ACCOUNTING FOR

CORPORATION
* Accounting for Issuance and Subscription
* Accounting for Delinquent Shares, Treasury Shares, Retired Shares, and Donated Shares
* Accounting for Changes in Retained Earnings
* Book Value per Share
* Earnings per Share
Shareholders’ Equity
Shareholders’ equity or stockholders’ equity is the RESIDUAL INTEREST of owners
in the net assets of a corporation measured by the excess of assets over liabilities.

COMPONENTS OF SHAREHOLDERS’ EQUITY

CONTRIBUTED CAPITAL ACCUMULATED CONTRA-EQUITY
COMPREHENSIVE INCOME ACCOUNTS
• Share Capital (Ordinary & • Accumulated Profit or Loss • Treasury Shares
Preferred) (Retained Earnings)
• Discount on Share Capital
• Subscribed Share Capital • Accumulated Other
(Ordinary & Preferred) Comprehensive Income • Capital Liquidated
and Losses
• Share Premium

• Less: Subscription
Receivable
Ordinary Shares vs. Preference Shares
Ordinary Shares Preference Shares

Return on investment Residual Fixed

(income)

Priority during liquidation Least priority High priority

Can be issued with no-par Yes No

value?

With voting rights? Yes General rule: No

Exception: Section 6 of Revised
Corporation Code
Concept of Legal Capital
It is the portion of the paid in capital arising from the issuance of share capital which
cannot be returned to the shareholders in any form during the lifetime of the
corporation.

Computation of legal capital:

Share capital – ordinary and preferred Xxx

Subscribed share capital – ordinary and preferred Xxx

Share dividends payable Xxx

Share premium – in excess of par or stated value (only for Xxx

no par shares)
TOTAL LEGAL CAPITAL xxx
 Illustration: Legal Capital
The stockholders equity section of Alyssa Anne Company revealed the following information on
December 31 of the current year:
With par value No par value
Preference share, P100 par 1,150,000
Share premium – preference share 402,500
Ordinary share capital 2,625,000
Share premium – ordinary share 1,375,000
Subscribed ordinary share capital 250,000
Retained earnings 950,000
Notes payable 2,000,000
Subscription receivable – ordinary 200,000
share
Required:
1. How much is the legal capital?
2. Assuming instead the ordinary shares have no par value but
with stated value, how much is the legal capital?
 Illustration: Legal Capital
The stockholders equity section of Alyssa Anne Company revealed the following information on
December 31 of the current year:
With par value No par value
Preference share, P100 par 1,150,000 1,150,000
Share premium – preference share 402,500
Ordinary share capital 2,625,000 2,625,000
Share premium – ordinary share 1,375,000
Subscribed ordinary share capital 250,000 250,000
Retained earnings 950,000
Notes payable 2,000,000
Subscription receivable – ordinary 200,000
share
Required:
1. How much is the legal capital? P4,025,000
2. Assuming instead the ordinary shares have no par value but
with stated value, how much is the legal capital?
 Illustration: Legal Capital
The stockholders equity section of Alyssa Anne Company revealed the following information on
December 31 of the current year:
With par value No par value
Preference share, P100 par 1,150,000 1,150,000 1,150,000
Share premium – preference share 402,500
Ordinary share capital 2,625,000 2,625,000 2,625,000
Share premium – ordinary share 1,375,000 1,375,000
Subscribed ordinary share capital 250,000 250,000 250,000
Retained earnings 950,000
Notes payable 2,000,000
Subscription receivable – ordinary 200,000
share
Required:
1. How much is the legal capital? P4,025,000
2. Assuming instead the ordinary shares have no par value but
with stated value, how much is the legal capital? P5,400,000
Issuance and subscription of shares
Two methods of accounting for share capital
a. Memorandum entry method b. Journal entry method

Summary of Journal Entries

Transactions Memorandum method Journal Entry Method
Authorization of Shares No Entry Unissued Share Capital xxx
Authorized Share Capital xxx
Subscriptions Subscription Receivable xxx Subscription Receivable xxx
Subscibed Share Capital xxx Subscibed Share Capital xxx
Collections Cash xxx Cash xxx
Subsription Receivable xxx Subscription Receivable xxx
Issuance of Certificates Subscribed Share Capital xxx Subscribed Share Capital xxx
Share Capital xxx Unissued Share Capital xxx
Full payment upon acquisition Cash xxx Cash xxx
of shares Share Capital xxx Unissued Share Capital xxx
Measurement of Consideration
Type of Consideration Measurement
Cash Face Value
Non-cash assets or services General rule: Fair value of consideration received
If none: (1) Fair value of shares issued
(2) Par value of shares issued

Organization cost and expenses

related to share capital
Accounting for organization cost – Organization costs, except for share issuance costs, shall be recognized as
expense in the first year of operations.

Accounting for share issuance costs – Stock issuance cost shall be debited in the following order: (1) share
premium from issuance; (2) share premium from previous issuance; (3) Retained earnings
 Illustration: Issuance of Share Capital
Assume the following issuances of a Journal Entry Debit Credit
P100 par value share of stock:
1. Issuance of 3,000 shares at par for cash

2. Issuance of 5,000 shares at P110 per share

for cash. Stock issue cost that were paid by
the corporation amounted to P60,000

3. Issuance of 2,500 shares of stock for

machinery. The machinery has a fair value of
P280,000 while the stock is selling at P105
per share
 Illustration: Issuance of Share Capital
Assume the following issuances of a Journal Entry Debit Credit
P100 par value share of stock:
1. Cash (3,000 x 100) 300,000
1. Issuance of 3,000 shares at par for cash Share Capital (3,000 x 100) 300,000

2. Issuance of 5,000 shares at P110 per share

for cash. Stock issue cost that were paid by
the corporation amounted to P60,000

3. Issuance of 2,500 shares of stock for

machinery. The machinery has a fair value of
P280,000 while the stock is selling at P105
per share
 Illustration: Issuance of Share Capital
Assume the following issuances of a Journal Entry Debit Credit
P100 par value share of stock:
1. Cash (3,000 x 100) 300,000
1. Issuance of 3,000 shares at par for cash Share Capital (3,000 x 100) 300,000
2. Cash (5,000 x 110) 550,000
Share Capital (5,000 x 100) 500,000
2. Issuance of 5,000 shares at P110 per share Share Premium ([110 – 100] x 5,000) 50,000
for cash. Stock issue cost that were paid by
the corporation amounted to P60,000 Share premium 50,000
Retained earnings 10,000
Cash 60,000
3. Issuance of 2,500 shares of stock for
machinery. The machinery has a fair value of
P280,000 while the stock is selling at P105
per share
 Illustration: Issuance of Share Capital
Assume the following issuances of a Journal Entry Debit Credit
P100 par value share of stock:
1. Cash (3,000 x 100) 300,000
1. Issuance of 3,000 shares at par for cash Share Capital (3,000 x 100) 300,000
2. Cash (5,000 x 110) 550,000
Share Capital (5,000 x 100) 500,000
2. Issuance of 5,000 shares at P110 per share Share Premium ([110 – 100] x 5,000) 50,000
for cash. Stock issue cost that were paid by
the corporation amounted to P60,000 Share premium 50,000
Retained earnings 10,000
Cash 60,000
3. Issuance of 2,500 shares of stock for 3. Machinery 280,000
machinery. The machinery has a fair value of Share Capital (2,500 x 100) 250,000
P280,000 while the stock is selling at P105 Share Premium (280,000 – [2,500 x 100])
per share
 Illustration: Issuance of Share Capital
Assume the following issuances of a P100 Journal Entry Debit Credit
par value share of stock:
4. Issued 1,000 shares of stock for patent (an
intangible asset). The stock is selling at P105
per share
5. Issued 500 shares of stock in full payment
of organization services rendered from the
legal counsel. There is no reliable fair value
of services and shares on that date.
 Illustration: Issuance of Share Capital
Assume the following issuances of a P100 Journal Entry Debit Credit
par value share of stock:
4. Patent(1,000 x 105) 105,000
4. Issued 1,000 shares of stock for patent (an Share Capital (1,000 x 100) 100,000
intangible asset). The stock is selling at P105 Share Premium ([105-100] x 1,000) 5,000
per share
5. Issued 500 shares of stock in full payment
of organization services rendered from the
legal counsel. There is no reliable fair value
of services and shares on that date.
 Illustration: Issuance of Share Capital
Assume the following issuances of a P100 Journal Entry Debit Credit
par value share of stock:
4. Patent(1,000 x 105) 105,000
4. Issued 1,000 shares of stock for patent (an Share Capital (1,000 x 100) 100,000
intangible asset). The stock is selling at P105 Share Premium ([105-100] x 1,000) 5,000
per share
5. Organization Expense (5,000 x 100) 50,000
5. Issued 500 shares of stock in full payment Share Capital (5,000 x 100) 50,000
of organization services rendered from the
legal counsel. There is no reliable fair value
of services and shares on that date.
Delinquent Subscriptions
If a subscriber of shares does not pay on the date fixed by the board of directors, the subscriptions is
declared delinquent and the delinquent shares will be sold at a public auction to a HIGHEST BIDDER.

