BOOK VALUE PER SHARE

BV per share – it 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.
- If there are treasury shares and subscribed share capital the amount and the outstanding share
is computed as follows
No. of Shares Peso Amount
Share capital issued x x
Add: Subscribed capital x x
Total x x
Less Treasury share at par value x x
Shares outstanding x x

Liquidation Value of Preference Share

It is the amount which the preference shareholders normally receive upon the liquidation of the
corporation. However, if there is no liquidation value, the preference shareholders shall receive an
amount equal to the par or stated value of shares.
- If there is a deficit, the preference shareholders would share on a pro-rata with the ordinary
shareholders.

Preference Share
- In the absence of specific designation, it is assumed to be noncumulative and nonparticipating
- Dividend in arrears usually include the current dividends. The dividend in arrears in prior years
shall be specifically disclosed, otherwise there are no arrearages.
- 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 the allocation to the ordinary share.

Example:
ABC provided the following shareholders’ equity on December 31, 2020.

Preference Share, 12% P100 par 1,000,000

Ordinary share, P100 par 4,000,000
Share premium 2,000,000
Retained earnings 1,000,000

Dividends have been paid on the preference share up to December 31, 2018:

Required:
1. Cumulative and fully participating
2. Cumulative and fully participating after ordinary share receive 15%
3. Cumulative and participating up to 16%
4. Cumulative and nonparticipating
5. Noncumulative and nonparticipating

To get the outstanding share = Total Share Capital / Par value

Answer
1.
Excess PS OS
Total 3,000,000 1,000,000 4,000,000
PS: 12% x 1M x 2years (240,000) 240,000
OS: 12% x 4M (480,000) 480,000
Balance 2,280,000
PS: 2.4M x 1/5 (456,000) 456,000
OS: 2.4M x 4/5 (1,824,000) 1,824,000
Total - 1,696,000 6,304,000
Divide by Share Outstanding* 10,000 40,000
169.60 157.60

*Share Outstanding = PS: 1M /P100 par = 10,000 sh. And OS: 4M / P100 par = 40,000 sh.

2.
Excess PS OS
Total 3,000,000 1,000,000 4,000,000
PS: 12% x 1M x 2years (240,000) 240,000
OS: 15% x 4M (600,000) 600,000
Balance 2,160,000
PS: 2.4M x 1/5 (432,000) 432,000
OS: 2.4M x 4/5 (1,728,000) 1,728,000
Total - 1,672,000 6,328,000
Divide by Share Outstanding 10,000 40,000
167.20 158.20

3.
Excess PS OS
Total 3,000,000 1,000,000 4,000,000
PS: 12% x 1M x 2years (240,000) 240,000
OS: 12% x 4M (480,000) 480,000
Balance 2,280,000
PS: 4% x 1M (40,000) 40,000
OS: (2,120,000) 2,120,000
Total 120,000 1,280,000 6,600,000
Divide by Share Outstanding 10,000 40,000
128.00 165.00

The preference share will only participate 4% of the balance since it had already received 12% of the
basic dividend.

4.
 Excess PS OS
Total 3,000,000 1,000,000 4,000,000
PS: 12% x 1M x 2years (240,000) 240,000
Balance 2,760,000 2,760,000
Total (2,760,000) 1,240,000 6,760,000
Divide by Share Outstanding 10,000 40,000
124.00 169.00

The total balance will be given to OS since the PS is nonparticipating

5.

Excess PS OS
Total 3,000,000 1,000,000 4,000,000
PS: 12% x 1M x 1year (120,000) 120,000
Balance 2,880,000 2,880,000
Total 1,120,000 6,880,000
Divide by Share Outstanding 10,000 40,000
112.00 172.00

Problem 2
ABC reported the following shareholders’ equity on December 31, 2020.

PS - 10%, noncumulative, participating, P100 par, issued 5,000 sh. 500,000

PS - 12% cumulative, participating, P100 par, issued 10,000 shares 1,000,000
OS, P50 par, issued 30,000 shares 1,500,000

The entity has not paid the dividend before and the company plans to declare a dividend this year. The
entity reported the following net income or loss:
2016 300,000 loss
2017 200,000 loss
2018 100,000 loss
2019 350,000 income
2020 1,260,000 income
Required:
1. What is the maximum dividend that can be declared on December 31, 2020?
2. What is the amount of dividend that each class of share shall receive on December 31, 2020?

Answer
1.
2016 (300,000)
2017 (200,000)
2018 (100,000)
2019 350,000
2020 1,260,000
Total 1,010,000
2.
 Excess PS 10% PS 12% OS
Total 1,010,000
PS: 10% x 500K x 1year (50,000) 50,000
PS: 12% x 1M x 5 years (600,000) 600,000
OS: 10% x 1.5M (150,000) 150,000
Balance 210,000 210,000
PS 10%: 210K x 500K/3M (35,000) 35,000
PS 12%: 210K x 1M/3M (70,000) 70,000
OS: 210K x 1.5M/3M (105,000) 105,000
85,000 670,000 255,000

Only the amount of dividend is accounted because the requirement states that the amount of dividend
of each class only not the book value per share. If you want to compute the book value per share,
include the par value of each class of share then divide it by the outstanding shares.