Book Value Per Share

BABA 11

ACC104A_A

What?

Amount paid to each share if• Company is liquidated

• Total SHE reported is available for distribution

Formula

• Total stockholders’ equity

• Divided by

• Number of shares outstanding**assuming only one class of shares

Procedures 2 or more classes

• Allocate par/stated value to each class• Computation to determine number of

shares outstanding and aggregate par/stated value per share

Procedures

• Excess over par value = Retained earnings + Share premium + Revaluation surplus• Adjust excess over par for “retirement” of

treasury shares (see next slide)

“Retired” treasury shares

• If retired at a gain• CR to Share Premium

• If retired at a loss• Debit first to Share Premium• Excess is debited to Retained earnings

• Distribute preference dividends per its features• Ordinary shares = residual shares unless

preference dividends are participating

• Divide the total apportioned to each class by the number of shares outstanding in each class

• = Book value per share

Share capital outstanding

• Issued plus• Subscribed• Ignore subscriptions receivable

• Minus Treasury at par• Share capital outstanding • Number of shares and aggregate amountback

Preference Shares

• Preference as to assets• Preference as to dividends• Cumulative or non-cumulative• Participating or non-participating

Features of Preference Shares

• Preference as to assets• Liquidation value + dividends in arrears

(DIA)

• Preference as to dividends• Receives dividends before ordinary shares

IF dividends are declared

Features

• Shares may either be preference as to assets OR preference as to dividends but not both

• If silent, then preference as to dividends

Preferred as to assets

• Entitled to all dividends in arrears even if there is a deficit.

• Features like cumulative or non-cumulative apply only to preferred as to dividends.

Preference as to dividends

• No absolute right to dividends• Gets dividends only if declared• No declaration if deficit

Noncumulative PS

• Gets only current year dividends, whether or not declared

• Past dividends are forfeited if not declared

Cumulative PS

• Entitled to all dividends in arrears (i.e., undeclared dividends accumulate until paid)

Example Prob. 13-3, p.707 (2009)

• Deficit• Compute BVPS when• Preference as to assets• Preference as to dividends

Nonparticipating

• Entitled only to fixed preference rate

Participating PS

• Entitled to receive dividends in excess of fixed rate

• Fully participating• Participating only to a certain amount of

percentage

Participating PS

• Before PS can participate, OS receives amount equal to basic preference rate• OS outstanding x Preference rate• Use lower rate (2 or more PS)• Use rate of participating PS

Assumptions

• Preference shares* • *Unless otherwise stated

• Preference as to dividends• Noncumulative• Nonparticipating

We are what we repeatedly do.

Excellence, then, is not an act but a habit.

Aristotle