BOOK VALUE PER SHARE
• Book value per share is the amount that would be paid on each share assuming the
entity is liquidated and the amount available to shareholders is exactly the amount
reported as shareholders’ equity.
• Where there is only one class of share capital, 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.
• Accounting procedures
• For purpose of appointment between the preference share and ordinary share,
the following procedures should be observed:
✓ An amount equal to the par or stated value is allocated to the
preference share and ordinary share.
✓ 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.
• For book value purposes, the following are assumed to be available for divided:
✓ Retained earnings
✓ Share premium
✓ Revaluation surplus
• Liquidation value of preference share
• The liquidation value is the amount which the preference shareholders normally
receive upon the liquidation of the corporation. The liquidation value may be
more than the par value.
• In the absence of a liquidation value, the preference shareholders shall receive
an amount equal to the par or stated value.
• Preference as to assets
• When preference as to assets, the preference shareholders are entitled to
payment not only for the liquidation value but also for dividends in arrears.
• Preference as to dividends
• Preference means that if dividends are declared, the preference shareholders
have the right to receive dividends first before the ordinary shareholders are paid
a dividend.
• When preference share has preference as to dividends, the dividend right may be:
✓ Noncumulative
✓ Cumulative
✓ Nonparticipating
✓ Participating
• A noncumulative preference share is one on which the right to receive dividends is
forfeited in any one year in which the dividends are not declared. Thus, the preference
share is entitled only to current year dividends.
• A cumulative preference share is one on which any undeclared dividends accumulate
each year until paid. Thus, the cumulative preference share is entitled to all dividends in
arrears.
• A nonparticipating preference share is one that is entitled to receive only the dividends
equal to the fixed rate.
• A participating preference share is one which 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.
✓ 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.
QUASI-REORGANIZATION
• It is an accounting procedure whereby a financially troubled corporation, but with
favorable future prospects, is permitted, but not required to revalue its assets and
liabilities, and realign its equity, subject to the provisions of relevant regulations, in order
to establish a “fresh start” in accounting sense.
• Quasi-reorganization may be effected through:
o Revaluation of property, plant and equipment
o Recapitalization
• The basic approach to quasi-reorganization is as follows:
o Assets and liabilities are revalued upwards or downwards.
o Any resulting credit balance in revaluation surplus is used to wipe out any deficit
(i.e., negative balance in retained earnings)
o If a recapitalization is made, any resulting share premium shall also be used to wipe
out any deficit.
o Disclosures required by relevant regulations (SEC) are provided in the financial
statements for a minimum period of three (3) years).
BOOK VALUE PER SHARE AND QUASI-REORGANIZATION
1. Ronnie Corporation’s stockholders’ equity as of December 31, 2021 consisted of the
following:
8% cumulative preferred stock, P50 par; liquidating value
P55 per share; authorized, issued and outstanding, 20,000 shares 1,000,000
Common stock, P25 par; 200,000 shares authorized; 100,000 shares 2,500,000
issued and outstanding
Retained earnings 400,000
Dividends on preferred stock have been paid through 2020 but have not been declared for
2021. On December 31, 2021, the book value per common share was:
A. P25.00
B. P27.30
C. P28.20
D. 29.00
2. The stockholders’ equity of Raquelyn Company on December 31, 2021 includes the
following:
12% preferred stock, 2,000 shares, P100 par value 200,000
14% preferred stock, 1,000 shares, P300 par value 300,000
Common stock, 5,000 shares, P100 par value 500,000
Retained earnings 300,000
Additional paid in capital 50,000
Donated capital 224,000
The 12% stock is cumulative and fully participating. The 14% stock is noncumulative and fully
participating. Dividends in arrears are for 3 years. What is the book value per share of common
stock?
A. P152
B. P146
C. P100
D. P112
3. The Feric Corporation has the following classes of stock outstanding:
Common stock, par value P100 P300,000
6% preferred stock, par value P100 100,000
Retained earnings of P48,000 is to be distributed as dividends. Dividends have not been paid on
preferred stock for the preceding two years.
Question 1: The total dividends to be given to preferred stock, if preferred stock is cumulative
and fully participating, would be:
A. P27,000
B. P25,000
C. P22,000
D. P21,000
Question 2: The total dividends to be given to common stock, if preferred stock is cumulative
and fully participating, would be:
A. P23,000
B. P26,000
C. 29,000
D. P27,000
Question 3: The total dividends to be given to preferred stock, if preferred stock is non-
cumulative and fully participating, would be:
A. P15,000
B. P14,000
C. P11,000
D. P12,000
4. Jesse Company has incurred heavy losses since its inception. At the recommendation of
the chief executive officer, the board of directors voted to implement a quasi-
reorganization, subject to approval of stockholders. Immediately prior to the
restatement on December 31, 2021, the company’s stockholders’ equity was as follows:
Common stock, P100 par, 500,000 shares 50,000,000
Additional paid in capital 5,000,000
Retained earnings (deficit) (8,000,000)
The stockholders approved the quasi-reorganization on January 1, 2022 to be
accomplished as reduction in inventory of P2,000,000, a reduction in property, plant and
equipment of P4,000,000, write-off of goodwill P1,000,000 and appropriate adjustment
to the capital structure against additional paid in capital first and any remaining deficit
against the common stock account. To implement the quasi-reorganization, it should
reduce the common stock account in the amount of:
A. P10,000,000
B. P15,000,000
C. P20,000,000
D. P3,000,000
