AS 20 — Earnings Per Share

AS 20 prescribes principles for the determination and presentation of earnings per share (EPS) — one of the most widely used measures of a company's performance, and a figure that appears on the face of the statement of profit and loss. EPS boils a company's profit down to a per-share figure, allowing comparison of performance across periods and, with care, across companies. Because it is so heavily relied upon, AS 20 standardises exactly how it is calculated and presented so that the figure means the same thing everywhere.

Objective and scope

The objective 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 standard applies to enterprises whose equity shares or potential equity shares are listed, and it is encouraged for others; where an enterprise presents EPS, it must do so in accordance with AS 20. EPS is presented on the face of the statement of profit and loss for each class of equity shares.

Basic earnings per share

Basic EPS is 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.

The numerator — net profit or loss attributable to equity shareholders — is the net profit or loss for the period after deducting preference dividends and any attributable tax thereon. Preference dividends are deducted because that portion of profit belongs to preference shareholders, not equity shareholders.

The denominator — the weighted average number of equity shares — is the number of equity shares outstanding at the beginning of the period, adjusted by the number of shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting reflects the proportion of the period for which the shares were outstanding. This weighting matters: shares issued halfway through the year contribute to earnings for only half the year, so counting them in full would understate EPS.

Where there has been a bonus issue, share split, or similar change that alters the number of shares without a corresponding change in resources, the weighted average number of shares is adjusted for all periods presented as if the event had occurred at the beginning of the earliest period reported — so that EPS remains comparable across periods.

Diluted earnings per share

Some instruments — such as convertible debentures, convertible preference shares, options, and warrants — could result in additional equity shares being issued in future, which would dilute existing shareholders' earnings per share. Diluted EPS shows the EPS figure taking into account the effect of all such dilutive potential equity shares, giving shareholders a picture of the "worst case" dilution.

Diluted EPS is calculated by adjusting the net profit attributable to equity shareholders and the weighted average number of shares for the effects of all dilutive potential equity shares. The numerator is adjusted for the after-tax amount of dividends and interest recognised in the period on the dilutive potential equity shares, and for any other changes in income or expense that would result from their conversion. The denominator is increased by the weighted average number of additional equity shares that would have been outstanding assuming conversion of the dilutive potential equity shares.

Only dilutive potential equity shares are included — those whose conversion would decrease net profit per share (or increase the loss per share). Potential equity shares that are anti-dilutive (whose conversion would increase EPS or reduce the loss per share) are ignored, because including them would misleadingly improve the figure.

Presentation and disclosure

Basic and diluted EPS are presented on the face of the statement of profit and loss for each class of equity shares, with equal prominence, for all periods presented — even if the amounts are negative (a loss per share). The enterprise discloses the amounts used as the numerators in calculating basic and diluted EPS and their reconciliation to the net profit or loss for the period, and the weighted average number of equity shares used as the denominators and their reconciliation to each other. The nominal value of shares is also disclosed along with the earnings per share figures.

A full worked example

A company has net profit after tax of ₹50,00,000 and preference dividend of ₹5,00,000. It began the year with 8,00,000 equity shares and issued 4,00,000 more on 1 October (i.e. for 6 months of the year). It also has convertible debentures that would add 1,00,000 shares and save ₹1,50,000 of post-tax interest if converted. Compute basic and diluted EPS.

Step 1 — Earnings for equity shareholders. Preference dividends are deducted.

Item	Amount (₹)
Net profit after tax	50,00,000
Less: preference dividend	(5,00,000)
Earnings for equity holders	45,00,000

Step 2 — Weighted average number of shares. The 4,00,000 new shares only count for the 6 months they were outstanding.

Shares	Period	Weighting	Weighted shares
8,00,000	12 months	12/12	8,00,000
4,00,000	6 months	6/12	2,00,000
Weighted average	—	—	10,00,000

Step 3 — Basic EPS. ₹45,00,000 ÷ 10,00,000 = ₹4.50.

Step 4 — Diluted EPS. Assume the debentures convert: add ₹1,50,000 back to earnings and 1,00,000 to shares.

Measure	Earnings (₹)	Shares	EPS (₹)
Basic	45,00,000	10,00,000	4.50
Diluted	46,50,000	11,00,000	4.23

Two mechanics are essential. First, shares issued mid-year are time-weighted — issuing 4,00,000 shares halfway through adds only 2,00,000 to the weighted average, not 4,00,000. Second, diluted EPS shows the worst-case per-share figure if all potential shares (convertibles, options) became equity, which is why it is always equal to or lower than basic EPS. AS 20 aligns closely with Ind AS 33.

How AS 20 compares with Ind AS 33

AS 20 corresponds to Ind AS 33, Earnings per Share, and the two are closely aligned — the same definitions of basic and diluted EPS, the same use of weighted average shares, the same treatment of dilutive versus anti-dilutive potential equity shares, and the same requirement to present both figures on the face of the statement of profit and loss. Differences are largely in detail and presentation. One point worth noting is that Ind AS 33 requires EPS to be presented based on profit or loss from continuing operations and profit or loss (with separate figures where there are discontinued operations), reflecting the Ind AS presentation framework, and it contains more detailed application guidance for complex instruments. For most enterprises, however, the EPS computed under the two standards is the same.

Common pitfalls

Recurring issues include failing to deduct preference dividends from the numerator; not time-weighting shares issued or bought back during the period; not adjusting prior period EPS for bonus issues or share splits; including anti-dilutive potential equity shares in diluted EPS; and not presenting basic and diluted EPS with equal prominence, including in loss-making periods.

Why this is cleaner on a unified system

Computing EPS reliably requires accurate data on profit, preference dividends, and the movements in share capital during the period — far easier when the equity records (share issues, buybacks, convertible instruments) and the ledger sit in one connected system. When profit and the weighted average share count are drawn from a single source of truth, calculating basic and diluted EPS and reconciling the numerators and denominators for disclosure is more straightforward than assembling the figures from separate registers and the accounts. This is especially relevant where a company also administers equity instruments such as ESOPs, whose potential dilution feeds directly into diluted EPS.

This article is a detailed educational summary of AS 20 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of AS 20 as issued by the ICAI before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.