Chapter 4: Presentation & Disclosure Based Standards - Test 4: answer key

Question 1 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Sterling Components Ltd. is a listed engineering company finalising its financial statements for the year ended 31 March 2026. The following information is extracted from its books (₹ lakh): | Particulars | Amount | | Equity share capital (opening) | 200 | | Reserves and surplus | 425 | | Long-term borrowings | 310 | | Trade payables | 115 | | Trade receivables | 185 | | Inventories | 220 | | Cash and bank balances | 95 | | Net profit after tax for FY 2025-26 | 360 | | Net profit after tax for FY 2024-25 | 240 | The opening equity share capital represents 20,00,000 equity shares of ₹10 each. On 1 July 2025, the company issued 4,00,000 additional equity shares for cash at their full market value. On 1 November 2025, it bought back 2,00,000 equity shares. Subsequently, on 1 January 2026, it made a bonus issue of one equity share for every four equity shares held by existing shareholders. All the bonus shares were issued without additional consideration. The company also has two classes of preference shares. The first class comprises 10% cumulative preference shares of ₹50 lakh, fully paid. The second class comprises 12% non-cumulative preference shares of ₹20 lakh. The Board declared and provided for the full current-year dividend on the non-cumulative preference shares on 28 February 2026. No preference dividend relating to earlier years was paid or declared during FY 2025-26. For FY 2024-25, the company had originally calculated basic EPS using 20,00,000 weighted average equity shares. Its accounting team proposes using the actual bonus issue date for weighting the bonus shares and retaining the originally reported comparative EPS. The statutory auditor has requested a complete reassessment of the numerator, weighted average denominator and comparative earnings per share under AS 20.

Calculate the weighted average number of equity shares outstanding for FY 2025-26 after incorporating the bonus issue retrospectively.

1. 26,87,500 shares
2. 27,29,167 shares
3. 27,70,833 shares (correct answer)
4. 28,33,333 shares

Answer: C — 27,70,833 shares

Explanation. The 1:4 bonus issue requires an adjustment factor of 1.25. Opening shares contribute 20,00,000 × 1.25 = 25,00,000 shares. Additional shares issued on 1 November 2025 (6,50,000 shares) are weighted for 5 months: 6,50,000 × (5/12) = 2,70,833 shares. Total weighted average number of shares = 25,00,000 + 2,70,833 = 27,70,833 shares.

Where it goes wrong. Applying the bonus issue only from its actual issue date instead of retrospectively adjusting earlier shares.

Authority. AS 20 paras 15, 16, 22, 23 and 24

Question 2 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

What is the basic EPS of Sterling Components Ltd. for FY 2025-26 after correctly determining earnings attributable to equity shareholders?

1. ₹12.73 per share (correct answer)
2. ₹12.80 per share
3. ₹13.00 per share
4. ₹14.40 per share

Answer: A — ₹12.73 per share

Explanation. Profit attributable to ordinary equity shareholders is ₹360 lakh less cumulative preference dividend of ₹5 lakh and the declared and provided non-cumulative preference dividend of ₹2.40 lakh, giving ₹352.60 lakh. The weighted average denominator is 27.708333 lakh shares. Basic EPS = ₹352.60 lakh / 27.708333 lakh = approximately ₹12.7254, rounded to ₹12.73. The cumulative dividend is deductible irrespective of declaration, while the non-cumulative dividend is deducted because it was provided for the current period.

Where it goes wrong. Deducting only declared preference dividends or using the closing number of equity shares instead of weighted average shares.

Authority. AS 20 paras 10, 11, 13 and 24

Question 3 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

What should be the restated comparative basic EPS for FY 2024-25 after the 1 January 2026 bonus issue?

1. ₹12.00 per share
2. ₹10.00 per share
3. ₹9.00 per share
4. ₹9.60 per share (correct answer)

Answer: D — ₹9.60 per share

Explanation. The previous year's profit attributable to equity shareholders was ₹240 lakh and the original weighted average denominator was 20 lakh shares. The 1:4 bonus issue increases the comparative denominator retrospectively to 20 lakh × 1.25 = 25 lakh shares. Restated comparative EPS = ₹240 lakh / 25 lakh = ₹9.60. The previously reported ₹12 EPS cannot be retained because the bonus issue changes the number of shares without a corresponding change in resources.

Where it goes wrong. Retaining the originally reported comparative EPS without adjusting it for the bonus issue.

Authority. AS 20 paras 22, 23, 24 and 44

Question 4 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

What amount of preference dividends should be deducted from Sterling Components Ltd.'s profit while computing basic EPS for FY 2025-26?

