Retained Earnings Mrs. Paz Castro

Book Value per Share

• The amount that would be paid on each share if the corporation is liquidated.
• The amount available to shareholders is exactly the amount reported as shareholders’ equity.
• When only a single class of share is outstanding, the book value per share is computed by dividing the total shareholders’ equity by the number of shares outstanding.

Ex.: Assume that Guns Security Agency has a total shareholders’ equity of P180,000 and 5,000 shares of ordinary shares outstanding. The book value per share is P36 (P180,000/5,000 shares).

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Ex.: Assume that Guns Security Agency has a total shareholders’ equity of P180,000 and 5,000 shares of ordinary shares outstanding. The book value per share is P36 (P180,000/5,000 shares).

□ When both preference and ordinary shares are outstanding, the preference shareholders have preference over ordinary shareholders as to the distribution of assets upon corporate liquidation.

• The preference shareholders have the right to receive assets equal to the par value or a larger stated liquidation value per share. Liquidation value is the cash price or other consideration that can be received in a forced sale of assets such as that occurring when a firm is in the process of going out of business.
• Typically, the liquidation value is less than what could be received from selling assets in the ordinary course of business.

• The book value per share of the preference shares is the sum of its liquidation value, if applicable, plus any current and dividends in arrears divided by the number of preference shares outstanding.
• Ordinary shareholders’ equity is obtained by deducting from total shareholders’ equity the preference shareholders’ equity.
• The book value per share of the ordinary shares is computed by dividing the ordinary shareholders’ equity by the number of ordinary

Ex.: Hizon Advertising and Marketing, Inc. is one of the leading firms doing highly creative tri-media product exposures in Cebu. The shareholders’ equity section of the company’s statement of financial position is as follows:

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