Solution

In the above case, company will calculate its average turnover for last 3 quarter, every quarter starting from 31^st March 2017.

Average of 3 quarters ending 31^st March 2017 – Not achieved – Therefore shares will not be included in Basic as well as Diluted for the year 2016-17

Average of 3 quarters ending 30^th June 2017, September 2017 – Target not achieved therefore shares will not be considered for calculation of Basic as well as Diluted.

Average of 3 quarters ending on 31^st December 2018 – Targeted turnover is achieved. Thus, the contingent condition which was needed to be satisfied for, is satisfied. Therefore, the shares will be considered for calculation of Basic and diluted EPS for the 2017-18. The date that would be considered for calculation of weighted average number of shares will be 31^st December 2017. The shares can be issued at any time during 6 months period. Therefore, shares can be issued at any moment of time from the 1^st January 2018 to 30^th June 2018. In this case, for calculation of weighted average number of shares for year’s 2017-18, the period that will be considered would be 1^st January 2018 to 31^st March 2018. For 2018-19 the period will start from 1^st April 2018. After 30^th June 2018, all the share will become ordinary shares (those actually issued) and there will not be any shares for diluted as the date of agreement is over, contingent condition is met.

It is important to note that the calculation of EPS depends on the specific terms of the contingent shares and the conditions for their issuance, as well as the timing of their potential issuance. In this case, since the condition for the issuance of the shares was satisfied during the financial year ended 31st March 2018, the contingently issuable shares would be included in the calculation of both basic and diluted EPS for that year. The timing of the potential issuance of the shares is also important to consider when calculating the weighted average number of shares outstanding. After the contingency period is over, any remaining contingently issuable shares would be treated as ordinary shares and would not be included in the calculation of diluted EPS.