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FINANCIAL ACCOUNTING AND REPORTING

BOOK VALUE PER SHARE

I. Book value per share is the amount of cash that each share will receive if the company is
liquidated and the assets are realized at their book values. Therefore, the amount of cash
left after paying for the liabilities will be the balance of shareholders equity. The formula of
book value per share if the entity has a simple capital structure will be:

Shareholders Equity
Number of outstanding shares

II. If the entity has outstanding preference shares, the preference shareholders equity shall be
computed first then the balance shall the ordinary shareholders equity. Preference
shareholders equity is computed as follows:

Par value of preference shares xx

Liquidation premium xx
Liquidation value of preference shares xx
Preferred dividends xx
Preference shareholders equity xx
Divided by preference shares outstanding xx
Book value per preference share xx

a. If the there is no liquidation premium, the liquidation value is the par value of the shares.
b. The preferred dividends shall be the total dividends in arrears at the reporting date if the
preference shares are cumulative. If the preference shares are non cumulative,
dividends for one year shall be computed. This rule shall also apply if the problem is
silent to the type of preference shares.
c. The cumulative preference dividends shall include the current year, therefore there is no
need to compute for an additional year of preferred dividends in case the problem gives
the amount of dividends in arrears.
d. If dividends have been paid or updated during the current year. Preferred dividends shall
be excluded from the preference shareholders equity.

III. The book value per ordinary share shall be computed as follows:

Total shareholders equity xx

Less: Preference shareholders equity xx
Ordinary shareholders equity xx
Divided by ordinary shares outstanding xx
Book value per ordinary share xx

a. If there are subscribed share with a corresponding subscription receivable, the

subscription receivable shall not be deducted from shareholders equity based on the
assumption that the subscribers shall pay for their unpaid balances.

IV. Computation of dividend payment to preference and ordinary shareholders

Cumulative Preference Shares Dividends not paid in any year shall be paid once
dividends are paid to ordinary shareholders. Undeclared dividends are called dividends
in arrears.
Participating Preference Shares Entitled to additional dividends when dividends are
paid to ordinary shares. There are two types of participating preference shares:

a. Partially Participating - Participates up to a rate written on the stock certificate. If

the basic dividend rate is 12% and the preference share is participating up to
20%, the share in the balance for participation shall be 8% (20% - 12%) multiplied
by the outstanding par value.

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b. Fully Participating The balance for participation shall be multiplied by the ratio or
fractions by adding the par value of the participating preference share and ordinary
shares.

The following information appears in the shareholders equity section of Bonaparte Corporation at
December 31, 2008:

12% Fully participating, cumulative preference shares, P100 par

authorized 100,000 shares; 80,000 shares issued 8,000,000
Ordinary shares, P50 par; authorized 500,000; 120,000 issued 6,000,000
Share premium 6,000,000
Retained earnings 8,000,000
Treasury ordinary shares at an average cost of P80 per share 3,200,000

Dividends on the preference shares are in arrears for two years. On December 31, 2008, Bonaparte
paid a total amount of P3,360,000 of dividends. The dividend for each class of share shall be
computed as follows:

Dividends Preference Ordinary

3,360,000
Preferred dividends (8M x 12% x 2) (1,920,000) 1,920,000
Ordinary dividends (80,000 x 50) x 12% ( 480,000) 480,000
Balance for participation 960,000
Balance to preference (8 / (8 + 4)) x ( 640,000) 640,000
Balance to ordinary (4 / (8 + 4)) x ( 320,000) . . 320,000
Total 2,560,000 800,000

If the preference shares are only participating up to 15%, the computation shall be as
follows:
Balance for participation (as above) 960,000
Less: Balance to preference (3% x 8M) 240,000
Balance to ordinary 720,000

Dividends to preference (1.92M + 240k) 2,160,000

Dividends to ordinary (480k + 720k) 1,200,000

V. Quasi- Reorganization is the adjustment of assets, liabilities and equity to fair value for the
purpose of eliminating the deficit or the debit balance in retained earnings, also known as
accumulated losses.

a. Fair value adjustments are also adjusted to retained earnings, meaning decreases in the
value of assets and increases in the value of the liabilities shall increase the amount of
the deficit.
b. The shares are recapitalized meaning the par value is reduced to create sufficient share
premium or the noncurrent assets are measured at their revalued amounts in order to
create revaluation surplus. The adjusted balance of share premium and revaluation
surplus shall be the account used to be debited in for the credit of the deficit.

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