1. ₹2.40 lakh, being only the non-cumulative preference dividend declared.
2. ₹7.40 lakh, being the full cumulative and current non-cumulative dividends. (correct answer)
3. ₹5.00 lakh, being only the annual cumulative preference dividend.
4. ₹12.40 lakh, including prior-period cumulative dividends for all preference holders.

Answer: B — ₹7.40 lakh, being the full cumulative and current non-cumulative dividends.

Explanation. The cumulative preference dividend is 10% of ₹50 lakh, i.e. ₹5 lakh, and must be deducted for the current period whether or not declared or provided for. The non-cumulative preference dividend of 12% on ₹20 lakh equals ₹2.40 lakh and was declared and provided for during the current period. Therefore, total deductions are ₹7.40 lakh. No previous-period preference dividend is included in the current-period deduction. The trap is treating cumulative and non-cumulative preference dividends identically.

Where it goes wrong. Ignoring undeclared cumulative preference dividends or including arrears relating to earlier financial years.

Authority. AS 20 paras 11 and 13

Question 5 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Meridian Infrastructure Ltd., a listed infrastructure manufacturer, is preparing its financial statements for the year ended 31 March 2026. Selected balance-sheet figures are as follows (₹ lakh): | Particulars | Amount | | Property, plant and equipment | 920 | | Non-current investments | 280 | | Trade receivables | 310 | | Inventories | 440 | | Cash and bank balances | 760 | | Equity share capital | 800 | | Securities premium | 1,240 | | Other reserves | 360 | | Long-term borrowings | 170 | | Trade and other payables | 140 | The opening equity share capital comprises 80,00,000 fully paid equity shares of ₹10 each. The company reported net profit attributable to equity shareholders of ₹480 lakh in FY 2024-25 and ₹550 lakh in FY 2025-26. The originally reported basic EPS for the previous year was ₹6 per share. On 1 October 2025, Meridian made a rights issue of one equity share for every four equity shares held. The issue price was ₹72 per share, and all eligible shareholders exercised their rights on the final exercise date. The fair value of one equity share immediately before the exercise of rights was ₹90. The new shares were issued at the full amount payable under the rights arrangement and were fully paid on allotment. The company also issued additional debt securities during the year, but these were not converted into equity shares. No bonus issue, share split or buy-back occurred during the year. The finance manager argues that the rights issue is equivalent to an ordinary fresh issue of shares because the company received cash consideration. Another director proposes adjusting the previous year's EPS using the number of shares actually issued rather than any theoretical ex-rights adjustment. The audit committee has requested the theoretical ex-rights fair value, the adjustment factor, the weighted average number of shares for FY 2025-26 and the restated comparative EPS before approving the accounts.

Calculate the theoretical ex-rights fair value per equity share immediately after the rights issue by Meridian Infrastructure Ltd.

1. ₹84.00
2. ₹85.20
3. ₹86.40 (correct answer)
4. ₹88.00

Answer: C — ₹86.40

Explanation. There were 80 lakh existing shares and the one-for-four rights issue creates 20 lakh additional shares. Existing shares have an aggregate fair value of 80 lakh × ₹90 = ₹7,200 lakh. Rights proceeds are 20 lakh × ₹72 = ₹1,440 lakh. Theoretical ex-rights value = (₹7,200 lakh + ₹1,440 lakh) / 100 lakh shares = ₹86.40 per share. Using the issue price alone or the pre-rights market price would ignore the combination of existing value and subscription proceeds.

Where it goes wrong. Using the rights issue price or pre-rights market price instead of the theoretical ex-rights fair value.

Authority. AS 20 para 25

Question 6 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

What adjustment factor should be applied to the number of shares outstanding before the rights issue for calculating EPS for periods preceding the rights issue?

1. 1.041667 (correct answer)
2. 1.025000
3. 1.050000
4. 1.080000

Answer: A — 1.041667

Explanation. The adjustment factor for a discounted rights issue is fair value per share immediately before the rights exercise divided by theoretical ex-rights fair value. Therefore, the factor is ₹90 / ₹86.40 = 1.0416667. This factor captures the bonus element inherent in the discounted rights issue. The pre-rights share count must be multiplied by this factor for earlier periods. Treating the rights issue as an ordinary full-price cash issue would omit the bonus element.

Where it goes wrong. Ignoring the bonus element because cash consideration was received for the rights shares.

Authority. AS 20 para 25

Question 7 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Determine the weighted average number of equity shares to be used in the basic EPS calculation for FY 2025-26.

