**Accounting Standard (AS) 20** is an accounting standard issued by the Institute of Chartered Accountants of India (ICAI) that pertains to **accounting for earnings per share (EPS)**. EPS is a financial ratio that represents the amount of net income earned by a company for each share of its outstanding common stock. AS 20 sets out the principles for calculating and presenting EPS in the financial statements.

One of the main objectives of **Accounting Standard 20** is to provide users of financial statements with information about a company's profitability and its ability to generate earnings for shareholders. EPS is an important measure of a company's profitability because it reflects the amount of net income that is available to be distributed to shareholders.

**AS 20** requires that EPS be calculated for each class of equity shares that a company has issued. This includes common shares, preference shares, and other classes of shares that have different rights and obligations. The formula for calculating EPS is as follows:

EPS = (Net Profit - Preferred Dividends) / Weighted Average Number of Common Shares Outstanding

To calculate EPS, a company needs to determine its net profit for the period and subtract any dividends paid on preferred shares. The number of common shares outstanding must be adjusted for any share issuances or repurchases that occurred during the period. The resulting EPS figure can then be presented in the income statement or in a separate statement of earnings per share.

**AS 20** also requires that companies disclose certain information related to EPS in the notes to the financial statements. This includes the number of shares outstanding for each class of equity shares, the amount of any dividends paid or declared on each class of shares, and the method used to calculate the weighted average number of shares outstanding.

### Practical examples of Accounting Standard 20 in India:

**1**. **Calculation of EPS:** A company has issued 100,000 common shares and earned a net profit of Rs. 10 lakhs during the year. It did not pay any dividends on preferred shares during the year. The company also issued 20,000 additional common shares in the middle of the year. The weighted average number of common shares outstanding during the year is 105,000 (100,000 shares for the first half and 120,000 shares for the second half). The EPS for the year is (10 lakhs - 0) / 105,000 = Rs. 9.52 per share.

**2**. **Presentation of EPS:** A company presents its EPS figure in a separate statement of earnings per share, which includes the EPS for each class of equity shares. The statement also includes a reconciliation of the weighted average number of shares outstanding for each class of shares.

**3**. **Disclosures:** A company discloses in the notes to the financial statements the number of shares outstanding for each class of equity shares, the amount of any dividends paid or declared on each class of shares, and the method used to calculate the weighted average number of shares outstanding. The company also provides an explanation of any changes in the number of shares outstanding during the year, such as share issuances or repurchases.

### Question and Answer related to AS 20:

**1. What is the objective of AS 20?**

The main objective of AS 20 is to prescribe the principles for the calculation and presentation of earnings per share (EPS) in the financial statements of a company. The standard aims to provide investors and other users of financial statements with a measure of the profitability of a company on a per-share basis.

**2. What are the different types of EPS under AS 20?**

AS 20 requires a company to present both basic EPS and diluted EPS in its financial statements. Basic EPS is calculated by dividing the net profit or loss attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Diluted EPS takes into account the potential dilutive effect of convertible securities and stock options on the number of equity shares outstanding.

**3. How does AS 20 treat the impact of changes in the number of shares outstanding during the period?**

AS 20 requires a company to adjust the weighted average number of shares outstanding for any changes in the number of shares during the period, such as new issuances or buybacks. The impact of such changes on the calculation of EPS is reflected in the numerator of the EPS formula, i.e., the net profit or loss attributable to equity shareholders.

**4. Can a company exclude any items from the calculation of EPS under AS 20?**

AS 20 requires a company to calculate EPS based on the net profit or loss attributable to equity shareholders after adjusting for any potential dilutive effect of convertible securities and stock options. However, a company may exclude certain items from the calculation of EPS if they are considered to be extraordinary or non-recurring in nature. Such items should be separately disclosed in the financial statements.

**5. How does AS 20 apply to consolidated financial statements?**

AS 20 applies to the calculation and presentation of EPS in both standalone and consolidated financial statements. In the case of consolidated financial statements, the net profit or loss attributable to equity shareholders and the weighted average number of shares outstanding are calculated based on the consolidated financial statements of the group. The impact of any changes in the number of shares of subsidiary companies is also reflected in the calculation of EPS.

In conclusion, **AS 20** plays an important role in ensuring that companies in India accurately calculate and present earnings per share in their financial statements. This standard provides a uniform methodology for calculating EPS and requires companies to disclose important information related to EPS in the notes to the financial statements. Examples of practical applications of **Accounting Standard 20** include the calculation and presentation of EPS figures for different classes of equity shares and the disclosure of information related to dividends and share issuances.

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