HIGHEST BIDDER: person who is willing to pay the offer price of the delinquent shares for the SMALLEST
number of shares.

OFFER PRICE: it includes

(a) the balance due on the subscription;
(b) interest accrued on the subscription due, and;
(c) expenses of advertising and other costs of sale.

If there is no HIGHEST BIDDER, the corporation may purchase for itself the delinquent shares and will be
part of treasury shares.
Illustration: Delinquent Subscriptions
Prepare the journal entries to record the transactions.

Castiel Corp. was authorized to issue 500,000 ordinary shares with a par value of P20. The following
transactions relative to the share capital took place:

a. Received subscription for 125,000 shares at P25 receiving a down payment of 60%
b. The subscriber failed to pay his obligation, so his subscription was declared delinquent.
c. Paid delinquency sale expenses totaling P50,000
d. Received bids from the following:
Person 1 – 75,000
Person 2 – 80,000
Person 3 – 70,000
Received payment from the highest bidder and shares were issued accordingly.
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the
Journal Entry Debit Credit
transactions.

Castiel Corp. was authorized to issue 500,000

ordinary shares with a par value of P20. The
following transactions relative to the share
capital took place:

a. Received subscription for 125,000 shares at

P25 receiving a down payment of 60%
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the
Journal Entry Debit Credit
transactions.
a.) Cash 1,875,000
Castiel Corp. was authorized to issue 500,000
Subscription Receivable 1,250,000
ordinary shares with a par value of P20. The
Subscribed Ordinary Share Capital 2,500,000
following transactions relative to the share
Share Premium – ordinary shares 625,000
capital took place:

a. Received subscription for 125,000 shares at

P25 receiving a down payment of 60%
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the
Journal Entry Debit Credit
transactions.

Castiel Corp. was authorized to issue 500,000 a.) Cash 1,875,000

ordinary shares with a par value of P20. The Subscription Receivable 1,250,000
following transactions relative to the share Subscribed Ordinary Share Capital 2,500,000
capital took place: Share Premium – ordinary shares 625,000

a. Received subscription for 125,000 shares at b.) Receivable from highest bidder 1,250,000
P25 receiving a down payment of 60% Subscription Receivable 1,250,000
b. The subscriber failed to pay his obligation, so
his subscription was declared delinquent.
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the
Journal Entry Debit Credit
transactions.

Castiel Corp. was authorized to issue 500,000 a.) Cash 1,875,000

ordinary shares with a par value of P20. The Subscription Receivable 1,250,000
following transactions relative to the share Subscribed Ordinary Share Capital 2,500,000
capital took place: Share Premium – ordinary shares 625,000

a. Received subscription for 125,000 shares at

P25 receiving a down payment of 60% b.) Receivable from highest bidder 1,250,000
b. The subscriber failed to pay his obligation, so Subscription Receivable 1,250,000
his subscription was declared delinquent.
c. Paid delinquency sale expenses totaling c.) Receivable from highest bidder 50,000
P50,000 Cash 50,000
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the Journal Entry Debit Credit
transactions.
a.) Cash 1,875,000
Castiel Corp. was authorized to issue 500,000 Subscription Receivable 1,250,000
ordinary shares with a par value of P20. The Subscribed Ordinary Share Capital 2,500,000
following transactions relative to the share Share Premium – ordinary shares 625,000
capital took place:

a. Received subscription for 125,000 shares at b.) Receivable from highest bidder 1,250,000
P25 receiving a down payment of 60% Subscription Receivable 1,250,000
b. The subscriber failed to pay his obligation, so
his subscription was declared delinquent.
c. Paid delinquency sale expenses totaling c.) Receivable from highest bidder 50,000
P50,000 Cash 50,000
d. Received bids from the following:
Person 1 – 75,000
d.) Cash 1,300,000
Person 2 – 80,000
Receivable from highest bidder 1,300,000
Person 3 – 70,000
Received payment from the highest bidder
Subscribed Ordinary Share Capital 2,500,000
and shares were issued accordingly.
Ordinary Share Capital 2,500,000
 Illustration: Delinquent Subscriptions
Prepare the journal entries to record the Journal Entry Debit Credit
transactions.
a.) Cash 1,875,000
Castiel Corp. was authorized to issue 500,000 Subscription Receivable 1,250,000
ordinary shares with a par value of P20. The Subscribed Ordinary Share Capital 2,500,000
following transactions relative to the share Share Premium – ordinary shares 625,000
capital took place:

a. Received subscription for 125,000 shares at b.) Receivable from highest bidder 1,250,000
P25 receiving a down payment of 60% Subscription Receivable 1,250,000
b. The subscriber failed to pay his obligation, so
his subscription was declared delinquent.
c. Paid delinquency sale expenses totaling c.) Receivable from highest bidder 50,000
P50,000 Cash 50,000
d. Assuming there were no bidders, prepare
the journal entry to record the issuance of the
d.) Treasury Shares 1,300,000
shares in the name of the corporation.
Receivable from highest bidder 1,300,000

Subscribed Ordinary Share Capital 2,500,000

Ordinary Share Capital 2,500,000
 Treasury Shares
Treasury Shares are company’s own stock previously issued, reacquired but not cancelled.
Treasury shares may be accounted as follows:

(1) Cost method – under this method, treasury shares are debited at its acquisition cost. Also,
any subsequent reissuance and/or retirement of the treasury shares is credited at the cost.
The cost is:
a.) Cash – face value
b.) Non-cash – carrying amount

(2) Par value method

NOTE: In the Philippines, the standards require treasury shares to be accounted exclusively
under the cost method
 Treasury Shares
Transactions Journal Entry Comment
Acquisition of Treasury Shares (at cost) xxx
Treasury Cash xxx
Shares
Reissuance at cost:
Cash xxx
Treasury Shares (at cost) xxx

Reissuance at above cost: Any difference between the consideration received and the
Cash xxx cost of treasury shares shall be credited to share premium –
Reissuance Treasury Shares (at cost) xxx treasury shares
Share premium – treasury shares xxx

Reissuance at below cost: Any difference between the consideration received and the
Cash xxx cost of treasury shares shall be debited to the following:
Share premium – treasury shares xxx a. Share premium – treasury shares
Retained Earnings xxx b. Any excess to retained earnings
Treasury Shares (at cost) xxx
Retirement of Shares
Retirement of shares is known as cancellation of issued shares.

In accordance with the trust fund doctrine, before you retire shares, there should be an
unrestricted balance of retained earnings since before you retire shares, you are effectively
reacquiring it first.

Transactions
Retirement at Share capital xxx
perceived gain Share premium – original issuance xxx
Treasury Shares (at cost) xxx
Share premium – retirement of shares xxx
Summary of Journal Entries
Retirement at Share capital xxx
perceived loss Share premium – original issuance xxx
Share premium – treasury shares xxx
Retained Earnings xxx
Treasury Shares (at cost) xxx
 Illustration: Accounting for treasury shares
Prepare the journal entries to record the transactions. Journal Entry Debit Credit

The shareholders’ equity of Rhenz Corp. appears

as follows:

Ordinary share capital, 50,000 shares, P100 par P5M

Share premium 200k
Retained Earnings 2M

Subsequently, the following transactions among

others occurred:
a. Treasury shares of 5,000 shares were acquired
at P160 per share
b. Reissued 2,000 treasury shares at P180 per
share
c. Reissued 1,000 treasury shares at P150 per
share
d. Retired the remaining treasury shares
 Illustration: Accounting for treasury shares
Prepare the journal entries to record the transactions. Journal Entry Debit Credit
a.)
The shareholders’ equity of Rhenz Corp. appears as Treasury shares (at cost) 800,000
follows: Cash 800,000

Ordinary share capital, 50,000 shares, P100 par P5M

Share premium P200k
Retained Earnings P2M

Subsequently, the following transactions among

others occurred:
a. Treasury shares of 5,000 shares were acquired at
P160 per share
b. Reissued 2,000 treasury shares at P180 per
share
c. Reissued 1,000 treasury shares at P150 per share
d. Retired the remaining treasury shares
 Illustration: Accounting for treasury shares
Prepare the journal entries to record the transactions. Journal Entry Debit Credit
a.)
The shareholders’ equity of Rhenz Corp. appears as Treasury shares (at cost) 800,000
follows: Cash 800,000
b.)
Ordinary share capital, 50,000 shares, P100 par P5M Cash 360,000
Share premium P200k Treasury shares (at cost) 320,000
Retained Earnings P2M Share premium - TS 40,000
Subsequently, the following transactions among
others occurred:
a. Treasury shares of 5,000 shares were acquired at
P160 per share
b. Reissued 2,000 treasury shares at P180 per
share
c. Reissued 1,000 treasury shares at P150 per share
d. Retired the remaining treasury shares
 Illustration: Accounting for treasury shares
Prepare the journal entries to record the transactions. Journal Entry Debit Credit
a.)
The shareholders’ equity of Rhenz Corp. appears as Treasury shares (at cost) 800,000
follows: Cash 800,000
b.)
Ordinary share capital, 50,000 shares, P100 par P5M Cash 360,000
Share premium P200k Treasury shares (at cost) 320,000
Retained Earnings P2M Share premium - TS 40,000
Subsequently, the following transactions among c.)
others occurred: Cash 150,000
Share premium - TS 10,000
a. Treasury shares of 5,000 shares were acquired at
Treasury shares (at cost) 160,000
P160 per share
b. Reissued 2,000 treasury shares at P180 per
share
c. Reissued 1,000 treasury shares at P150 per share
d. Retired the remaining treasury shares
 Illustration: Accounting for treasury shares
Journal Entry Debit Credit
Prepare the journal entries to record the transactions.
a.)
The shareholders’ equity of Rhenz Corp. appears as Treasury shares (at cost) 800,000
follows: Cash 800,000
b.)
Ordinary share capital, 50,000 shares, P100 par P5M Cash 360,000
Share premium P200k Treasury shares (at cost) 320,000
Retained Earnings P2M Share premium - TS 40,000
c.)
Subsequently, the following transactions among Cash 150,000
others occurred: Share premium - TS 10,000
a. Treasury shares of 5,000 shares were acquired at Treasury shares (at cost) 160,000
P160 per share d.)
b. Reissued 2,000 treasury shares at P180 per Share capital 200,000
share Share premium - original issuance 8,000
c. Reissued 1,000 treasury shares at P150 per share Share premium – treasury shares 30,000
d. Retired the remaining treasury shares Retained earnings 82,000
Treasury shares (at cost) 320,000
Donated Capital
Transactions credited to Donated Capital account are donations received from
shareholders.