1. 9,000,000 shares
2. 9,166,667 shares (correct answer)
3. 9,250,000 shares
4. 10,000,000 shares

Answer: B — 9,166,667 shares

Explanation. For the six months before the rights issue, the adjusted shares are 80 lakh × 1.0416667 = 83.333333 lakh. Their weighted contribution is 83.333333 × 6/12 = 41.666667 lakh. After the issue, 100 lakh shares remain outstanding for six months, contributing 50 lakh. Total weighted average shares = 91.666667 lakh, or approximately 9,166,667 shares. The issue-date weighting applies to the post-rights number, whereas the adjustment factor applies retrospectively to pre-rights shares.

Where it goes wrong. Applying the bonus adjustment factor to the entire post-rights share count or ignoring the time-weighting of the rights shares.

Authority. AS 20 paras 15, 16 and 25

Question 8 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

What are the current-year basic EPS and restated comparative basic EPS of Meridian Infrastructure Ltd. respectively?

1. ₹5.76 and ₹6.00
2. ₹6.25 and ₹5.76
3. ₹6.00 and ₹6.00
4. ₹6.00 and ₹5.76 (correct answer)

Answer: D — ₹6.00 and ₹5.76

Explanation. Current-year EPS is ₹550 lakh divided by 91.666667 lakh weighted average shares, giving ₹6.00. Comparative EPS is restated using the rights adjustment factor: 80 lakh × 1.0416667 = 83.333333 lakh shares. Therefore, comparative EPS = ₹480 lakh / 83.333333 lakh = ₹5.76. The original comparative EPS of ₹6 is not retained because the discounted rights issue contains a bonus element. The cash proceeds do not eliminate that retrospective adjustment.

Where it goes wrong. Restating only the current-year denominator while leaving the previous year's EPS unchanged.

Authority. AS 20 paras 10, 15, 16 and 25

Question 9 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Zenith Technologies Ltd. is a listed technology manufacturer preparing its financial statements for the year ended 31 March 2026. Selected financial information (₹ lakh) is as follows: | Particulars | Amount | | Property, plant and equipment | 1,800 | | Inventories | 540 | | Trade receivables | 400 | | Cash and bank balances | 360 | | Non-current investments | 300 | | Equity share capital | 400 | | Reserves and surplus | 1,000 | | Long-term borrowings | 1,000 | | Other liabilities | 1,000 | | Net profit after tax before preference dividends | 106 | The company has 40,00,000 weighted average ordinary equity shares throughout the year. It has already deducted recognised preference dividends of ₹4 lakh and ₹6 lakh relating to two separate convertible preference share classes while arriving at earnings attributable to ordinary equity shareholders. The first class comprises 8% convertible preference shares of ₹50 lakh. Each preference share of ₹100 is convertible into four ordinary equity shares. The second class comprises 12% convertible preference shares of ₹50 lakh, each convertible into two ordinary equity shares. Both classes were outstanding throughout the year, and their respective dividends were recognised in the current period. The company also has 10% convertible debentures of ₹100 lakh, issued and outstanding since 1 April 2025. Each debenture of ₹100 is convertible into eight ordinary equity shares. Interest of ₹10 lakh has been recognised in the Statement of Profit and Loss. The applicable tax rate is 30%. Additionally, employees hold 4,00,000 options outstanding throughout the year, with an exercise price of ₹15 per share. The average fair value of an ordinary equity share during the year was ₹20. No options were exercised during the year. The directors have proposed including every potential equity share in diluted EPS without evaluating its incremental effect on earnings per share.

Calculate the diluted EPS of Zenith Technologies Ltd. after including all dilutive instruments and excluding the anti-dilutive preference shares.

1. ₹2.10 per share (correct answer)
2. ₹2.20 per share
3. ₹2.25 per share
4. ₹2.40 per share

Answer: A — ₹2.10 per share

Explanation. Basic earnings are ₹96 lakh. Add after-tax debenture interest of ₹7 lakh and the ₹4 lakh dividend on the dilutive 8% convertible preference shares. Adjusted earnings are ₹107 lakh. Additional shares are 8 lakh from debentures, 2 lakh from the 8% preference shares and 1 lakh from employee options under the treasury stock method. Total diluted shares are 51 lakh. Diluted EPS = ₹107 lakh / 51 lakh = approximately ₹2.10. The 12% preference series is anti-dilutive and excluded.

Where it goes wrong. Including anti-dilutive potential equity shares or adding back debenture interest without its tax effect.

