UNIT 10

10-1 – Review questions

1. What is the significance of book value per share?Book value per share is the portion of the total stockholders’ equity assigned to each ordinary outstanding share. For investment purposes, the book value per share is useful in relation to market value per share to evaluate the attractiveness of the equity shares.

2. Basic formula in computingBook value per share = total shareholders’ equity (SHE)

Number of ordinary shares outstanding3. No. We do not compute book value per share for preference shares. Where there are two

classes of share capital (preference and ordinary), the equity of preference shares is first deducted as follows:

Total shareholders’ equity PxxxLess: Equity of preference shares xxx

------Ordinary shares’ equity Pxxx

====4. Earnings per share (EPS) is the amount of earnings attributable to each ordinary share. It

provides a measure of the interests of each ordinary share in the performance of the entity over the reporting period.

5. EPS = Net income after tax / Average outstanding ordinary shares6. The EPS is not computed for preference shares because EPS pertains more to ordinary shares

since preference shares earn a fixed rate of return on their par value.

10-2 TRUE OR FALSE.

1. False2. True3. False. SHE / ordinary shares outstanding4. True5. False. Only EPS6. False7. False. Ordinary shares outstanding as at balance sheet date.8. False. Only publicly held entities are required.9. False. A measure of company’s performance expressed on a per share basis.10. False. A measure of company’s financial position expressed on a per share basis.

10-3 Computation of Book value per share (BVS).

1. SHE = 2,500,000 + 500,000 + 750,000 + 250,000 = 4,000,0002. OUTSTANDING SHARES = 2,500,000/100 = 25,0003. Book value per share = 4,000,000 / 25,000 = P160.004. Yes. Because BVS is higher than par by 60%.

10-4 computation of BVS

1. SHE = 750,000 + 35,000 + 25,000 + 285,000 -15,000 = P1,080,0002. OUTSTANDING SHARES = 15,000 – 250 = 14,850 SHARES3. BV = 1,080,000 / 14,850 = P72.734. Yes. Because BVS is higher than par by 45%.