Donations received from parties other than shareholders are credited to appropriate
income account.
NOTE: Income is “increases in assets, or decreases in liabilities, that result in increases in equity, other than those
relating to contributions from holders of equity claims”

Summary of Journal Entries

Transactions
Upon receipt of donated shares Memorandum entry only
from shareholders
Upon sale Cash xxx
Share premium - Donated Capital xxx
Donated shares are retired or Share Capital xxx
canceled before their reissuance Share premium – Donated Capital xxx
Share split
Two forms of share split include:

1.) Split up – it is a transaction in which the original shares are cancelled and replaced with
a larger number of shares with a lower par value or stated value.

2.) Split down – it is the opposite of split up. It is a transaction in which the original shares
are cancelled and replaced with a lower number of shares but with the par or stated value
being increased

Summary of Effect of Share Split

Split up Split down
No. of shares Increase Decrease
Par value per share Decrease Increase
Total shareholders’ equity Same Same
 Rights issue
Rights issue is granted to existing shareholders to enable them to acquire new
shares at a specified price during a specified period.
Accounting treatment
Issuance of rights No entry is necessary because the warrants are normally issued
without consideration.

The entity just needs to make a memorandum entry to show how

many shares can be purchased through the exercise of those
rights.
Expiration of Only a memorandum entry is necessary
rights
Exercise of rights A memorandum entry is prepared to reflect the reduction in
number of shares claimable as a result of the rights being
exercised.

The exercise of rights result in the sales of shares, which is

subsequently recorded the usual way.
Multiple Choice (Theories)

1. The net assets of a corporate entity is popularly known is

a. Contributed capital
b. Retained earnings
c. Shareholders’ equity
d. Legal capital
Multiple Choice (Theories)

1. The net assets of a corporate entity is popularly known is

a. Contributed capital
b. Retained earnings
c. Shareholders’ equity
d. Legal capital
Multiple Choice (Theories)

2. The par value is used to determine the share’s

a. maximum issue price
b. minimum issue price
c. fair value
d. market price
Multiple Choice (Theories)

2. The par value is used to determine the share’s

a. maximum issue price
b. minimum issue price
c. fair value
d. market price
Multiple Choice (Theories)

3. Contributed capital does not include

a. Share capital account
b. Share premium account
c. Retained earnings
d. All of these are included in contributed capital
Multiple Choice (Theories)

3. Contributed capital does not include

a. Share capital account
b. Share premium account
c. Retained earnings
d. All of these are included in contributed capital
Multiple Choice (Theories)

4. When par value shares are issued, the excess of the proceeds over the par
value is credited to which of the following?

a. Share capital
b. Share premium
c. Retained earnings
d. Gain on issuance of shares
Multiple Choice (Theories)

4. When par value shares are issued, the excess of the proceeds over the par
value is credited to which of the following?

a. Share capital
b. Share premium
c. Retained earnings
d. Gain on issuance of shares
Multiple Choice (Theories)

5. If shares are issued for noncash consideration, the shares issued shall be
measured by reference to which of the following?

a. Fair value of the noncash consideration

b. Carrying amount of the noncash consideration
c. Fair value of the shares
d. Par value of the shares
Multiple Choice (Theories)

5. If shares are issued for noncash consideration, the shares issued shall be
measured by reference to which of the following?

a. Fair value of the noncash consideration

b. Carrying amount of the noncash consideration
c. Fair value of the shares
d. Par value of the shares
Multiple Choice (Theories)

6. Subscription receivable from sale of shares which are not collectible within
12 months from the balance sheet shall be presented as a

a. Current asset
b. Non-current asset
c. Deduction from the related subscribed share capital under shareholders’
equity section of the statement of financial position
d. Trade receivable
Multiple Choice (Theories)

6. Subscription receivable from sale of shares which are not collectible within
12 months from the balance sheet shall be presented as a

a. Current asset
b. Non-current asset
c. Deduction from the related subscribed share capital under shareholders’
equity section of the statement of financial position
d. Trade receivable
Multiple Choice (Theories)

7. Outstanding shares are

a. shares that have been authorized by the state for issuance
b. shares held in treasury
c. shares in the hand of the shareholders
d. shares that are performing well on the stock market
Multiple Choice (Theories)

7. Outstanding shares are

a. shares that have been authorized by the state for issuance
b. shares held in treasury
c. shares in the hand of the shareholders
d. shares that are performing well on the stock market
Multiple Choice (Theories)

8. Treasury shares are

a. Issued and Outstanding
b. Issued but not outstanding
c. Outstanding only
d. None of these
Multiple Choice (Theories)

8. Treasury shares are

a. Issued and Outstanding
b. Issued but not outstanding
c. Outstanding only
d. None of these
Multiple Choice (Theories)

9. The total cost of treasury shares shall be reported as

a. Financial asset
b. Deduction from share premium
c. Deduction from retained earnings
d. Deduction from shareholders’ equity
Multiple Choice (Theories)

9. The total cost of treasury shares shall be reported as

a. Financial asset
b. Deduction from share premium
c. Deduction from retained earnings
d. Deduction from shareholders’ equity
Multiple Choice (Theories)

10. When treasury shares are sold at a price above cost

a. A gain is credited
b. A loss is reported
c. A revenue account is credited
d. Share premium is increase
Multiple Choice (Theories)

10. When treasury shares are sold at a price above cost

a. A gain is credited
b. A loss is reported
c. A revenue account is credited
d. Share premium is increase
Multiple Choice (Theories)

11. Loss from sale of treasury shares shall be charged to which of the following?
a. Loss on sale of treasury shares
b. Share premium from original issuance and then retained earnings
c. Share premium from treasury shares and then retained earnings
d. Retained earnings and then share premium from treasury shares
Multiple Choice (Theories)

11. Loss from sale of treasury shares shall be charged to which of the following?
a. Loss on sale of treasury shares
b. Share premium from original issuance and then retained earnings
c. Share premium from treasury shares and then retained earnings
d. Retained earnings and then share premium from treasury shares
Multiple Choice (Theories)

12. Loss on retirement of treasury shares shall be charged to which of the

following?

a. Retained earnings
b. Share premium from treasury shares and then retained earnings
c. Share premium from treasury shares, share premium from original issuance
and then retained earnings
d. Share premium from original issuance, share premium from treasury shares
and then retained earnings
Multiple Choice (Theories)

12. Loss on retirement of treasury shares shall be charged to which of the

following?

a. Retained earnings
b. Share premium from treasury shares and then retained earnings
c. Share premium from treasury shares, share premium from original issuance
and then retained earnings
d. Share premium from original issuance, share premium from treasury
shares and then retained earnings
 Multiple Choice (Problem Solving)
1. At the beginning of 2024, Pinoy Company was organized with authorized capital of 100,000, P200 par value shares

Jan. 15 Issued 10,000 shares at P280 per share

May 1 Issued 5,000 shares in exchange for land with a fair value of P1,200,000. On this date, fair value of the shares was
P250 per share

Nov. 23 Issued 2,000 shares for legal services when the fair value was P260 per share

Q1: What amount should be reported as share capital?

a. 3,400,000
b. 3,600,000
c. 4,520,000
d. 4,570,000

Q2: What amount should be reported as share premium?

a. Zero
b. 1,000,000
c. 1,120,000
d. 1,170,000
 Multiple Choice (Problem Solving)
1. At the beginning of 2024, Pinoy Company was organized with authorized capital of 100,000, P200 par value shares

Jan. 15 Issued 10,000 shares at P280 per share

May 1 Issued 5,000 shares in exchange for land with a fair value of P1,200,000. On this date, fair value of the shares was
P250 per share

Nov. 23 Issued 2,000 shares for legal services when the fair value was P260 per share

Q1: What amount should be reported as share capital?

a. 3,400,000
b. 3,600,000
c. 4,520,000
d. 4,570,000

Q2: What amount should be reported as share premium?

a. Zero
b. 1,000,000
c. 1,120,000
d. 1,170,000
 Multiple Choice (Problem Solving)
2. At the beginning of 2019, Umberto Company issued 20,000 ordinary shares of P20 par value and 40,000 cumulative
preference shares of P20 par value for a total of P1,600,000. At this date, the ordinary share was selling for P36 and the
cumulative preference share was selling for P27.