Authority. AS 20 paras 26, 27, 29, 32, 35, 37 and 39-42

Question 10 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

What amount should be added to earnings attributable to ordinary equity shareholders on assumed conversion of the 10% convertible debentures?

1. ₹10.00 lakh
2. ₹6.00 lakh
3. ₹7.00 lakh (correct answer)
4. ₹3.00 lakh

Answer: C — ₹7.00 lakh

Explanation. The debentures carry annual interest of ₹10 lakh, which has already reduced profit after tax. On assumed conversion, that interest expense would no longer arise. The related tax expense would also cease to be recognised. Therefore, the after-tax adjustment is ₹10 lakh × (1 − 30%) = ₹7 lakh. The gross interest of ₹10 lakh cannot be added back because it ignores the attributable tax effect. This adjustment increases the diluted EPS numerator only.

Where it goes wrong. Adding back the gross convertible debenture interest instead of the amount saved after tax.

Authority. AS 20 paras 27(a)(ii) and 29(b)

Question 11 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Under the treasury stock method, how many additional equity shares should be included in Zenith Technologies Ltd.'s diluted EPS denominator for its employee options?

1. 3,00,000 shares
2. 4,00,000 shares
3. 75,000 shares
4. 1,00,000 shares (correct answer)

Answer: D — 1,00,000 shares

Explanation. Assuming exercise of all 4,00,000 options generates proceeds of 4,00,000 × ₹15 = ₹60 lakh. At the average market price of ₹20, these proceeds would repurchase 3,00,000 shares. Therefore, only the residual 1,00,000 shares are treated as issued for no consideration and added to the diluted denominator. The exercise proceeds do not increase earnings. The trap is adding every option share without deducting the shares notionally repurchased at fair value.

Where it goes wrong. Including all employee options instead of only the net shares issued for no consideration.

Authority. AS 20 paras 35, 36 and 37

Question 12 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Why should the 12% convertible preference share class be excluded from diluted EPS?

1. Because preference dividends are never added back when calculating diluted EPS.
2. Because its incremental EPS of ₹6.00 exceeds the diluted EPS after inclusion of the more dilutive instruments. (correct answer)
3. Because convertible preference shares are not potential equity shares under AS 20.
4. Because the preference shares were outstanding throughout the year and therefore cannot be diluted.

Answer: B — Because its incremental EPS of ₹6.00 exceeds the diluted EPS after inclusion of the more dilutive instruments.

Explanation. The 12% preference dividend is ₹6 lakh. The 50 lakh preference capital represents 50,000 preference shares, each convertible into two equity shares, creating 1 lakh additional equity shares. Incremental EPS is ₹6 lakh / 1 lakh = ₹6.00. This exceeds the diluted EPS of approximately ₹2.10 after inclusion of the other dilutive instruments. Conversion would therefore increase EPS, making the series anti-dilutive. AS 20 requires anti-dilutive instruments to be ignored.

Where it goes wrong. Assuming every convertible instrument must be included simply because it can be converted into equity shares.

Authority. AS 20 paras 39, 41 and 42

Question 13 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Harsha Equipments Ltd. had 12,00,000 equity shares outstanding on 1 April 2025. On 1 July 2025, it issued 3,00,000 shares for cash. On 1 January 2026, it bought back 2,00,000 shares. Net profit attributable to equity shareholders was ₹2.75 crore. Calculate basic EPS for FY 2025-26.

Harsha Equipments Ltd. had 12,00,000 equity shares outstanding on 1 April 2025. On 1 July 2025, it issued 3,00,000 shares for cash. On 1 January 2026, it bought back 2,00,000 shares. Net profit attributable to equity shareholders was ₹2.75 crore. Calculate basic EPS for FY 2025-26.

1. ₹18.97 per share
2. ₹19.25 per share
3. ₹20.45 per share
4. ₹20.00 per share (correct answer)

Answer: D — ₹20.00 per share

Explanation. Opening shares contribute 12,00,000 for the full year. The July issue contributes 3,00,000 × 9/12 = 2,25,000 shares. The January buy-back reduces the denominator by 2,00,000 × 3/12 = 50,000 shares. Weighted average shares therefore equal 13,75,000. Basic EPS = ₹2,75,00,000 / 13,75,000 = ₹20.00. The trap is using the closing share count or weighting the buy-back from the beginning of the year.

Where it goes wrong. Ignoring the date of share issuance or buy-back while calculating the weighted average denominator.

Authority. AS 20 paras 10, 15 and 16

Question 14 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Pinnacle Electronics Ltd. reported net profit attributable to equity shareholders of ₹450 lakh for FY 2025-26. Its weighted average ordinary shares were 15,00,000. A bonus issue of one share for every four shares held was approved and completed on 15 May 2026. The Board approved the financial statements on 31 May 2026. What basic EPS should be presented for FY 2025-26?

