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ACCTG. 17NB
The formula for the computation of book value per share is:
Total Shareholders’ Equity
Book value per share =
Number of shares outstanding
Where there are two classes of share capital, it is necessary to apportion the shareholders’ equity
between the preference share and ordinary share. The book value per share should be computed as
follows:
For purposes of apportionment between the preference share and ordinary share, the following
procedures should be observed:
1. An amount equal to the par or stated value is allocated to the preference share and ordinary
share.
2. Any balance of the shareholders’ equity in excess of the par or stated value is then apportioned
taking into account the liquidation value and dividend rights of the preference shareholders.
Preference as to assets
The preference shareholders are entitled to payment not only for liquidation value but also for
dividend in arrears
Preference as to dividends
The preference means that if dividends are declared the preference shareholders have the right to
receive dividends first before ordinary shareholders are paid a dividend.
When preference share has preference as to dividends, the dividend right may be:
1. Noncumulative
- The preference share is entitled only to current year dividends.
2. Cumulative
- The preference share is entitled to all dividends in arrears.
3. Nonparticipating
- The preference share is entitled to receive only the dividends equal to the fixed rate.
4. Participating
- The preference share is entitled to receive dividends in excess of the basic or fixed rate.
- Participating preference share may be fully participating with ordinary share on a pro data basis or
participating only to a certain amount or percentage.
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- However, before the preference share can participate, the ordinary share should receive first an
amount equal to the basic preference rate, meaning preference rate times the par value of the
ordinary share outstanding.
Special notes:
1. In the absence of specific designation, preference share is assumed to be noncumulative and
nonparticipating.
2. Dividends in arrears usually include current dividends. Dividends in arrears in prior years shall be
specifically disclosed, otherwise, there are no arrearages.
3. In case there are two classes of preference share with different dividend rates and both are
participating, the lower rate shall be the basis for allocation to the ordinary share.
If the preference share is cumulative, the preference dividend for the current year only is
deducted from the net income, whether, such dividend is declared or not.
If the preference share is noncumulative, the preference dividend for the current year is deducted
from net income only if there is declaration.
If the preference share is noncumulative, the preference dividend is ignored because presumably
there is no declaration since there is net loss.
Dilutors refer to potential ordinary shares which has the effect of decreasing the Basic earnings per
share or increasing the basic loss per share.
The computation of diluted earnings per share is based on the “as if” scenario:
a. “As if” the convertible bond payable is converted into ordinary share.
b. “As if” the convertible preference share is converted into ordinary share.
c. “As if” the share options and warrant are exercised.
Presentation
An entity shall present on the face of the income statement basic and diluted earnings per share for
income or loss.