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BLUE NOTES
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Book value per share is the amount that would be paid on each preference share and ordinary share assuming the
entity is liquidated and the amount available to shareholders is exactly the same amount reported as shareholder’s
equity.
Formula:
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book value per ordinary share = Total shareholders’ equity – total preference SHE
Total ordinary share outstanding
book value per preference share = Total preference shareholders’ equity
Total preference share outstanding
Liquidation value of preference share
 is the amount which the preference shareholders normally receive upon liquidation of the entity. It may be
more than par or stated value.
Note:
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In the absence of liquidation value, the preference shareholders shall receive an amount equal to the par or stated value. However, if
there is a deficit, the preference shareholders would share on a prorate basis with the ordinary shareholders.
Call price or redemption price on preference share will be ignored for book value computation.
Preference as to dividends - priority is given first to preference shareholders whenever there is declaration of
dividends.
Note: In the absence of contrary statement, the preference share has a preference as to dividend.
Preference as to assets-the preference shareholders have the right to receive an amount equal to par value or any
liquidation value of their shareholdings in the event of liquidation in addition to cumulative dividends in arrears.
Dividends right of a preference share
1. Noncumulative preference share-is one on which the right to receive dividends is forfeited in any one year in
which dividends are not declared.
Note: In the absence of specific designation, preference share is assumed to be noncumulative and nonparticipating.
2. Cumulative preference share-is one on which any undeclared dividends accumulate each year until paid.
Entitled to all dividends in arrears.
Note: No liability is recognized until the board of directors declares a dividend. Such dividends in arrears on preference share are disclosed only
in the notes to financial statements.
3. Nonparticipating preference share-is one that is entitled to receive only the dividends equal to the fixed
preference rate.
4. Participating preference share-in one on which is entitled to receive dividends in excess of the basic or fixed
dividend rate.
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may be fully participating with ordinary share on a prorate basis or participating only to a certain amount or
percentage.
Note:
I. Before the preference share can participate, the ordinary share should receive first an amount equal to the basic percentage rate,
meaning preference rate times the par value of the ordinary share outstanding.
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. If only one preference share is participating, the rate of the participating preference share
shall be used as basis for ordinary share dividend.
Practical Accounting 1 Theory of Accounts