Pinnacle Electronics Ltd. reported net profit attributable to equity shareholders of ₹450 lakh for FY 2025-26. Its weighted average ordinary shares were 15,00,000. A bonus issue of one share for every four shares held was approved and completed on 15 May 2026. The Board approved the financial statements on 31 May 2026. What basic EPS should be presented for FY 2025-26?

1. ₹24.00 per share (correct answer)
2. ₹30.00 per share
3. ₹22.50 per share
4. ₹18.00 per share

Answer: A — ₹24.00 per share

Explanation. The bonus issue is completed after the balance-sheet date but before approval of the financial statements. AS 20 paragraph 44 requires EPS calculations for the current and comparative periods to be based on the revised number of shares. Adjusted shares = 15,00,000 × 1.25 = 18,75,000. Accordingly, basic EPS = ₹450 lakh / 18.75 lakh = ₹24.00. The original ₹30 EPS is not presented without adjustment because no additional resources were received for the bonus shares.

Where it goes wrong. Ignoring a bonus issue occurring between the balance-sheet date and approval of the financial statements.

Authority. AS 20 paras 22, 23, 24 and 44

Question 15 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company had 2,00,000 equity shares of ₹10 each outstanding throughout FY 2025-26. On 1 January 2026, each existing share was split into five equity shares of ₹2 each. Net profit attributable to equity shareholders was ₹48 lakh. What basic EPS should be calculated for FY 2025-26?

A company had 2,00,000 equity shares of ₹10 each outstanding throughout FY 2025-26. On 1 January 2026, each existing share was split into five equity shares of ₹2 each. Net profit attributable to equity shareholders was ₹48 lakh. What basic EPS should be calculated for FY 2025-26?

1. ₹24.00 per share
2. ₹12.00 per share
3. ₹4.80 per share (correct answer)
4. ₹2.40 per share

Answer: C — ₹4.80 per share

Explanation. The share split increases the number of shares fivefold without changing the resources of the company. Hence, the denominator is adjusted retrospectively to 2,00,000 × 5 = 10,00,000 shares for the entire period. Basic EPS = ₹48,00,000 / 10,00,000 = ₹4.80. The actual date of the split does not justify weighting the additional shares only from January. The same adjustment principle applies to comparative periods presented.

Where it goes wrong. Treating a share split like an ordinary cash issue and applying a time-weighting factor from the split date.

Authority. AS 20 paras 22, 23, 24 and 44

Question 16 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Raghav Industries Ltd. had 10,00,000 equity shares of ₹2 each outstanding on 1 April 2025. On 1 January 2026, every five shares of ₹2 each were consolidated into one equity share of ₹10. Net profit attributable to equity shareholders for the year was ₹90 lakh. Calculate basic EPS after the reverse share split.

Raghav Industries Ltd. had 10,00,000 equity shares of ₹2 each outstanding on 1 April 2025. On 1 January 2026, every five shares of ₹2 each were consolidated into one equity share of ₹10. Net profit attributable to equity shareholders for the year was ₹90 lakh. Calculate basic EPS after the reverse share split.

1. ₹9.00 per share
2. ₹45.00 per share (correct answer)
3. ₹18.00 per share
4. ₹22.50 per share

Answer: B — ₹45.00 per share

Explanation. The consolidation converts every five existing shares into one new share. Thus, 10,00,000 original shares become 2,00,000 consolidated shares. A reverse share split changes the number of shares without a corresponding change in resources. Consequently, the adjusted denominator is 2,00,000 shares for the entire financial period. Basic EPS = ₹90,00,000 / 2,00,000 = ₹45.00. The trap is retaining the original share count for the months before consolidation.

Where it goes wrong. Failing to restate the earlier share count after a reverse share split.

Authority. AS 20 paras 22, 23, 24 and 44

Question 17 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company had 6,00,000 equity shares outstanding on 1 April 2025. On 1 October 2025, it issued one rights share for every five existing shares at ₹50 per share. The fair value immediately before exercise of rights was also ₹50. All rights were exercised. Net profit attributable to equity shareholders was ₹132 lakh. What is basic EPS for FY 2025-26?

A company had 6,00,000 equity shares outstanding on 1 April 2025. On 1 October 2025, it issued one rights share for every five existing shares at ₹50 per share. The fair value immediately before exercise of rights was also ₹50. All rights were exercised. Net profit attributable to equity shareholders was ₹132 lakh. What is basic EPS for FY 2025-26?

