1. Advanced Financial Accounting
Lecture-33
Earnings Per Share

2. Earnings Per Share Earning per share is used to judge the
Performance of an entity.

3. Earnings Per Share (EPS)
Earning Available to Common Stock-holders
No. of weighted average shares outstanding during the year

4. Income Statement Sales xxx Less Cost of goods sold xxx
Gross profit xxx
Less Operating Exp.
Administrative Exp. xxx
Selling Exp. xxx
xxx
Profit from operations xxx
Add Other income xxx
Less Financial charges xxx
Profit before tax xxx
Less Income tax Exp. xxx
Profit after tax/
Earning available to ordinary share holder xxx

5. Question 1 Jan, 2007 Opening shares 200,000
1 Oct 2007 Fresh shares issued 200,000
Required
Compute weighted average number of shares outstanding.
Solution
1 Jan Opening shares 200,000 x 12/12 = 200,000
1 Oct Fresh issue 200,000 x 3/ = 50,000
Weighted average shares ,000

6. Journal Entry
Bank A/c xxx
Share capital A/c xxx

7. Question
A listed company has following shares transactions during 2007
Date
Details
Shares issued
Treasury
shares
Shares outstanding
1 Jan.
2007
Balance at beginning of year
200,000
30,000
170,000
31 May 2007
Issue of new shares for cash
80,000
----
250,000
1 Dec.
Purchase of treasury shares
25,000
225,000
31 Dec.
Balance at year end
280,000
55,000
The data will appear as row wise
Required: Calculate the weighted average number of shares outstanding

8. Solution-1 1 Jan. 2007 Opening balance 170,000 x 12/12 = 170,000
31 May New issue ,000 x 7/12 = ,666
1 Dec Treasury shares ,000x1/12 = ( 2.083)
214,583
Data will appear as row wise

9. Solution-2 1 Jan. 2007 Opening balance 170,000 x 5/12 = 170,000
31 May New issue ,000 x 6/12 = 46,666
1 Dec Treasury shares ,000x1/12 = ( 2.083)
214,583
Data will appear row wise

10. Question A company has following information:
Issued capital Rs. 1 each
10% Debenture Rs. 1 each
Gross profit Rs. 200,000
Operating Exp. Rs. 50,000
Income tax 30%
Required: Compute Earnings Per Share:
1- 100,000 shares outstanding.
2- Issued further 40,000 shares on 1July

11. Solution Gross profit 200,000 Less Operating expenses 50,000
Operating profit ,000
Less Interest on debenture 2,000
Profit before tax ,000
Less Income 30% ,400
Profit after tax ,600

12. Solution Earning per share (Assumption-1)
Earning Available to Common Stock-holders
No. of weighted average shares outstanding during the year
= 103,600 / 100,000 = per share
Earning per share (Assumption-2)
Weighted average shares = (100,000+40,000x612)=120,000
= 103,600 / 120,000 = per share