Question

The following note related to equity was reported in Pigaro International's annual report. On February 1,...

The following note related to equity was reported in Pigaro International's annual report.

On February 1, the Board of Directors declared a 2-for-1 share split, distributed on February 25 to shareholders of record on February 10. Accordingly, all numbers of common (ordinary) shares, except unissued shares and treasury shares, and all per share data have been restated to reflect this share split.

Required

a. What is the significance of the date of record and the date of distribution?

b. Why might Pigaro have declared a 2-for-1 for share split?

c. What impact does Pigaro's share split have on (1) total equity, (2) total par value, (3) outstanding shares, and (4) book value per share? Explain it.

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Answer #1

(a) The date of record is the cut-off date on which the shareholders who are eligible for the stock split is considered. The date of distribution is the date on which the share split actually takes place.

(b) Pigaro might be willing to reduce the par value of share and increase the no. of shares issued. This would enable the investors in trading and increase the share liquidity.

(c) Impact of share split on -
(1) Total equity - No change in total equity due to share split.
(2) Total par value- No change in par value due to share split. Only par value per share decreases which is offset by increase in no. of shares issued.
(3) Outstanding shares- The outstanding no. of shares increases after stock split.
(4) Book Value per share- The book value per share decreases after stock split.

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