1. ₹20.00 per share (correct answer)
2. ₹19.23 per share
3. ₹18.33 per share
4. ₹22.00 per share

Answer: A — ₹20.00 per share

Explanation. The rights issue consists of 1,20,000 shares. Since the issue price equals the pre-rights fair value of ₹50, the theoretical ex-rights fair value also remains ₹50 and the adjustment factor is 1. The weighted average denominator is (6,00,000 × 6/12) + (7,20,000 × 6/12) = 6,60,000 shares. EPS = ₹132 lakh / 6.60 lakh shares = ₹20.00. No retrospective bonus adjustment is needed because there is no bonus element.

Where it goes wrong. Applying a bonus adjustment factor despite the rights issue being made at full fair value.

Authority. AS 20 paras 15, 16 and 25

Question 18 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company had 20,00,000 equity shares outstanding on 1 April 2025. On 1 October 2025, debentures were converted into 4,00,000 equity shares. On 1 January 2026, a further 2,00,000 equity shares were issued to settle a trade liability, with settlement becoming effective on that date. Calculate the weighted average number of equity shares for FY 2025-26.

A company had 20,00,000 equity shares outstanding on 1 April 2025. On 1 October 2025, debentures were converted into 4,00,000 equity shares. On 1 January 2026, a further 2,00,000 equity shares were issued to settle a trade liability, with settlement becoming effective on that date. Calculate the weighted average number of equity shares for FY 2025-26.

1. 23,00,000 shares
2. 24,00,000 shares
3. 22,00,000 shares
4. 22,50,000 shares (correct answer)

Answer: D — 22,50,000 shares

Explanation. Opening shares are 20,00,000. The debenture conversion creates 4,00,000 shares from 1 October, giving a weighted contribution of 4,00,000 × 6/12 = 2,00,000. Shares issued for settlement of the trade liability contribute 2,00,000 × 3/12 = 50,000 from the effective settlement date of 1 January. The total weighted average is 22,50,000 shares. The dates of conversion and effective settlement, rather than the dates the original instruments were issued, determine inclusion.

Where it goes wrong. Including shares arising from debt conversion or liability settlement from the beginning of the year.

Authority. AS 20 paras 15, 16 and 17

Question 19 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company has basic earnings attributable to ordinary equity shareholders of ₹180 lakh and a weighted average of 30,00,000 ordinary shares. On 1 October 2025, it issued 12% convertible debentures of ₹100 lakh. The debentures are convertible into 4,00,000 equity shares. Interest for six months was recognised, and the applicable tax rate is 30%. Calculate diluted EPS for FY 2025-26.

A company has basic earnings attributable to ordinary equity shareholders of ₹180 lakh and a weighted average of 30,00,000 ordinary shares. On 1 October 2025, it issued 12% convertible debentures of ₹100 lakh. The debentures are convertible into 4,00,000 equity shares. Interest for six months was recognised, and the applicable tax rate is 30%. Calculate diluted EPS for FY 2025-26.

1. ₹6.00 per share
2. ₹5.76 per share (correct answer)
3. ₹5.25 per share
4. ₹5.50 per share

Answer: B — ₹5.76 per share

Explanation. Interest for six months is ₹100 lakh × 12% × 6/12 = ₹6 lakh. The after-tax interest adjustment is ₹6 lakh × 70% = ₹4.20 lakh. Additional shares are weighted for six months: 4,00,000 × 6/12 = 2,00,000. Diluted EPS = (₹180 lakh + ₹4.20 lakh) / (30 lakh + 2 lakh) = ₹184.20 lakh / 32 lakh = approximately ₹5.76. The trap is adding the full-year interest or full conversion shares.

Where it goes wrong. Ignoring the time-weighting of potential equity shares issued during the reporting period.

Authority. AS 20 paras 26, 27, 29 and 32

Question 20 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company reports net profit attributable to ordinary equity shareholders of ₹75 lakh and weighted average ordinary shares of 25,00,000. Employees hold options over 5,00,000 shares throughout the year at an exercise price of ₹18 per share. The average fair value of one equity share during the year was ₹24. Calculate diluted EPS using the treasury stock method.

A company reports net profit attributable to ordinary equity shareholders of ₹75 lakh and weighted average ordinary shares of 25,00,000. Employees hold options over 5,00,000 shares throughout the year at an exercise price of ₹18 per share. The average fair value of one equity share during the year was ₹24. Calculate diluted EPS using the treasury stock method.