Q1: What amount of the proceeds should be allocated to the preference shares?
a. 880,000
b. 960,000
c. 1,080,000
d. 1,200,000

Q2: What amount of the proceeds should be allocated to the ordinary shares?
a. 400,000
b. 640,000
c. 720,000
d. 800,000
 Multiple Choice (Problem Solving)
2. At the beginning of 2019, Umberto Company issued 20,000 ordinary shares of P20 par value and 40,000 cumulative
preference shares of P20 par value for a total of P1,600,000. At this date, the ordinary share was selling for P36 and the
cumulative preference share was selling for P27.

Q1: What amount of the proceeds should be allocated to the preference shares?
a. 880,000
b. 960,000
c. 1,080,000
d. 1,200,000

Q2: What amount of the proceeds should be allocated to the ordinary shares?
a. 400,000
b. 640,000
c. 720,000
d. 800,000
 Multiple Choice (Problem Solving)
2. At the beginning of 2019, Umberto Company issued 20,000 ordinary shares of P20 par value and 40,000 cumulative
preference shares of P20 par value for a total of P1,600,000. At this date, the ordinary share was selling for P36 and the
cumulative preference share was selling for P27.

Q3: What is the share premium from the issuance of preference shares?
a. Zero
b. 160,000
c. 200,000
d. 360,000

Q4: What is the share premium from the issuance of ordinary shares?
a. Zero
b. 240,000
c. 320,000
d. 400,000
 Multiple Choice (Problem Solving)
2. At the beginning of 2019, Umberto Company issued 20,000 ordinary shares of P20 par value and 40,000 cumulative
preference shares of P20 par value for a total of P1,600,000. At this date, the ordinary share was selling for P36 and the
cumulative preference share was selling for P27.

Q3: What is the share premium from the issuance of preference shares?
a. Zero
b. 160,000
c. 200,000
d. 360,000

Q4: What is the share premium from the issuance of ordinary shares?
a. Zero
b. 240,000
c. 320,000
d. 400,000
 Multiple Choice (Problem Solving)
3. At the beginning of 2018, Baker Company reported the following shareholders’ equity:

Share capital, P10 par, outstanding 450,000 shares P4,500,000

Share premium 1,800,000
Retained earnings 4,380,000

During 2018, the company had the following share transactions:

• Acquired 12,000 treasury shares for P540,000
• Sold 7,200 treasury shares at P50 per share
• Sold the remaining treasury shares at P41 per share.

What is the total amount of share premium on December 31, 2018?

a. 1,740,000
b. 1,783,200
c. 1,816,800
d. 1,855,200
 Multiple Choice (Problem Solving)
3. At the beginning of 2018, Baker Company reported the following shareholders’ equity:

Share capital, P10 par, outstanding 450,000 shares P4,500,000

Share premium 1,800,000
Retained earnings 4,380,000

During 2018, the company had the following share transactions:

• Acquired 12,000 treasury shares for P540,000
• Sold 7,200 treasury shares at P50 per share
• Sold the remaining treasury shares at P41 per share.

What is the total amount of share premium on December 31, 2018?

a. 1,740,000
b. 1,783,200
c. 1,816,800
d. 1,855,200
 Multiple Choice (Problem Solving)
4. Ghostbuster’s Company showed the following balances related to an issuance of ordinary share capital:

Ordinary share capital, P50 par, 200,000 shares P10,000,000

Ordinary share premium 4,000,000

The company retired 2,000 shares of ordinary share capital

Q1: If the retirement price is P80, how much shall be debited to retained earnings?
a. Zero
b. 20,000
c. 60,000
d. 120,000

Q2: If the retirement price is P65, how much is the share premium arising from retirement of share capital?
a. Zero
b. 10,000
c. 20,000
d. 60,000
 Multiple Choice (Problem Solving)
4. Ghostbuster’s Company showed the following balances related to an issuance of ordinary share capital:

Ordinary share capital, P50 par, 200,000 shares P10,000,000

Ordinary share premium 4,000,000

The company retired 2,000 shares of ordinary share capital

Q1: If the retirement price is P80, how much shall be debited to retained earnings?
a. Zero
b. 20,000
c. 60,000
d. 120,000

Q2: If the retirement price is P65, how much is the share premium arising from retirement of share capital?
a. Zero
b. 10,000
c. 20,000
d. 60,000
 Multiple Choice (Problem Solving)
5. Sherlock Company provided the following information at year end:

Preference share capital, P100 par P460,000

Share premium – Preference 161,000
Ordinary share capital, P10 par 1,050,000
Share premium – ordinary 550,000
Subscribed ordinary share 10,000
Retained earnings 380,000
Subscription receivable – ordinary 8,000
Treasury shares – common 12,000

Q1: What is the amount of legal capital?

a. 1,500,000
b. 1,520,000
c. 2,211,000
d. 2,231,000

Q2: Assume the same information except that the ordinary share has P10 stated value, what is the amount of legal capital?

a. 1,520,000
b. 2,070,000
c. 2,211,000
d. 2,231,000
 Multiple Choice (Problem Solving)
5. Sherlock Company provided the following information at year end:

Preference share capital, P100 par P460,000

Share premium – Preference 161,000
Ordinary share capital, P10 par 1,050,000
Share premium – ordinary 550,000
Subscribed ordinary share 10,000
Retained earnings 380,000
Subscription receivable – ordinary 8,000
Treasury shares – common 12,000

Q1: What is the amount of legal capital?

a. 1,500,000
b. 1,520,000
c. 2,211,000
d. 2,231,000

Q2: Assume the same information except that the ordinary share has P10 stated value, what is the amount of legal capital?

a. 1,520,000
b. 2,070,000
c. 2,211,000
d. 2,231,000
Retained Earnings
Retained earnings represent the cumulative profits and losses which are retained and not
yet distributed as dividends to shareholders.

Total retained earnings may be:

• Unappropriated retained earnings
• Appropriated retained earnings

Types of appropriation
• Legal Appropriation
• Contractual Appropriation
• Voluntary Appropriation

The appropriation of retained earnings is recorded as follows:

Retained earnings – unappropriated xxx
Retained earnings - appropriated xxx
Dividends
Dividends are resources distributed to entity’s shareholders. Dividends may be in the form
of cash, non-cash assets, short-term and long-term liabilities or shares of stocks. If the
entity has a deficit, it is illegal to pay dividends.

What shares are entitled to dividends? Only shares issued and outstanding are entitled to
dividends.

Issued and outstanding shares may be determined as follows:

No. of shares Amount

Number of share capital issued xxx P xxx
Add: Subscribed share capital xxx xxx
Total xxx xxx
Less: Treasury shares (*at par) xxx xxx
Total outstanding shares xxx xxx
Relevant dates in accounting for dividends
• Date of declaration – the date when the board of directors formally announces the
distribution of dividends. This is the date when the liability for dividend must be
recognized (IFRIC 17).

• Date of record – the date on which the stock and transfer book of the corporation is
closed for registration. Only those who are listed as of this date is entitled to receive
dividends.

• Date of payment or distribution – the date when the dividends declared are
distributed to the shareholders who are entitled to the dividends.

NOTE!!! Generally, only the date of declaration and date of payment requires journal
entries. THERE IS NO JOURNAL ENTRY INVOLVE ON DATE OF RECORD.
Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends
Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends

CASH DIVIDENDS - it is the most common form of dividends. It can be declared as a certain amount per
share or a certain percentage of the par value shares.
Illustration: Cash Dividends
On December 31, 2024, Zebra Company showed the following shareholders’ equity:

Share capital, P100 par, 100,000 shares authorized, 50,000 shares issued 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000
Treasury shares, 5,000 shares at cost 600,000

On December 31, 2024, Zebra Company declared a cash dividend of P30 per share to shareholders of
record on January 15, 2025 and payable on January 31, 2025

Prepare journal entry on December 31, 2024, January 15, 2025 and January 31, 2021
 Illustration: Cash Dividends
On December 31, 2024, Zebra Company showed the following shareholders’ equity:

Share capital, P100 par, 100,000 shares authorized, 50,000 shares issued 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000
Treasury shares, 5,000 shares at cost 600,000

On December 31, 2024, Zebra Company declared a cash dividend of P30 per share to shareholders of
record on January 15, 2025 and payable on January 31, 2025

Prepare journal entry on December 31, 2024, January 15, 2025 and January 31, 2025

December 31,2024 January 15, 2025 January 31, 2025

(Date of declaration) (Date of record) (Date of payment)
Retained Earnings 1,350,000 No entry Cash Dividends Payable 1,350,000
Cash Dividends payable 1,350,000 Cash 1,350,000
 Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends

PROPERTY DIVIDENDS (DIVIDENDS IN KIND) - these are dividends in the form of non-cash assets
(e.g. inventory, investment in shares of another entity, property plant and equipment and etc.)
Measurement of dividend payable Measurement of non-cash asset distributed
Date of declaration – FV of non-cash asset Date of reporting - The non-cash asset should be
Date of reporting – FV of non-cash asset measured at the lower of carrying amount and fair
Date of payment – FV of non-cash asset value less cost to distribute

Changes in FV is a direct adjustment to retained If FV less cost to distribute is lower than the carrying
earnings amount, the difference is accounted for as
impairment loss.
If at the date of payment there is a difference between the carrying amount of “dividend payable” and “non-
cash asset distributed”, it will be accounted in profit or loss.
Illustration: Property Dividends
On October 1, 2020, Greece company declared a property dividend of machinery payable on April 1, 2021.

