CHAPTER 18 BOOK VALUE PER SHARE
pertinent share capital is computed as
BOOK VALUE PER SHARE
- Assuming that would be paid on each share,
assuming the entity is liquidated and the
amount available to shareholders is exactly
the amount reported as shareholder’s equity.
 When there is only one class of share
capital:
 Book value per share = Total
Shareholders equity/ # of shares
outstanding
 When there are two classes of share capital
 Book value per preference share =
Total Preference Shareholders
equity/ # of preference shares
outstanding
 Book value per Ordinary share =
Total Ordinary Shareholders
equity/ # of ordinary shares
outstanding
Accounting Procedures
1. The amount equal to the par or stated value
is allocated to the preference share and
ordinary share.
2. Any balance of the Shareholder’s Equity in
excess of the par or stated value is then
apportioned taking into account the:
a) Liquidation value &
b) Dividend rights
Of the preference shareholders
 For book value purposes, the following are
assumed to be available to dividends
A. Retained Earnings
B. Share Premium
C. Revaluation Surplus
 Where there are treasury share and
subscribed share capital, the amount of par
or stated value to be assigned to the
follows:
Share Capital Issued xxx
Add: Share Capital Subscribed xxx
Equals=Total xxx
Less Treasury Shares at par (xxx 0
Equals=Amount and Shares Outstanding
For purposes of book value computation ,
treasury shares shall be treated as retired.
GAIN/ LOSS ON RETIREMENT (Treasury
Shares)
Gain = Cr. Share premium
Loss =Dr. (1) Share premium (2) Retained
Earnings
LIQUIDATION VALUE OF PREFERENCE
SHARES
LIQUIDATION VALUE – 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 the liquidation value,
preference shareholders shall receive an
amount equal to the par or stated value.
If there is a deficit:
Preference shareholders = Share on
a prorata basis with O/S Holders
P/S may have a call price = this is ignored
for book value computation
CALL PRICE –amount paid to preference
shareholders upon redemption of preference
share DURING THE LIFETIME of the
corporation.
A. PREFERENCE AS TO ASSETS –
preference shareholders are entitled to
payment not only for the liquidation value
but also for DIVIDENDS IN ARREARS.
 B. PREFERENCE AS TO DIVIDENDS –does
not mean that the preference shareholders
have an absolute right as to dividends. If
dividends are declared, the P/S Holders have
the right to receive dividends first before
O/S holders are paid a dividend.
In absence of any statement to the contrary,
preference share has preference as to
dividends.
THE DIVIDEND RIGHT might be:
a) Non cumulative
b) Cumulative
c) Non participating
d) Participating
 NON CUMULATIVE PREFERENCE
SHARE – right to receive dividends id
forfeited in any year in which dividends are
not declared. Entitled only to current year
dividends
 CUMULATIVE PREFERENCE SHARE –
Any undeclared dividends accumulate each
year until paid. Entitled to all DIVIDEND
IN ARREARS
 NONPARTICIPATING PREFERENCE
SHARE –entitled only to receive the
dividends equal to the fixed rate.
 PARTICIPATING PREFERENCE SHARE
–entitled to receive dividends in excess of
the basic fixed rate.
Participating preference share may be fully
participating with ordinary share on a
prorata basis of 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 share.
= preference% * O/S outstanding
SPECIAL NOTES
a) In the absence of specific designation,
preference share is assumed to be
noncumulative and non participating
b) Dividend in arrears usually includes current
dividends. Dividend in arrears in prior years
shall be specifically disclosed otherwise,
there is no arrearages.
c) In case where there are 2 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 only 1
preference share is participating, the rate of
the participating preference share shall be
used as a basis for ordinary share dividend.
LIQUIDATION PREMIUM –excess of liquidation
value over the par or stated value of preference share.
CHAPTER 19 BASIC EARNINGS PER SHARE
(PAS 33)
EARNINGS PER SHARE –amount attributable to
every ordinary share outstanding during the period.
- Pertains only to ordinary share. It is not
necessary for PAS because there is a definite
return for such share.
ORDINARY SHARE –an equity instrument that is
subordinate to all other classes of equity instruments
PAS 3, requires 2 PRESENTATION OF
EPS:
a) Basic Earnings Per Share
b) Diluted Earnings Per Share
The presentation of Earnings per share os
required for:
a. Entities whose ordinary share are
PUBLICLY TRADED
b. Entities that are in the process of
issuing share in the public
securities market.
Non public entities are NOT REQUIRED
but are encouraged to present earnings per
share.
USES OF EARNINGS PER SHARE
a) It is a determinant of the market price of
ordinary share; thus indicating the
 attractiveness of ordinary share as an
investment.
b) It is a measure ferformance of management
in conducting operations.
c) It is the basis of dividend policy of an entity.
PRESENTATION OF EARNINGS PER SHARE
 On the face of the income statement Basic
and Diluted earnings per share for income or
loss from CONTINUING OPERATIONS.
 FOR DISCONTINUED OPERATIONS:
Basic and Diluted EPS = either on the face
or the notes of income statement.
 Even if amounts are negative, entity shall
present.
 When the entity presents both consolidated
and separate FS –disclosures =need be
presented only on the basis of the
consolidated information.
BASIC EARNINGS PER SHARE
Basic EPS = Net Income/ Ordinary Shares
Outstanding
Net Income = After deducting dividends on
preference share.
 Cumulative – current year is only deducted