1. ₹3.00 per share
2. ₹2.75 per share
3. ₹2.86 per share (correct answer)
4. ₹2.40 per share

Answer: C — ₹2.86 per share

Explanation. The assumed exercise proceeds are 5,00,000 × ₹18 = ₹90 lakh. At the average fair value of ₹24, the proceeds would repurchase 3,75,000 shares. Incremental shares are therefore 5,00,000 − 3,75,000 = 1,25,000. Diluted shares become 26,25,000. Diluted EPS = ₹75,00,000 / 26,25,000 = approximately ₹2.86. The earnings numerator remains unchanged because only the net shares issued for no consideration are included.

Where it goes wrong. Including the full number of options instead of deducting the shares notionally repurchased with exercise proceeds.

Authority. AS 20 paras 35, 36 and 37

Question 21 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company reports profit from continuing ordinary operations of ₹240 lakh and a loss from discontinued operations of ₹300 lakh. Its weighted average ordinary shares are 20,00,000. Convertible debentures would add ₹24 lakh to earnings after tax on assumed conversion and would generate 4,00,000 additional equity shares. Which treatment is correct?

A company reports profit from continuing ordinary operations of ₹240 lakh and a loss from discontinued operations of ₹300 lakh. Its weighted average ordinary shares are 20,00,000. Convertible debentures would add ₹24 lakh to earnings after tax on assumed conversion and would generate 4,00,000 additional equity shares. Which treatment is correct?

1. Exclude the debentures because the resulting total net loss per share would decrease in magnitude.
2. Exclude the debentures because the discontinuing operation produces an overall net loss.
3. Include the debentures only if the company reports positive total earnings after discontinued operations.
4. Include the debentures because continuing-operations EPS decreases from ₹12 to ₹11. (correct answer)

Answer: D — Include the debentures because continuing-operations EPS decreases from ₹12 to ₹11.

Explanation. The control figure is profit from continuing ordinary operations, not the overall net result after discontinued operations. Basic continuing EPS = ₹240 lakh / 20 lakh = ₹12. On conversion, adjusted continuing earnings become ₹264 lakh and shares become 24 lakh, giving EPS of ₹11. Since continuing EPS decreases, the debentures are dilutive. The total net loss after discontinued operations does not override the prescribed continuing-operations test. The trap is using the overall net loss as the control figure.

Where it goes wrong. Testing dilution using total net profit or loss instead of profit or loss from continuing ordinary operations.

Authority. AS 20 paras 39, 40 and 41

Question 22 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company had 10,00,000 fully paid equity shares outstanding throughout FY 2025-26. On 1 October 2025, it issued 4,00,000 additional shares of ₹10 each, of which only ₹6 per share was paid. The partly paid shares were entitled to participate in dividends proportionately to the amount paid. Calculate the weighted average number of equity shares for basic EPS.

A company had 10,00,000 fully paid equity shares outstanding throughout FY 2025-26. On 1 October 2025, it issued 4,00,000 additional shares of ₹10 each, of which only ₹6 per share was paid. The partly paid shares were entitled to participate in dividends proportionately to the amount paid. Calculate the weighted average number of equity shares for basic EPS.

1. 11,20,000 shares (correct answer)
2. 12,00,000 shares
3. 11,50,000 shares
4. 10,80,000 shares

Answer: A — 11,20,000 shares

Explanation. Partly paid shares are treated as a fraction of an equity share according to their dividend entitlement relative to fully paid shares. Therefore, each partly paid share represents 60% of a fully paid share. Equivalent shares issued are 4,00,000 × 6/10 = 2,40,000. Their weighted contribution from 1 October is 2,40,000 × 6/12 = 1,20,000. Adding opening shares of 10,00,000 gives 11,20,000. The trap is including all partly paid shares as fully paid equity shares.

Where it goes wrong. Ignoring the proportion of dividend entitlement when measuring partly paid shares.

Authority. AS 20 para 19

Question 23 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company has basic earnings of ₹150 lakh and 50,00,000 weighted average equity shares. Three potential equity share arrangements are outstanding throughout the year: employee options generate 1,00,000 incremental shares with no numerator adjustment; convertible debentures add ₹12 lakh after tax and generate 6,00,000 shares; convertible preference shares add ₹10 lakh of dividends and generate 2,50,000 shares. Which treatment and resulting diluted EPS are correct?

A company has basic earnings of ₹150 lakh and 50,00,000 weighted average equity shares. Three potential equity share arrangements are outstanding throughout the year: employee options generate 1,00,000 incremental shares with no numerator adjustment; convertible debentures add ₹12 lakh after tax and generate 6,00,000 shares; convertible preference shares add ₹10 lakh of dividends and generate 2,50,000 shares. Which treatment and resulting diluted EPS are correct?

