College of Accounting Education

3nd Floor, Dr. Florencio T. Facundo Hall, Business

& Engineering Bldg., Matina, Davao City
Phone No.: (082)2443400 Local 137
Book Value per Share Earnings Per Share September 22, 2021

Theory Of Accounts:

1. Statement I Preference as to assets, the preference shareholders are entitled

to payment not only for the liquidation value but also for the
dividends in arrears.
Statement II Preference as to dividends mean that preference shareholders
have an absolute right to dividends.
a.Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

2. Statement I Subscription receivable should be deducted from subscribed

share capital in the computation of share capital outstanding.
Statement II A nonparticipating preference share is one which is entitled to
receive dividends in excess of the basic or fixed rate.
a. Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

3. Statement I If only one preference share is participating, the rate of the

participating preference shall be used as a basis for
ordinary share dividend.
Statement II In case where there are two classes of preference share with
different dividend rates and both are participating, the
lower rate shall be the basis for allocation to the
ordinary share.
a. Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

4. Statement I The preference share may have a call price and this is
considered for book value computation.
Statement II The call price is the amount which the preference shareholders
normally receive upon the liquidation of the
corporation.
a. Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

5. San Miquel Corporation has outstanding ordinary share and nonparticipating,

noncumulative preference shares. The liquidation value of the preference shares is
equal to the par value. The book value per share of the ordinary shares is unaffected
by
a.A 2-for-1 split of the ordinary shares.
b.The payment of a previously declared cash dividend on the ordinary shares.
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 College of Accounting Education
3nd Floor, Dr. Florencio T. Facundo Hall, Business
& Engineering Bldg., Matina, Davao City
Phone No.: (082)2443400 Local 137
c.The declaration of a share dividend on preference payable in preference shares
when the market price of the preference is equal to the par value.
d.The declaration of a share dividend on ordinary shares payable in ordinary
shares when the market price of the ordinary shares is equal to the par
value.

6. What is the inherent justification underlying the concept of potential ordinary shares
(diluters) in EPS computation?
a. Materiality c. Timeliness
b. Cost-benefit d. Substance over form

7. What is the accounting concept that is principally used in computing diluted earnings
per share?
a.Neutrality c. Timeliness
b. Completeness d. Substance over form

8. What is the effect on EPS and shareholders’ equity with the reacquisition by an entity
of its own stock?
A B C D
Earnings per share Increase No effect Decrease Decrease
Shareholders’ equity Decrease Increase Increase Decrease

9. Statement I Earnings per share disclosures are required only for public entities.
Statement II Private entities are not required but are encouraged to present EPS.
a.Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

10. Statement I In determining basic earnings per share, dividend of non-

convertible preference share should be deducted from net income
whether declared or not.
Statement II Earnings per share amounts should be presented even if they
are negative, i.e. loss per share.
a.Both statements are true c. Statement 1 is false while statement II is true
b. Both statements are false d. Statement 1 is true while statement II is false

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 College of Accounting Education
3nd Floor, Dr. Florencio T. Facundo Hall, Business
& Engineering Bldg., Matina, Davao City
Phone No.: (082)2443400 Local 137
Practical Accounting 1
Situation 1
• The directors of ValueCare wish to declare a dividend whereby ordinary shareholders
are to received a total per share dividend of P4. The shaholders’ equity at year-end
appears as follows:

Preference share capital,P100 par, 7% participating up

to 10%, noncumulative, P100,000 shares authorized
25,000 shares issued P2,500
Ordinary share capital,P25 par, 250,000 shares authorized
and issued 6,250
Share premium 1,250
Retained earnings 5,000

• The shareholders’ equity of Allianz on December 31, 2020 included the following:
12% Preference share capital, 20,000 shares,
P100 par value 2,000,000
14% Preference share capital, 10,000 shares,
P300 par value 3,000,000
Ordinary share capital, 50,000 shares, P100 par value 5,000,000
Retained earnings 2,240,000
Share premium 1,500,000
Treasury Stock – OS, 2,000 shares at cost 240,000

The 12% preference share is cumulative and fully participating. The 14% preference
share is noncumulative and fully participating. Dividends have not been for 3 years.

• The shareholders’ equity of San Miguel Company on December 31,2020 shows the
following balances:
Preference share capital, 12% 100 par P1,000,000
Ordinary share capital,P100 4,000,000
Share premium 2,000,000
Retained Earnings 1,000,000
Subscribed Ordinary shares 2,000,000
Subscriptions receivable 1,000,000
Dividends have been paid on the preference share up to December 31,2018.
Assuming the preference share is preference as to assets and it is fully participating.

1. What is the total amount of the dividends that must be declared to meet the per share
goal of the board of directors of ValueCare? _________

2. What is the dividend payable on the preference shares of ValueCare?_________

3. What is the book value per ordinary share of Allianz? _________

4. What is the book value per preference share of Allianz? _________

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 College of Accounting Education
3nd Floor, Dr. Florencio T. Facundo Hall, Business
& Engineering Bldg., Matina, Davao City
Phone No.: (082)2443400 Local 137
5. How much is the book value per ordinary share of San Miguel? _________

6. Assuming the preference share is cumulative and participating up to 16%, How much
is the book value per ordinary share of San Miguel? _________

• At December 31, 2020, Maria Company had 1,200,000 shares of ordinary share
outstanding. On September 1, 2021, an additional 400,000 shares of ordinary share were
issued. In addition, Maria had P12,000,000 of 6% convertible bonds outstanding at
December 31, 2020, which are convertible into 800,000 shares of ordinary share. No bonds
were converted into ordinary share in 2021. The net income for the year ended December
31, 2021, was P4,500,000. Assuming the income tax rate was 30%.

7. What should be the diluted earnings per share for the year ended December 31,2021,
rounded to the nearest ones? _________

8. What should be the basic earnings per share for the year ended December 31,0 2021,
rounded to the nearest ones? _________

9. Cleo Company provided the following data for the entire year:
Net Income 2,000,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
Employee share options outstanding during the entire year:
Option shares 5,000
Exercise price 200
Fair value of each share option 10
Average market price 280
Ending market price 400
Diluted earnings per share should be _________.

10. Kissah Company reported the following information on December 31, 2021:
Bonds payable – 10% 1,500,000
Preference share capital, 12% cumulative, P100 par 30,000 shares 3,000,000
Ordinary share capital, 100,000 shares, P50 par 5,000,000

The bonds are convertible into ordinary shares in the ratio at 20 ordinary shares for every
P1,000 bond. The preference share is convertible into ordinary share in the ratio of two ordinary
shares for one preference share. Net income for the year was P3,695,000 and the income tax
rate is 30%.
What was the diluted earnings per share? _________

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