• Profit after tax: FY 2025-26 ₹90,00,000; FY 2024-25 ₹70,00,000. No preference shares.

Adjustment factor. TERP = (₹60 × 8,00,000 + ₹40 × 2,00,000) ÷ 10,00,000 = (₹4,80,00,000 + ₹80,00,000) ÷ 10,00,000 = ₹56. Factor = 60 ÷ 56 = 1.0714.

Last year's diluted EPS uses the restated 8,57,143 shares too, because the diluted denominator is built on the weighted average adjusted under para 22 (para 32). The debentures are dilutive: the after-tax interest saved per incremental share is ₹1,35,000 ÷ 40,000 = ₹3.38, below basic EPS. Ignoring the bonus element and simply weighting the 2,00,000 rights shares for three months gives 8,50,000 shares and a basic EPS of ₹10.59 — overstated — and leaves last year's ₹8.75 unrestated.

Basic and diluted EPS: potential equity shares and anti-dilution

A potential equity share is an instrument or contract that entitles, or may entitle, its holder to equity shares (para 4.4): convertible debentures and convertible preference shares, warrants, employee stock options, and contingently issuable shares. For diluted EPS (paras 26–34):

• Numerator: add back the dividends, interest and other expenses on the dilutive instruments, net of tax, and adjust for consequential changes (such as a profit-linked bonus).
• Denominator: add the shares that would be issued on conversion, deemed converted at the start of the year or the date of issue if later, at the conversion rate most favourable to the holder.
• Options and warrants: only the shares deemed issued for no consideration are added — the shares issuable less the shares the exercise proceeds would buy at the average fair value during the period (paras 35–37).
• Share application money pending allotment at the balance sheet date, if not required to be kept separately and used in the business, is treated like dilutive potential equity shares (para 28) — a point easily missed in private company accounts.
• Anti-dilution: instruments are dilutive only if conversion would decrease net profit per share from continuing ordinary activities (para 39). Anti-dilutive ones are ignored (para 41); each issue is tested separately, from most to least dilutive (para 42). In a loss year, conversion usually reduces the loss per share, so diluted EPS normally equals basic.

The SMC relaxation and the AS 20 disclosures

AS 20 applies to all companies, but under the Companies (Accounting Standards) Rules, 2021 a Small and Medium Sized Company (SMC) — equity and debt securities not listed or in the process of listing, not a bank, financial institution or insurer, turnover (excluding other income) not above ₹250 crore in the preceding year, borrowings (including public deposits) not above ₹50 crore at any time in the preceding year, and not a holding or subsidiary of a non-SMC — need not disclose diluted EPS (both including and excluding extraordinary items). An SMC is a different test from a small company under section 2(85); check each separately.

An SMC that leaves out diluted EPS under this relaxation must say, in a note, that it is an SMC as defined in the 2021 Rules and has complied with the Accounting Standards as applicable to an SMC (General Instruction 1.1 of the Annexure). Where the company has no potential equity shares, diluted EPS simply equals basic and showing both lines on the face needs no relaxation and no note. Where an SMC does have potential equity shares and uses the relaxation, the usual practice is to leave out line (2) Diluted on the face, relying on General Instruction 1 to Schedule III (the format stands modified where the Accounting Standards as applicable require a change), and to give the SMC note. If the SMC uses some relaxations but not others, it must also name the standards whose relaxations it has used (General Instruction 1.3).

The EPS note — usually the last numbered note, after the notes to accounts on the P&L items — should contain (paras 44 and 48):

Extraordinary items are rare under AS 5 — see exceptional, extraordinary and prior period items — but where one exists, the second pair of EPS figures is mandatory.

Common slips in the EPS calculation

• Dividing by year-end shares instead of the weighted average, after a mid-year issue or buy-back.
• Weighting bonus shares from the bonus date instead of restating both years.
• Not restating last year's EPS for a bonus or rights issue — the comparative must change, and the share capital note should show the bonus issue.
• Treating a rights issue below fair value as an ordinary cash issue.
• Not deducting the cumulative preference dividend because it was not declared.
• Omitting diluted EPS without the SMC note, or claiming the SMC relaxation for a company that is a holding or subsidiary company of a non-SMC.
• Leaving out the nominal value per share or the reconciliation of numerators and denominators.
• Treating share application money pending allotment as irrelevant to diluted EPS.

These sit alongside other Schedule III mistakes in small company accounts. A simple control: keep the EPS working with the share capital movement for the year and last year's signed EPS on one sheet, so the restatement is visible to the reviewer.

Frequently asked questions

Sources

• Companies (Accounting Standards) Rules, 2021 — G.S.R. 432(E), 23 June 2021 (Gazette): rule 2(1)(e), Annexure General Instruction 1, and AS 20 Earnings Per Share, paras 1, 4–48 and Illustrations III and IV
• ICAI — AS 20, Earnings Per Share (Accounting Standards, Volume III)
• Companies Act, 2013 — Schedule III, Division I, Part II, Statement of Profit and Loss, line XVI (India Code, amended text)
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022), para 9.11
• Small company limits — G.S.R. 880(E), 1 December 2025 (Gazette)

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