The carrying amount of the machinery is P4,000,000 on October 1, 2020.

The machinery had the following fair value:

October 1, 2020 3,800,000

December 31, 2020 3,700,000
April 1, 2021 3,500,000

Prepare journal entries for 2020 and 2021 in connection with the property dividend.
 Illustration: Property Dividends
On October 1, 2020, Greece company declared a property dividend of machinery payable on April 1, 2021.

The carrying amount of the machinery is P4,000,000 on October 1, 2020.

The machinery had the following fair value:

October 1, 2020 3,800,000

December 31, 2020 3,700,000
April 1, 2021 3,500,000

Prepare journal entries for 2020 and 2021 in connection with the property dividend.

October 1, 2020 December 31, 2020 April 1, 2021

(Date of declaration) (Date of reporting) (Date of payment)
Retained Earnings 3.8M Property dividends payable 100k Property dividends payable 200k
Property dividends payable 3.8M Retained earnings 100k Retained earnings 200k

Impairment Loss 300k Property dividends payable 3.5M

Machinery 300k Loss on property distribution 200k
Machinery 3.7M
Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends

SHARE DIVIDENDS - stock dividend is distribution of the earnings of the entity in the form of the entity’s
own shares. Thus, declaration of this type of dividend in effect results to capitalization of retained
earnings.

NOTE!!! Dividend payable in stock or stock dividend payable is not a liability but an addition to the
share capital in the shareholders’ equity.

Share dividends are accounted as:

a.) 20% or more (Large share dividend) – the par value or stated value of shares declared is debited to
retained earnings.

b.) Less than 20% (Small share dividend) – the fair value of shares declared is debited to retained
earnings.
Illustration: Share Dividends
Valerie Company showed the following data:

Share capital, par value P100, 50,000 shares issued 5,000,000

Share premium 200,000
Retained earnings 2,000,000
Market value of shares on declaration date 150
Market value of shares on distribution date 170

For each of the following, prepare journal entries on the date of declaration and date of payment:
1. A 20% share dividend is declared
2. A 10% share dividend is declared
 Illustration: Share Dividends
Valerie Company showed the following data:

Share capital, par value P100, 50,000 shares issued 5,000,000

Share premium 200,000
Retained earnings 2,000,000
Market value of shares on declaration date 150
Market value of shares on distribution date 170

For each of the following, prepare journal entries on the date of declaration and date of payment:
1. A 20% share dividend is declared
2. A 10% share dividend is declared

20% share dividend (large dividend)

Date of declaration Date of payment
Retained Earnings 1,000,000 Share dividends payable 1,000,000
Share dividends payable 1,000,000 Share capital 1,000,000
 Illustration: Share Dividends
Valerie Company showed the following data:

Share capital, par value P100, 50,000 shares issued 5,000,000

Share premium 200,000
Retained earnings 2,000,000
Market value of shares on declaration date 150
Market value of shares on distribution date 170

For each of the following, prepare journal entries on the date of declaration and date of payment:
1. A 20% share dividend is declared
2. A 10% share dividend is declared

10% share dividend (small dividend)

Date of declaration Date of payment
Retained Earnings 750,000 Share dividends payable 500,000
Share dividends payable 500,000 Share capital 500,000
Share premium 250,000
Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends

SCRIP DIVIDENDS - this are measured at face or present value of the dividend. If scrip dividends bear
interest, the interest portion of the cash payment should be debited to interest expense and should not be
treated as dividends
 Illustration: Scrip Dividends
Taylor Company had sufficient retained earnings in 2018 as a basis for dividends but was temporarily short of cash. The
company declared a dividend of P500,000 on September 1, 2018, and issued promissory notes to shareholders in lieu
of cash.

The notes which were dated September 1, 2018, had a maturity date of August 31, 2019 and a 12% interest date.

Prepare journal entries for the year 2018 and 2019

September 1, 2018 December 31, 2018 August 31, 2019

(Date of declaration) (Date of reporting) (Date of payment)
Retained Earnings 500,000 Interest expense 20,000 Scrip dividends payable 520,000
Scrip dividends payable 500,000 Scrip dividends payable 20,000 Interest expense 40,000
Cash 560,000
Types of Dividends
• Cash Dividends • Scrip Dividends
• Property Dividends • Liquidating Dividends
• Share Dividends

LIQUIDATING DIVIDENDS - liquidating dividend is a distribution or return of capital to shareholders.

This type of dividend can legally be paid under the following circumstances:
(1) When the entity is undertaking a complete dissolution or liquidation.
(2) When the entity is engaged in the exploitation of natural resources.
Preference Shares
Preference shares can be:

a.) Preference over assets – preference shares are settled first upon corporate liquidation and after the
creditor’s claims.

b.) Preference over dividends – when dividends are declared, preference shares are paid first before the
ordinary shareholders.

Preference Shares over dividends:

a.) Non-cumulative preference shares
b.) Cumulative preference shares
c.) Non-participating preference shares
d.) Participating preference shares

If the problem is silent as to classification of preference shares over dividends: The preference share is
assumed to be non-cumulative and non-participating.
 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

10% Preference share capital P6,000,000

Ordinary share capital 3,000,000
Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(1) Assuming the preference shares are non-cumulative and non-participating
Preference Shares Ordinary Shares

6,000,000 x 10% 600,000 -

Remainder to ordinary shares - 1,800,000

Total 600,000 1,800,000

 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

10% Preference share capital P6,000,000

Ordinary share capital 3,000,000
Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(2) Assuming the preference shares are cumulative but not participating
Preference Shares Ordinary Shares

6,000,000 x 10% x 3 1,800,000 -

Remainder to ordinary shares - 600,000

Total 1,800,000 600,000

 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

10% Preference share capital P6,000,000

Ordinary share capital 3,000,000
Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(3) Assuming the preference shares are non-cumulative and fully participating
Preference Shares Ordinary Shares

6,000,000 x 10% 600,000 -

3,000,000 x 10% - 300,000

Remainder:
PS – 6/9 x 1,500,000 1,000,000
OS – 3/9 x 1,500,000 500,000
Total 1,600,000 800,000
 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

10% Preference share capital P6,000,000

Ordinary share capital 3,000,000
Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(4) Assuming the preference shares are cumulative and fully participating
Preference Shares Ordinary Shares

6,000,000 x 10% x 3 1,800,000 -

3,000,000 x 10% - 300,000

Remainder:
PS – 6/9 x 300,000 200,000
OS – 3/9 x 300,000 100,000
Total 2,000,000 400,000
 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

10% Preference share capital P6,000,000

Ordinary share capital 3,000,000
Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(5) Assuming the preference shares are cumulative and participating only up to 15%
Preference Shares Ordinary Shares

6,000,000 x 10% x 3 1,800,000 -

3,000,000 x 10% - 300,000

6,000,000 x 5% 300,000 -

Remainder - -

Total 2,100,000 300,000

 Illustration: Preference Shares Dividends
OTSO Inc. declared P2,400,000 cash dividends to its preference and ordinary shareholders out of its unappropriated retained earnings in
2022. No dividends have been declared since 2020. OTSO’s shareholders’ equity before the dividend declaration is as follows:

Ordinary share capital 3,000,000

Retained earnings 4,000,000
Ordinary share premium 800,000

Requirement: Compute the amount of dividends to be allocated to ordinary shareholders and preference shareholders
(6) There are two types of preference shares and they are as follows:
* 10% preference share capital, P300 par, cumulative and participating P6,000,000
* 12% preference share capital, P150 par, noncumulative and participating 1,500,000

Preference Shares (10%) Preference Shares (12%) Ordinary Shares

6,000,000 x 10% x 3 1,800,000

1,500,000 x 12% 180,000
why still 10%?
3,000,000 x 10% Answer: Lowest rate shall be used 300,000
PS 10% - 6/10.5 x 120,000 68,571
PS 12% - 1.5/10.5 x 120,000 17,143
OS – 3/10.5 x 120,000 34,286
Total 1,868,571 197,143 334,286
Multiple choice (Theories)
1. Which shareholders’ equity account is used to pay dividends?
a. Common stock
b. Treasury stock
c. Accumulated deficit
d. Retained earnings
Multiple choice (Theories)
1. Which shareholders’ equity account is used to pay dividends?
a. Common stock
b. Treasury stock
c. Accumulated deficit
d. Retained earnings
Multiple choice (Theories)
2. Dividend (other than share dividend) is recognized as liability on the
a. date of declaration
b. date of record
c. reporting date
d. date of payment
Multiple choice (Theories)
2. Dividend (other than share dividend) is recognized as liability on the
a. date of declaration
b. date of record
c. reporting date
d. date of payment
Multiple choice (Theories)
3. A journal entry is not made on which of the following dates?
a. date of declaration
b. date of record
c. date of payment
d. An entry is made on all of these
Multiple choice (Theories)
3. A journal entry is not made on which of the following dates?
a. date of declaration
b. date of record
c. date of payment
d. An entry is made on all of these
Multiple choice (Theories)
4. I. If the share dividends declared is less than 20%, retained earnings shall generally be
debited equal to the fair value of the shares on the date of declaration

