BOOK VALUE PER SHARE

Learning Competencies
• Define book value per share.
• Compute for book value per share.
 DEFINITION

Book value per share measures the amount each share

would receive assuming the entity is liquidated and its assets
are sold and its liabilities are settled exactly at the amounts
reported on the statement of financial position.

Where there is only one class of shares, the formula for

the computation of book value per share is:
Where there are two or more classes of shares, the
formulas are as follows:
 Allocating total shareholders’
equity to the different classes of
shares
PREFERENCE SHAREHOLDERS’
EQUITY
1. Allocate to the preference shareholders’ equity their
liquidation value. In the absence of liquidation
value, allocate their aggregate par value.
2. If the preference shares are cumulative, allocate all
dividends in arrears.
3. If the preference shares are noncumulative, allocate
the current year dividend only, if it is in arrear.
4. If there are no dividends in arrears, no dividends
shall be allocated to either cumulative or
noncumulative preference shares.
SUBSCRIPTION RECEIVABLE

For purposes of book value per share computation,

subscription receivable is not deducted from total
shareholders’ equity.
Earnings Per Share
Related standard: PAS 33 Earnings per Share

Learning Competencies
• Explain how basic earnings per share is
computed.
• Explain how diluted earnings per share is
computed.
 DEFINITION

Earnings per share (EPS) is a computation made

for ordinary shares. It is a form of profitability ratio
which represents how much was earned by each
ordinary share during the period. No EPS is
presented for preference shares because these shares
have a fixed return represented by their dividend
rates.
 TYPES OF EARNINGS PER
SHARE
1. Basic earnings per share
2. Diluted earnings per share

BASIC EARNINGS PER SHARE

Considerations in computing “Profit
or loss”

a. Profit or loss should be net of income tax expense

b. Profit or loss should be adjusted for the after-tax amounts
of preference dividends, differences arising on the
settlement of preference shares, and other similar effects of
preference shares classified as equity.
 ADJUSTMENTS FOR
PREFERENCE DIVIDENDS

a. If the preference shares are cumulative, one-year dividend

is deducted from profit or loss whether declared or not.
b. If the preference shares are non-cumulative, only the
dividend declared is deducted from profit or loss.
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING ORDINARY SHARES
Shares are usually included in the weighted average number of
shares from the date consideration is receivable (which is
generally the date of their issue), for example:
1. Ordinary shares issued in exchange for cash are included
when cash is receivable.
2. Ordinary shares issued in exchange for non-cash assets are
included as of the date on which the acquisition is recognized.
3. Ordinary shares issued in exchange of services received are
included as the services are rendered.
4. Ordinary shares issued to settle a liability are included from
the settlement date.
5. Ordinary shares issued as a result of the conversion of a
debt instrument to ordinary shares are included from the
date that interest ceases to accrue.
6. Treasury shares acquired are excluded when the
acquisition is recognized. Treasury shares reissued are
included when the reissuance is recognized.
7. Subscribed ordinary shares or partly paid shares are
included to the extent of their participation in dividends.
8. Ordinary shares issued as share dividends or share splits
are included from the time the original shares, on which the
share dividends or share splits are based, were originally
issued.
9. Ordinary shares issued as part of the consideration
transferred in a business combination are included from the
acquisition date.
10. Ordinary shares that will be issued upon the conversion of
a mandatorily convertible instrument are included from the
date the contract is entered into.
11. Contingently issuable shares are treated as outstanding
and are included in the calculation of basic earnings per share
only from the date when all necessary conditions are satisfied
(i.e., the events have occurred). Shares that are issuable solely
after the passage of time are not contingently issuable shares,
because the passage of time is a certainty.
12. Outstanding ordinary shares that are contingently
returnable (i.e., subject to recall) are not treated as
outstanding and are excluded from the calculation of basic
earnings per share until the date the shares are no longer
subject to recall.
13. Ordinary shares issued in place of interest or principal
on other financial instruments are included from the date
that interest ceases to accrue
14. Ordinary shares issued on the voluntary reinvestment of
dividends on ordinary or preference shares are included
when dividends are reinvested
 RESTATEMENT OF EPS

When ordinary shares are issued without a corresponding change in

resources (assets), the EPS and the weighted average number of
ordinary shares outstanding during the period and for all periods
presented should be adjusted retrospectively.

Examples of issuance of ordinary shares without a corresponding

change in resources include:
a. A capitalization or bonus issue (e.g., share dividend);
b. A bonus element in any other issue, for example a bonus element in
a rights issue to existing shareholders (also referred to as
preemptive stock rights);
c. A share split (increase in number of shares with corresponding
decrease in par value); and
d. A reverse share split (consolidation of shares or decrease in number
of shares with corresponding increase in par value).
RIGHTS ISSUE
 Diluted earnings per share

• Diluted earnings per share is the amount of profit for the period per
share, reflecting the maximum dilutions that would have resulted
from conversions, exercises, and other contingent issuances that
individually would have decreased earnings per share and in the
aggregate would have had a dilutive effect.
• Only basic earnings per share is presented if an entity has no dilutive
potential ordinary shares (i.e., simple capital structure).
• The computation of diluted earnings per share is based on the
assumption that the dilutive potential ordinary shares were
converted or exercised. It is:
1. “As if” the convertible preference shares or convertible
bonds have been converted; or
2. “As if” the options or warrants have been exercised.

• The conversion or exercise is assumed to have taken place on

the date the potential ordinary shares became outstanding,
regardless of the date of actual conversion or exercise.
OPTIONS, WARRANTS AND THEIR
EQUIVALENTS

When computing for diluted earnings per share, the

“treasury share method” shall be used in computing for the
incremental shares. This method assumes that:
1. The options or warrants are exercised and
2. The proceeds received from the exercise are used to
purchase treasury shares at the average market price.
3. The difference between the treasury shares assumed to
have been purchased and the option shares represents
the incremental shares.
TREASURY SHARE METHOD
 FINANCIAL STATEMENT
PRESENTATION
Basic and Diluted earnings per share are computed on the following:
1. Profit or loss from continuing operations
2. Profit or loss from discontinued operations, if the entity reports a
discontinued operation.
3. Profit or loss for the year

EPS is not computed on other comprehensive income and total

comprehensive income.

EPS computed on profit or loss from continuing operations and profit or loss
for the year are presented on the face of the statement of profit or loss and
other comprehensive income. If the entity uses a two-statement presentation,
EPS is presented only on the separate income statement.
 LOSS PER SHARE

Only the basic loss per share is presented when an entity

reports loss for the year. The diluted loss per share is not
presented because potential ordinary shares generally decrease
the loss per share and, therefore, are antidilutive.