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Diluted earnings per share Year 1:

It is presumed that the issuer will settle the contract by the issue of ordinary shares. The dilutive effect is
therefore calculated in accordance with the Standard.

(Rs1,000,000 + Rs166,331)/(1,200,000 + 500,000) = Rs 0.69 per ordinary share

Notes:
1. This represents the present value of the principal and interest discounted at 9% – Rs 2,000,000 payable at

the end of three years; Rs 120,000 payable annually in arrears for three years.
[(1,20,000 x 2.53) + (20,00,000 x 0.772)] = 18,48,122

2. Profit is adjusted for the accretion of Rs 166,331 (Rs 1,848,122 × 9%) of the liability because of the
passage of time. However, it is assumed that interest @ 6% for the year has already been adjusted.

3. 500,000 ordinary shares = 250 ordinary shares x 2,000 convertible bonds

Q3. (MAY 20 & Newly Added in ICAI Module for May 22 onwards)

CAB Limited is in the process of preparation of the consolidated financial statements of the group for the

year ending 31st March, 20X3 and the extract of the same is as follows:
Particulars Attributable to CAB Non-controlling Total (Rs in ‘000)
Limited interest

Profit for the year 39,000 3,000 42,000
Other Comprehensive Income 5,000 Nil 5,000
Total Comprehensive Income 44,000 3,000 47,000

The long-term finance of the company comprises of the following:
1. 20,00,00,000 equity shares at the beginning of the year and the company has issued 5,00,00,000 shares on

1st July, 20X2 at full market value.
2. 8,00,00,000 irredeemable preference shares. These shares were in issue for the whole of the year ended

31st March, 20X3. The dividend on these preference shares is discretionary.
3. Rs 18 crores of 6% convertible debentures issued on 1st April, 20X1 and repayable on 31st March, 20X5 at

par. Interest is payable annually. As an alternative to repayment at par, the holder on maturity can elect
to exchange their convertible debentures for 10 crores ordinary shares in the company. On 1st April, 20X1,

the prevailing market interest rate for four-year convertible debentures which had no right of conversion
was 8%. Using an annual discount rate of 8%, the present value of Rs 1 payable in four years is 0.74 and

the cumulative present value of Rs 1 payable at the end of years one to four is 3.31. In the year ended
31st March, 20X3, CAB Limited declared an ordinary dividend of 0.10 paise per share and a dividend of

0.05 paise per share on the irredeemable preference shares.
Compute the following:

● The finance cost of convertible debentures and its closing balance as on 31st March, 20X3 to be

presented in the consolidated financial statements.
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