II. If the share dividends declared is 20% or more, retained earnings shall be debited
equal to the par value of the shares

a. Only statement I is true

b. Only statement II is true
c. Both statements are correct
d. None of the statements are correct
Multiple choice (Theories)
4. I. If the share dividends declared is less than 20%, retained earnings shall generally be
debited equal to the fair value of the shares on the date of declaration

II. If the share dividends declared is 20% or more, retained earnings shall be debited
equal to the par value of the shares

a. Only statement I is true

b. Only statement II is true
c. Both statements are correct
d. None of the statements are correct
Multiple choice (Theories)
5. The balance in “Stock Dividend Payable” account should be reported as a(n)
a. Current liability
b. Contra-retained earnings account
c. Addition to contributed capital
d. Contra-asset account
Multiple choice (Theories)
5. The balance in “Stock Dividend Payable” account should be reported as a(n)
a. Current liability
b. Contra-retained earnings account
c. Addition to contributed capital
d. Contra-asset account
 Book Value per Share (BVPS)
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 shareholders’ equity.

FORMULA FOR THE COMPUTATION OF BOOK VALUE PER SHARE

When there is only one class of shares: When there are two or more classes of shares:

Book value per preference shares:

Total Shareholders ′ 𝐸𝑞𝑢𝑖𝑡𝑦 Preference Shareholders ′ 𝐸𝑞𝑢𝑖𝑡𝑦
𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =
Number of Outstanding Shares Number of Outstanding Shares

Book value per ordinary shares:

Ordinary Shareholders ′ 𝐸𝑞𝑢𝑖𝑡𝑦
𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =
Number of Outstanding Shares

Note:
• Do not deduct subscription receivable from the total shareholders’ equity
• Treasury shares are considered retired for BVPS computation
 Accounting procedures for BVPS
1. An amount equal to the par or stated value is allocated to the preference share and ordinary share.

amount equal to the par or stated value:

Ordinary Shareholders’ Equity = Ordinary Share Capital + Subscribed Ordinary Share Capital
Preference Shareholders’ Equity = Preference Share Capital + Subscribed Preference Share Capital

2. Any balance of the shareholders’ equity in excess of the par or stated value is then apportioned
taking into account the liquidation value and dividend rights of the preference shareholders.

In excess of the par or stated value Liquidation value Dividend rights of the preference
shares
1.) Share premium It is the amount which the 1.) Non-cumulative
2.) Retained Earnings preference shareholders normally 2.) Cumulative
3.) Other comprehensive income receive upon the liquidation of the 3.) Non-participating
and losses (OCI and OCL) corporation. 4.) Participating
If the problem is silent as to
liquidation value, it is assumed
equal to par value.
Multiple choice (Theories)
1. Which of the following is considered from the denominator used in computing book
value per share?

I. Subscribed but unpaid shares

II. Issued shares
III. Treasury shares

a. I and II
b. II and III
c. I and III
d. I, II, and III
Multiple choice (Theories)
1. Which of the following is considered from the denominator used in computing book
value per share?

I. Subscribed but unpaid shares

II. Issued shares
III. Treasury shares

a. I and II
b. II and III
c. I and III
d. I, II, and III
Multiple choice (Theories)
2. Which of the following is incorrect in computing book value per share?

a. Par value is the liquidation value of preference shares in the absence thereof

b. For book value per share computation, treasury shares are assumed retired and
subscription receivable are ignored

c. Residual equity theory supports the computation of book value per share when an
entity has more than one class of share

d. If there are 2 or more classes of preference shares which are both participating, the
highest rate shall be used in allocating a one-year dividend for ordinary shares before
participation
Multiple choice (Theories)
2. Which of the following is incorrect in computing book value per share?

a. Par value is the liquidation value of preference shares in the absence thereof

b. For book value per share computation, treasury shares are assumed retired and
subscription receivable are ignored

c. Residual equity theory supports the computation of book value per share when an
entity has more than one class of share

d. If there are 2 or more classes of preference shares which are both participating, the
highest rate shall be used in allocating a one-year dividend for ordinary shares before
participation
Multiple choice (Theories)
3. Which of the following shareholder rights is most commonly enhanced in an issue of
preference shares?
a. The right to vote for the board of directors
b. The right to maintain one’s proportional interest
c. The right to receive a full cash dividend before dividends are paid to other classes of
share capital
d. The right to vote on major corporate issues
Multiple choice (Theories)
3. Which of the following shareholder rights is most commonly enhanced in an issue of
preference shares?
a. The right to vote for the board of directors
b. The right to maintain one’s proportional interest
c. The right to receive a full cash dividend before dividends are paid to other classes
of share capital
d. The right to vote on major corporate issues
Multiple choice (Problem Solving)
1. Data relating to the shareholders’ equity of Carlo Co. during December 31 are as follows:
Ordinary share capital, P50 par, 200,000
shares issued P10,000,000
Subscribed ordinary share capital 1,000,000
Share premium 2,500,000
Subscription receivable (1,200,000)
Retained earnings 4,900,000
Revaluation Surplus 620,000
Unrealized loss on FVTOCI securities (400,000)
Treasury shares, at cost, 20,000 shares (1,200,000)
Total shareholders’ equity P16,220,000
How much is the book value per share?
a. P87.10 c. P79.18
b. P81.10 d. P73.73
Multiple choice (Problem Solving)
1. Data relating to the shareholders’ equity of Carlo Co. during December 31 are as follows:
Ordinary share capital, P50 par, 200,000
shares issued P10,000,000
Subscribed ordinary share capital 1,000,000
Share premium 2,500,000
Subscription receivable (1,200,000)
Retained earnings 4,900,000
Revaluation Surplus 620,000
Unrealized loss on FVTOCI securities (400,000)
Treasury shares, at cost, 20,000 shares (1,200,000)
Total shareholders’ equity P16,220,000
How much is the book value per share?
a. P87.10 c. P79.18
b. P81.10 d. P73.73
Multiple choice (Problem Solving)
2. Equity balance of Joyce Company on December 31, 2024 follow:

10% preference share capital, 30,000 shares, P100 par 3,000,000

Ordinary share capital, 50,000 shares, P100 par 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000

The preference shares have a call price of 120, a liquidation price of 115 and dividends have
not been paid for 3 years. The book value per preference share should be

a. 125
b. 130
c. 145
d. 110
Multiple choice (Problem Solving)
2. Equity balance of Joyce Company on December 31, 2024 follow:

10% preference share capital, 30,000 shares, P100 par 3,000,000

Ordinary share capital, 50,000 shares, P100 par 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000

The preference shares have a call price of 120, a liquidation price of 115 and dividends have
not been paid for 3 years. The book value per preference share should be

a. 125
b. 130
c. 145
d. 110
 Multiple choice (Problem Solving)
3. On December 31, 2024, Danalene Company had 50,000 ordinary shares of P100 par value and 30,000 shares of P100
par value 10% noncumulative preference share capital outstanding. The total shareholders’ equity on December 31,
2024 amounted to P9,000,000. The preference shareholders have a liquidation value of P105 per share and
preference dividends have been paid up to December 31, 2024. The book value of ordinary share on December 31,
2024 should be

a. 117
b. 109
c. 120
d. 114
 Multiple choice (Problem Solving)
3. On December 31, 2024, Danalene Company had 50,000 ordinary shares of P100 par value and 30,000 shares of P100
par value 10% noncumulative preference share capital outstanding. The total shareholders’ equity on December 31,
2024 amounted to P9,000,000. The preference shareholders have a liquidation value of P105 per share and
preference dividends have been paid up to December 31, 2024. The book value of ordinary share on December 31,
2024 should be

a. 117
b. 109
c. 120
d. 114
 Multiple choice (Problem Solving)
4. A company provided the following information on December 31, 2020:

15% non-cumulative and participating preference share capital,

P300 par value P4,000,000
10% cumulative and participating preference share capital,
P100 par value 2,000,000
Ordinary share capital, P100 par value 6,000,000
Share premium 4,000,000
Retained Earnings 5,400,000

Dividends are in arrears for four years since 2017. What is the book value per ordinary share?
a. P171.67
b. P174.17
c. P179.17
d. P186.67
 Multiple choice (Problem Solving)
4. A company provided the following information on December 31, 2020:

15% non-cumulative and participating preference share capital,

P300 par value P4,000,000
10% cumulative and participating preference share capital,
P100 par value 2,000,000
Ordinary share capital, P100 par value 6,000,000
Share premium 4,000,000
Retained Earnings 5,400,000

