November 17, 1999

BIR RULING NO. 174-99

Chan Robles & Associates Law Firm

21 /F Phil. Stock Exchange Center
Tektite East Tower Exchange Road
Ortigas Center, Pasig City

Attention: Atty. Jade Ferrer Wy

Gentlemen:

This refers to your letter dated July 3, 1998 requesting on behalf of your
clients, Luis Jhocson and James Costello, for a ruling as to the proper computation
of book value per share of shares of stock in case the subscription is not fully paid
and the corporation has retained earnings. LibLex

It is represented that your clients are the stockholders of Toon City. Inc.
(TCI), a domestic corporation organized and existing under and by virtue of the
laws of the Republic of the Philippines; that as of December 31, 1997, the
corporation has the following capital structure:
Authorized Capital Stock = 20,000 shares
at P100.00 par value per share P2,000,000.00
Subscribed = 5,000 shares P500,000.00
Less: Subscription receivable P298,500.00
———————
Paid-up P201,500.00
===========

On the basis of said capital structure, you have computed the book value
per share of the corporation as follows:
Book Value per Share
Issued and outstanding (5,000 shares) P500,000.00
Add: Retained earnings P359,246.00
–––––––––––
Total: P859,246.00
=========
Computation of Book Value per Share

Copyright 1994-2018 CD Technologies Asia, Inc. Taxation 2018 1

 P859,246.00
= P171.85/share
5,000 shares
or
Par Value per Share P100.00
Add: P359,246.00
71.85
5,000 shares ————
Total P171.85
=======
that however, when you asked for a computation of taxes to be paid from
the personnel at Revenue District Office No. 43, you were required to pay taxes
based on a book value per share computed as follows:
Book Value Per Share
Total Stockholder's Equity P560,746.00
——————
No. of Shares 2,015 shares
Book Value per Shares P278.29 /share

that so as not to delay the consummation of the sale between Mr. James
Costello and Mr. Colin Baker, you paid the taxes as computed by RDO # 43; that
erroneous computation of the book value per share is so glaring due to the fact that
the computed book value of 2,450 shares sold by James Costello amounted to
P681,810.50 when the total stockholder's equity of the corporation (for its shares)
is only P560,746.00; and that hence, you filed amended returns for refund of
overpayment of taxes based on P171.85/share book value. LibLex

In reply, please be informed that the proper computation of book value per
share of shares of stock in case the subscription is not fully paid and the
corporation has retained earnings is as follows:

In computing the book value per share, the stockholder's equity must first
be determined. Generally, the elements constituting stockholder's equity are:

1. Capital Stock

2. Subscribed capital stock

3. Additional paid in capital

4. Retained earnings

5. Treasury stock (if there is any, the same should be deducted

Copyright 1994-2018 CD Technologies Asia, Inc. Taxation 2018 2

 from the subscribed capital stock)

Thus, in the instant case, the stockholder's equity is computed as follows:

Capital Stock (Issued and Subscribed) P500,000.00
Add: Retained earnings 359,246.00
–––––––––––
Total Stockholder's equity P859,246.00
=========
The next step is to determine the total issued and outstanding shares of
stock which, in the instant case, is 5,000 shares.

Then use the Formula Total stockholder's equity

———————————
Total issued and outstanding shares
= Book value per share

Finally, apply the said formula in the instant case —

Thus —

Total Stockholder's equity P859,246.00

——————
Total issued and outstanding shares 5,000

Book Value per Share =P 171.85

Accordingly, this Office is of the opinion as it hereby holds that the book
value per share in the instant case is P171.85. LexLib

Very truly yours,

(SGD.) BEETHOVEN L. RUALO

Commissioner of Internal Revenue

Copyright 1994-2018 CD Technologies Asia, Inc. Taxation 2018 3