only of there is declaration.
- Whether such dividend is declared or not.
 Non-Cumulative –current year is only
deducted; only if there is declaration.
 Weighted average # of ordinary shares =
used as a denominator only if there is a
significant change in the ordinary share.
“Participating” Preference Share = can be
treated as SPECIAL ORDINARY SHARE
Share Dividends and Share Splits –increase
or decrease in the number of ordinary shares
shal be treated RETROACTIVELY.
BONUS ISSUE
- Ordinary share issued to existing share
holders for no consideration
- # of Ordinary Shares is increased without
increase in resources
- Actually a share dividend
- Is treated as if it had occurred at the Earliest
period presented.
RIGHTS ISSUE
- When rights are issued to share holders,
most often, the exercise price is less than the
fair value of the shares. According ly such
rights issue includes a BONUS ELEMENT,
meaning share issued for no consideration.
- # of ordinary shares prior to the rights issue
multiplied by an adjustment factor.
ADJUSTMENT FACTOR –ratio of the market value
of the share right-on to the market value of the share
ex-right.
a) MARKET VALUE OF THE SHARE
RIGHT-ON –is actually the market value of
the share immediately prior to the exercise
of rights.
b) MARKET VALUE OF THE SHARE EX-
RIGHT –is equal to the market value of the
share right-on minus the theoretical value of
right.
THEORETICAL VALUE OF THE RIGHT
= Market value of the share right-on minus the
subscription price / # of rights to purchase one share
plus
BASIC LOSS PER SHARE
- If preference share is CUMULATIVE, the
Preference dividend is added to the net loss
to get the total loss to the ordinary
shareholders.
- If the preference share in
NONCUMULATIVE, the preference
dividend is ignored because presumably
there is no declaration since there is a net
loss.
CHAPTER 20 DILUTED EARNINGS PER SHARE
 Where the capital structure of an entity is
complex in the sense that it consists of ordinary
shares and potential ordinary shares or potential
diluters, the computation of the earnings per share
becomes a little complicated.
POTENTIAL ORDINARY SHARE
- A financial instrument or other contract that
may entitle the holder to ordinary shares.
- Represents future issuance of ordinary
shares.
3 MAJOR TYPES OF POTENTIAL O/S
1. Convertible Bond Payable
2. Convertible Preference Share
3. Share Option and Warrant
DILUTION AND ANTIDILUTION
DILUTION –Inclusion of the potential ordinary
shares decreases the BEPS or increases the basic
Loass per share; Dilutive securities.
ANTIDILUTION –Inclusion of potential ordinary
shares increase BEPSor decreases Basic Loss per
share; this is ignored in computing diluted earnings
per share.
DILUTED EARNINGS PER SHARE “AS IF
SCENARIO”:
A. The convertible bond payable is converted
into ordinary share
B. The convertible preference share is
TREASURY SHARE METHOD
converted into ordinary share.
C. The share options and warrants are
exercised.
CONVERTIBLE BOND PAYABLE –
adjustments shall be made born to net
income and to the number of ordinary
shares outstanding
- NET INCOME –is adjusted by adding back
the interest expense on the bond payable, net
PROCEDURES FOR COMPUTING
of tax.
INCREMENTAL ORDINARY SHARES ARISING
- Assumed that the conversion takes place at
the beginning of the year.
CONVERTIBLE PREFERENCE SHARE –
accordingly, the net income is not reduced
anymore by th amount of preference
dividend.
OPTIONS AND WARRANTS
SHARE OPTIONS –are granted to employees
enabling them to acquire ordinary shares of the
entity at a specified price during the specified
period of time.
SHARE WARRANTS –are granted to
shareholders enabling them to acquire ordinary
shares of the entity at a specified price during a
definite period of time.
 Have no cash yield – but they derive their
value from the right to obtain ordinary
shares at a specified price – that is usually
lower than the prevailing market price.
 OPTIONS AND WARRANTS –are dilutive
if the exercise price or option price is = less
than the average market price of the
ordinary share.
 EMPLOYEE SHARE OPTIONS –The
exercise price or option price shall include
the fair value of any services to be supplied
to the entity In the future under the option
plans.
- Options and warrants are included in the
EPS Computation through the treasury share
method.
- This does not imply that the entity has
entered into a transaction to purchase
treasury shares
- It is used to simplify the computation of
incremental ordinary shares that are
assumed to be issued for no consideration.
FROM ISSUANCE OF OPTIONS AND
WARRANTS.

a. Options and warrants are assumed to be

exercises at the beginning of the current year
or at the date issued during the current year.
b. Proceeds from the exercise of options and
warrants are assumed to uses to acquire
treasury shares at average market price.
c. The number of incremental ordinary shares
=option shares minus th assumed treasury
shares acquired.

ACTUAL EXERCISE OF OPTIONS AND

WARRANTS

a) The option of shares or covered shares

ACTUALLY ISSUED are “averaged” from
the date of exercise to the end of the current
year.
b) The incremental ordinary shares are
“averaged” from the beginning of the
current year to the date of exercise of
options and warrants.

DILUTED LOSS PER SHARE

- If the entity has a net loss, ONLY THE

BASIC LOSS PER SHARE is computed
and reported.
- The diluted loss per share is the same as the
basic loss per share but not reported
anymore.
- REASON: Potential ordinary shares would
always decrease the loss per share and
therefore the effect of the assumed
conversion is always ANTIDILUTIVE.