Dividends are in arrears for four years since 2017. What is the book value per ordinary share?
a. P171.67
b. P174.17
c. P179.17
d. P186.67
 Multiple choice (Problem Solving)
5. An entity provided the following on December 31, 2024:
Preference share capital, 10% cumulative and non-participating, 45,000
shares, P100 par 4,500,000
Ordinary share capital P100, 60,000 shares 6,000,000
Subscribed ordinary share capital, 30,000 shares 3,000,000
Subscription receivable 750,000
Share premium 4,500,000
Retained earnings 7,200,000
Treasury ordinary shares, 15,000 shares 1,200,000
Preference dividends are in arrears for 5 years. What is the book value per ordinary share?
a. 230
b. 192
c. 383
d. 224
 Multiple choice (Problem Solving)
5. An entity provided the following on December 31, 2024:
Preference share capital, 10% cumulative and non-participating, 45,000
shares, P100 par 4,500,000
Ordinary share capital P100, 60,000 shares 6,000,000
Subscribed ordinary share capital, 30,000 shares 3,000,000
Subscription receivable 750,000
Share premium 4,500,000
Retained earnings 7,200,000
Treasury ordinary shares, 15,000 shares 1,200,000
Preference dividends are in arrears for 5 years. What is the book value per ordinary share?
a. 230
b. 192
c. 383
d. 224
Earnings Per Share (EPS)
Earnings per share (EPS) represents the amount expected to be received by an ordinary shareholder
each year as a return on investment. Basically, EPS is a profitability ratio computed to show the profit or
loss earned or incurred by each ordinary share.

The presentation of EPS is required for:

• Entities whose ordinary shares are publicly traded
• Entities that are in the process of issuing ordinary shares or potential ordinary shares in the public
securities market.

TYPES OF EARNINGS PER SHARE (EPS)

Note: Both types of EPS are presented in the financial statements with equal prominence
1.) Basic earnings per share (Basic EPS)
2.) Diluted earnings per share (Diluted EPS)
 Basic Earnings Per Share (BEPS)
Profit or Loss less Preferred Dividends
𝐵𝑎𝑠𝑖𝑐 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 =
Weighted Average Ordinary Shares Outstanding

NOTES FOR THE USE OF FORMULA

Numerator (Profit or Loss less Preferred Dividends) Denominator (Weighted Average Ordinary Shares)

• Profit or loss should be after tax • Outstanding shares = Issued shares + Subscribed shares –
• Preferred dividends are to be deducted as follows: Treasury Shares
a.) If the preference are CUMULATIVE, ONE YEAR DIVIDEND • The denominator used is the WEIGHTED AVERAGE number of
is deducted, WHETHER DECLARED OR NOT outstanding shares. This means, a time-weighted factor is
applied to compute the weighted average amount.
b.) If the preference shares are NON-CUMULATIVE, only the
DIVIDENDS DECLARED during the period is deducted. • When ordinary shares are issued without a corresponding
change in resources, the basic EPS as well as diluted EPS and
NOTE!!! DIVIDEND IN ARREARS are ignored for EPS the weighted average number of outstanding shares during
computation purposes the period and all periods presented are adjusted for
retrospectively.
Multiple choice (Problem Solving)
1. On January 1 of the current year, Stephanie Company had 200,000 issued and outstanding ordinary shares.
The entity had the following transactions during the year:

March 1: Issued 15,000 ordinary shares

April 1: Declared 20% bonus issue
July 1: Reacquired 10,000 ordinary shares to be held in treasury
October 1: Reissued 4,000 treasury shares

The weighted average ordinary shares in computing for the earnings per share would be:
a. 251,000
b. 250,000
c. 230,000
d. 188,000
Multiple choice (Problem Solving)
1. On January 1 of the current year, Stephanie Company had 200,000 issued and outstanding ordinary shares.
The entity had the following transactions during the year:

March 1: Issued 15,000 ordinary shares

April 1: Declared 20% bonus issue
July 1: Reacquired 10,000 ordinary shares to be held in treasury
October 1: Reissued 4,000 treasury shares

The weighted average ordinary shares in computing for the earnings per share would be:
a. 251,000
b. 250,000
c. 230,000
d. 188,000
Multiple choice (Problem Solving)
2. On January 1 of the current year, Solomon Company had 240,000 issued ordinary shares and 220,000
outstanding ordinary shares. The entity had the following transactions during the year:

March 1: Issued 12,000 ordinary shares

March 30: Completed a 4 for 1 share split for the ordinary shares
April 1: Reissued 9,000 of the treasury shares
October 1: Reissued 6,000 treasury shares

The weighted average ordinary shares in computing for the earnings per share would be:
a. 928,250
b. 926,750
c. 760,250
d. 692,500
Multiple choice (Problem Solving)
2. On January 1 of the current year, Solomon Company had 240,000 issued ordinary shares and 220,000
outstanding ordinary shares. The entity had the following transactions during the year:

March 1: Issued 12,000 ordinary shares

March 30: Completed a 4 for 1 share split for the ordinary shares
April 1: Reissued 9,000 of the treasury shares
October 1: Reissued 6,000 treasury shares

The weighted average ordinary shares in computing for the earnings per share would be:
a. 928,250
b. 926,750
c. 760,250
d. 692,500
Multiple choice (Problem Solving)
3. On December 31, Noah Co. had 40,000 weighted average outstanding ordinary shares. During the year, Noah
Co. reported a net income of P3,000,000

I. Assuming there were no preference shares issued, the basic earnings per share should be reported at P75
II. Assuming there were 10,000 shares of 10%, P50 par, cumulative preference shares, the basic earnings per
share should be reported at P73.57

Which is/are correct?

a. I only
b. II only
c. I and II
d. None of the choices
Multiple choice (Problem Solving)
3. On December 31, Noah Co. had 40,000 weighted average outstanding ordinary shares. During the year, Noah
Co. reported a net income of P3,000,000

I. Assuming there were no preference shares issued, the basic earnings per share should be reported at P75
II. Assuming there were 10,000 shares of 10%, P50 par, cumulative preference shares, the basic earnings per
share should be reported at P73.57

Which is/are correct?

a. I only
b. II only
c. I and II
d. None of the choices
Diluted Earnings Per Share (DEPS)
Diluted EPS is the amount attributable to every share of ordinary share outstanding during the period
while giving effect to all dilutive potential ordinary shares outstanding during the period.

Potential ordinary shares are dilutive if, when exercised, they decrease basic earnings per share or
increase basic loss per share.

The three major types of potential ordinary shares are:

a. Convertible bonds payable
b. Convertible preference shares
c. Share option and warrant
 Diluted Earnings Per Share (DEPS)
CONVERTIBLE BONDS PAYABLE The convertible bonds were assumed to have been
converted into additional ordinary shares. Therefore, if
𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐿𝑜𝑠𝑠 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 + that is the assumption, interest expense after tax
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒, 𝑛𝑒𝑡 𝑜𝑓 𝑡𝑎𝑥 incurred on the bonds are added back to profit or loss.
𝐷𝐸𝑃𝑆 =
Weighted Average Outstanding Shares +
Potential Ordinary Shares

CONVERTIBLE PREFERENCE If there are convertible preference shares, the

SHARES preference shares are assumed to be converted into
ordinary shares. Accordingly, the net income is not
reduced by the amount of preference dividend. The
𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐿𝑜𝑠𝑠 number of ordinary shares outstanding is increased by
𝐷𝐸𝑃𝑆 =
Weighted Average Outstanding Shares +
the number of ordinary shares that would have been
Potential Ordinary Shares
issued upon conversion of the preference shares.
Multiple choice (Problem Solving)
4. On January 1, Albero Co. has 120,000 outstanding ordinary shares. During the year, Albero Co. reported net
income of P3,000,000. Income tax rate is 30%. In addition, Albero Co. has P1,800,000 (10%) bonds, convertible
into 9,000 ordinary shares.

I. The basic earnings per share should be reported at P25

II. Assuming the bonds were issued on January 1 and no conversions were made during the year, the diluted
earnings per share should be reported at P24.23

a. Only statement I is true

b. Statements I and II are true
c. All statements are false
d. Only statement II is true
Multiple choice (Problem Solving)
4. On January 1, Albero Co. has 120,000 outstanding ordinary shares. During the year, Albero Co. reported net
income of P3,000,000. Income tax rate is 30%. In addition, Albero Co. has P1,800,000 (10%) bonds, convertible
into 9,000 ordinary shares.