1. Include all three instruments; diluted EPS is ₹3.02 per share.
2. Include options and debentures; exclude preference shares; diluted EPS is approximately ₹2.84 per share. (correct answer)
3. Include debentures and preference shares; exclude options; diluted EPS is ₹2.96 per share.
4. Include options and preference shares; exclude debentures; diluted EPS is approximately ₹2.93 per share.

Answer: B — Include options and debentures; exclude preference shares; diluted EPS is approximately ₹2.84 per share.

Explanation. Basic EPS is ₹150 lakh / 50 lakh = ₹3. Incremental EPS is nil for options, ₹12 lakh / 6 lakh = ₹2 for debentures, and ₹10 lakh / 2.5 lakh = ₹4 for preference shares. Instruments are considered from most dilutive to least dilutive. Including options and debentures produces earnings of ₹162 lakh and shares of 57 lakh, giving approximately ₹2.84. The preference shares have incremental EPS of ₹4, which would increase the diluted EPS, so they are excluded.

Where it goes wrong. Testing every potential equity share independently against basic EPS without sequencing instruments from most dilutive to least dilutive.

Authority. AS 20 paras 27, 29, 32, 35, 37 and 39-42

Question 24 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company completed a fresh issue of equity shares for cash on 20 April 2026, after its 31 March 2026 reporting date but before the Board approved its financial statements. The issue was material to the company's capital structure. Should the company adjust its basic and diluted EPS for FY 2025-26 using the additional shares?

A company completed a fresh issue of equity shares for cash on 20 April 2026, after its 31 March 2026 reporting date but before the Board approved its financial statements. The issue was material to the company's capital structure. Should the company adjust its basic and diluted EPS for FY 2025-26 using the additional shares?

1. Yes, because every issue of equity shares before approval must retrospectively adjust EPS.
2. Yes, because additional resources received after the reporting date are treated as if received during the year.
3. No, EPS is not adjusted for this post-reporting-date cash issue, though disclosure may be appropriate if material. (correct answer)
4. No, because AS 20 prohibits disclosure of share transactions occurring after the reporting date.

Answer: C — No, EPS is not adjusted for this post-reporting-date cash issue, though disclosure may be appropriate if material.

Explanation. The special retrospective adjustment under paragraph 44 applies to bonus issues, share splits and reverse share splits occurring before approval. An ordinary cash issue after the balance-sheet date does not affect the capital used to generate profit during FY 2025-26, so EPS is not adjusted. However, paragraph 46 encourages disclosure of important post-reporting-date share transactions where omission could affect users' decisions. The trap is applying the retrospective treatment for bonus issues to ordinary cash issues.

Where it goes wrong. Treating every post-reporting-date share issue like a bonus issue or share split.

Authority. AS 20 paras 44, 46 and 47

Question 25 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company had basic earnings attributable to equity shareholders of ₹180 lakh and weighted average equity shares of 30,00,000. Convertible debentures of ₹80 lakh carrying 12% interest were outstanding from 1 April 2025 but were cancelled on 1 July 2025. The debentures would have converted into 4,00,000 equity shares. The tax rate is 30%. Calculate diluted EPS, assuming the debentures are dilutive.

A company had basic earnings attributable to equity shareholders of ₹180 lakh and weighted average equity shares of 30,00,000. Convertible debentures of ₹80 lakh carrying 12% interest were outstanding from 1 April 2025 but were cancelled on 1 July 2025. The debentures would have converted into 4,00,000 equity shares. The tax rate is 30%. Calculate diluted EPS, assuming the debentures are dilutive.

1. ₹6.00 per share
2. ₹5.50 per share
3. ₹5.75 per share
4. ₹5.86 per share (correct answer)

Answer: D — ₹5.86 per share

Explanation. Interest for the three months during which the debentures were outstanding is ₹80 lakh × 12% × 3/12 = ₹2.40 lakh. Its after-tax amount is ₹2.40 lakh × 70% = ₹1.68 lakh. Potential shares are included only for the outstanding period: 4,00,000 × 3/12 = 1,00,000. Diluted EPS = (₹180 lakh + ₹1.68 lakh) / 31 lakh shares = approximately ₹5.86. Cancellation does not justify ignoring the instrument for the entire year.

Where it goes wrong. Excluding potential equity shares completely when they are cancelled or allowed to lapse during the reporting period.

Authority. AS 20 paras 26, 27, 29, 32 and 43