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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:
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:
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:
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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:
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:
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
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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