Chapter 18:

1. What is the meaning of book value per share?

Book value per share is the amount paid on each share at liquidation process and the amount
available to shareholders is equal to the reported amount as shareholders’ equity.

2. What is the basic formula in the computation of book value per share?

Total Shareholder s' Equity

Book Value per Share=
Number of Shares Outstanding

3. Distinguish between liquidation price and call price in connection with preference share. Which
price is considered for book value purposes?

Liquidation price is the amount usually received by the preference shareholders upon liquidation of
the entity. Call price is the amount received by the preference shareholders upon of preference shares
which is during the lifetime of the entity. The liquidation price is considered for book value purposes as
call price is ignored for book value computation.

4. What is the meaning of “preference as to assets” and “preference as to dividends”?

Preference as to assets refers to preference shareholders who are entitled to payment for both
liquidation value and dividend in arrears which is the amount that the entity did not pay to shareholders
in the previous years. Preference as to dividends refers to preference shareholders who are the priority
when receiving dividends declared before paying ordinary shareholders.

5. Explain the preferential rights of the preference share with respect to dividends.
a. Cumulative

Cumulative preference shareholders are entitled to receive dividends in arrears which are not
declared in the previous years. They receive the accumulated amounts of dividends even those from the
prior years until the entity paid them.

b. Noncumulative

Noncumulative preference shareholders are entitled only to the dividends declared in the
current year. If the entity did not declare dividends during the year, they will not receive it in the
upcoming years.
 c. Participating

Participating preference shareholders are entitled to receive dividends in excess of the basic or
fixed rate.

d. Nonparticipating

Nonparticipating preference shareholders are entitled only to the dividends equal to the basic or
fixed rate.