I. The basic earnings per share should be reported at P25

II. Assuming the bonds were issued on January 1 and no conversions were made during the year, the diluted
earnings per share should be reported at P24.23

a. Only statement I is true

b. Statements I and II are true
c. All statements are false
d. Only statement II is true
 Diluted Earnings Per Share (DEPS)
CONVERTIBLE BONDS PAYABLE The convertible bonds were assumed to have been
converted into additional ordinary shares. Therefore, if
𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐿𝑜𝑠𝑠 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 + that is the assumption, interest expense after tax
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒, 𝑛𝑒𝑡 𝑜𝑓 𝑡𝑎𝑥 incurred on the bonds are added back to profit or loss.
𝐷𝐸𝑃𝑆 =
Weighted Average Outstanding Shares +
Potential Ordinary Shares

CONVERTIBLE PREFERENCE If there are convertible preference shares, the

SHARES preference shares are assumed to be converted into
ordinary shares. Accordingly, the net income is not
reduced by the amount of preference dividend. The
𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐿𝑜𝑠𝑠 number of ordinary shares outstanding is increased by
𝐷𝐸𝑃𝑆 =
Weighted Average Outstanding Shares +
the number of ordinary shares that would have been
Potential Ordinary Shares
issued upon conversion of the preference shares.
Multiple choice (Problem Solving)
5. On January 1, Kim Co. has 200,000 outstanding ordinary shares. During the year, Kim Co. reported a net
income of P4,000,000. Income tax rate is 30%. In addition, Kim Co. has 5,000 issued and outstanding P100 par,
cumulative preference shares. The preference shares have a 10% fixed rate and each share is convertible into 5
ordinary shares.

Q1: How much is the basic EPS for the year?

a. P19.75
b. P19.39
c. P18.29
d.P17.78

Q2: How much is the diluted EPS for the year assuming preference shares were issued on January 1 and no
conversions were made during the year?
a. P19.75
b. P19.39
c. P18.29
d. P17.78
Multiple choice (Problem Solving)
5. On January 1, Kim Co. has 200,000 outstanding ordinary shares. During the year, Kim Co. reported a net
income of P4,000,000. Income tax rate is 30%. In addition, Kim Co. has 5,000 issued and outstanding P100 par,
cumulative preference shares. The preference shares have a 10% fixed rate and each share is convertible into 5
ordinary shares.

Q1: How much is the basic EPS for the year?

a. P19.75
b. P19.39
c. P18.29
d. P17.78

Q2: How much is the diluted EPS for the year assuming preference shares were issued on January 1 and no
conversions were made during the year?
a. P19.75
b. P19.39
c. P18.29
d. P17.78
 Diluted Earnings Per Share (DEPS)
SHARE OPTION AND WARRANT Options and warrants are included in the computation of
diluted earnings per share only when they are dilutive.
They are dilutive when the exercise price is less than the
average market price of the ordinary share.

In computing the potential ordinary shares for diluted EPS

𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑟 𝐿𝑜𝑠𝑠 computation, the treasury share method is to be used
𝐷𝐸𝑃𝑆 =
Weighted Average Outstanding Shares +
which assumes the following:
Potential Ordinary Shares

• The options or warrants are exercised

• The proceeds received from the exercise are used to
purchase treasury shares at the average market price
• The difference between treasury shares assumed to
have been purchased and the option shares represents
the incremental shares or potential ordinary shares.
Multiple choice (Problem Solving)
6. Montina Company had 56,000 ordinary shares outstanding on January 1, 2021, which remained unchanged
throughout 2021 and 2020. Certain executives were given options to purchase 9,000 shares of the company’s
ordinary stock at P70 per share. During 2021, the average market price of an ordinary share was P105 per
share.

What is the total number of shares that will be used to calculate diluted earnings per share in 2021?
a. 50,000
b. 55,000
c. 59,000
d. 62,000
Multiple choice (Problem Solving)
6. Montina Company had 56,000 ordinary shares outstanding on January 1, 2021, which remained unchanged
throughout 2021 and 2020. Certain executives were given options to purchase 9,000 shares of the company’s
ordinary stock at P70 per share. During 2021, the average market price of an ordinary share was P105 per
share.

What is the total number of shares that will be used to calculate diluted earnings per share in 2021?
a. 50,000
b. 55,000
c. 59,000
d. 62,000
Multiple Potential Ordinary Shares
The following steps shall be followed in computing Diluted EPS:

Step 1: Compute the Basic EPS

Step 2: Rank securities according to which of them is most dilutive (i.e. producing the least
incremental EPS). They are included in the computation step by step according to their ranking.

A. Options and warrants – When exercise price < market price

B. Convertible bonds – After tax interest expense / Potential ordinary shares
C. Convertible preference shares – Preferred dividends / Potential ordinary shares

NOTE!!!
If any time the dilutive EPS exceeds the basic EPS, the entity discontinues considering further potential
ordinary shares and the lowest amount computed is the amount presented as diluted EPS.
 Multiple choice (Problem Solving)
7. GALACTUS Company reported the following on December 31, 2024:

Common stock 110,000 shares

Convertible, non-cumulative preferred stock 20,000 shares
10% convertible bonds payable P2,000,000

Share options:
Share options to purchase 20,000 shares at P15 were outstanding. Average market price of Galactus’ share was P20 during
2024.

Convertible, non-cumulative preferred stock:

The company paid the annual dividend of P5 on the preference share. Each preference share are convertible into two
common stocks.

10% convertible bonds payable:

The 10% bonds are convertible into 30,000 common stocks.

The net income for 2024 is P650,000. The tax rate is 30%.

What amount should be reported as diluted earnings per share?

a. P4.19 c. P4.78
b. P4.27 d. P5.00
 Multiple choice (Problem Solving)
7. GALACTUS Company reported the following on December 31, 2024:

Common stock 110,000 shares

Convertible, non-cumulative preferred stock 20,000 shares
10% convertible bonds payable P2,000,000

Share options:
Share options to purchase 20,000 shares at P15 were outstanding. Average market price of Galactus’ share was P20 during
2024.

Convertible, non-cumulative preferred stock:

The company paid the annual dividend of P5 on the preference share. Each preference share are convertible into two
common stocks.

10% convertible bonds payable:

The 10% bonds are convertible into 30,000 common stocks.

The net income for 2024 is P650,000. The tax rate is 30%.

What amount should be reported as diluted earnings per share?

a. P4.19 c. P4.78
b. P4.27 d. P5.00
Multiple choice (Theories)
1. PAS 33 titles as “Earnings per Share” is mandatory for
I. Public entities
II. Non-public entities
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Multiple choice (Theories)
1. PAS 33 titles as “Earnings per Share” is mandatory for
I. Public entities
II. Non-public entities
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Multiple choice (Theories)
2. Earnings per share shall be computed on the basis of
a. Ordinary shares outstanding at the end of the year
b. Ordinary shares outstanding at the beginning of the year
c. Ordinary shares outstanding at the middle of the year
d. Average ordinary shares outstanding during the year
Multiple choice (Theories)
2. Earnings per share shall be computed on the basis of
a. Ordinary shares outstanding at the end of the year
b. Ordinary shares outstanding at the beginning of the year
c. Ordinary shares outstanding at the middle of the year
d. Average ordinary shares outstanding during the year
Multiple choice (Theories)
3. Options and warrants are dilutive if
a. The exercise price is lower than the average market price
b. The exercise price is higher than the average market price
c. The exercise price is equal to the average market price
d. The option shares represent 20% of the ordinary shares actually outstanding
Multiple choice (Theories)
3. Options and warrants are dilutive if
a. The exercise price is lower than the average market price
b. The exercise price is higher than the average market price
c. The exercise price is equal to the average market price
d. The option shares represent 20% of the ordinary shares actually outstanding
Multiple choice (Theories)
4. I. In computing basic earnings per share, the amount of preference dividends on non-cumulative
preference shares shall be deducted from net income only when declared.

II. In computing basic earnings per share, the amount of the required preference dividends on
cumulative preference share for the period shall be deducted from net income whether declared or not.

Which is/are correct?

a. I only
b. II only
c. Both I and II
d. Neither I nor II
Multiple choice (Theories)
4. I. In computing basic earnings per share, the amount of preference dividends on non-cumulative
preference shares shall be deducted from net income only when declared.

II. In computing basic earnings per share, the amount of the required preference dividends on
cumulative preference share for the period shall be deducted from net income whether declared or not.

Which is/are correct?

a. I only
b. II only
c. Both I and II
d. Neither I nor II
Multiple choice (Theories)
5. In calculating earnings per share, which of the following should not be considered?
a. The weighted average number of ordinary shares outstanding
b. The amount of dividends declares on cumulative preference shares
c. The amount of cash dividends declared on ordinary shares
d. The number of ordinary shares resulting from the assumed conversion of debentures outstanding.
Multiple choice (Theories)
5. In calculating earnings per share, which of the following should not be considered?
a. The weighted average number of ordinary shares outstanding
b. The amount of dividends declares on cumulative preference shares
c. The amount of cash dividends declared on ordinary shares
d. The number of ordinary shares resulting from the assumed conversion of debentures outstanding.
Multiple choice (Theories)
6. In the diluted earnings per share computation, when the exercise price of the options or warrants exceeds
the average price, the comparison would be
a. Fairly present diluted earnings per share on a prospective basis
b. Fairly present the maximum potential dilution of diluted earnings per share on a prospective basis
c. Reflect the excess of the number of shares assumed over the number of shares assumed reacquired as the
potential dilution of earnings per share
d. Be antidilutive
Multiple choice (Theories)
6. In the diluted earnings per share computation, when the exercise price of the options or warrants exceeds
the average price, the comparison would be
a. Fairly present diluted earnings per share on a prospective basis
b. Fairly present the maximum potential dilution of diluted earnings per share on a prospective basis
c. Reflect the excess of the number of shares assumed over the number of shares assumed reacquired as the
potential dilution of earnings per share
d. Be antidilutive