[go: up one dir, main page]
Scribd
Upload
3 views6 pages

Notes

Book value per share indicates the value each share would receive upon liquidation, calculated by applying the residual equity theory to total shareholders' equity. It involves deducting preference shareholders' equity to determine ordinary shareholders' equity, with specific guidelines for allocating preference shareholders' equity. Outstanding shares are calculated by adjusting issued shares for subscriptions and treasury shares, while subscription receivable is not deducted from total shareholders' equity due to the trust fund doctrine.

Uploaded by

raevincelle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
3 views6 pages

Notes

Book value per share indicates the value each share would receive upon liquidation, calculated by applying the residual equity theory to total shareholders' equity. It involves deducting preference shareholders' equity to determine ordinary shareholders' equity, with specific guidelines for allocating preference shareholders' equity. Outstanding shares are calculated by adjusting issued shares for subscriptions and treasury shares, while subscription receivable is not deducted from total shareholders' equity due to the trust fund doctrine.

Uploaded by

raevincelle
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Book Value per Share

Book value per share measures the amount each share would receiv
e assuming the entity is liquidated and its assets are sold and its lia
bilities are settled exactly at the amounts reported on the statement
of financial position.

When allocating total shareholders' equity to the different classes of


shares, the residual equity theory (discussed in Conceptual Fram
ework and Accounting Standards) is applied. Under this theory, the
ordinary shareholders' equity is a residual amount after dedu
cting preference shareholders' equity from total shareholders' equity
. This is exemplified by the formula below:

Total shareholders' equity


Less: Preference shareholders' equity
= Ordinary shareholders' equity

Preference shareholders' equity

The following are guidelines when computing for preference shareho


lders' equity:

1. Allocate to the preference shareholders' equity any liquidation v


alue. In the absence of a liquidation value, allocate the aggregate
par value.

2. If the preference shares are cumulative, allocate all dividends in a


rrears.

3. If the preference shares are noncumulative, allocate the current y


ear dividend only, if it is in arrears.

4. If there are no dividends in arrears, no dividends are allocated to


either cumulative or noncumulative preference shares.

Outstanding shares

Outstanding shares pertain to shares that are entitled to dividends.


The number of outstanding shares is computed as follows:

Number of shares issued


Add: Number of shares subscribed
Total
Less: Number of treasury shares
= Number of shares outstanding

Subscription receivable
- For purposes of book value per share computation, subscription rec
eivable is not deducted from total shareholders' equity. This is becau
se in case of corporate liquidation, any unpaid subscription must be
collected and used to settle the corporation's obligations to outside
creditors (trust fund doctrine).

You might also like