Question

1.) The shareholders’ equity of Windy Company on December 31, 2010, consists of the following capital...

1.) The shareholders’ equity of Windy Company on December 31, 2010, consists of the following capital balances:

Preference share capital, 10% cumulative, 3 years in arrears, P100 par, P110 liquidation price 150,000 shares

P15,000,000

Ordinary share capital, P100 par, 200,000 shares

20,000,000

Subscribed ordinary share capital, net of subscription receivable of P4,000,000

6,000,000

Treasury shares-ordinary, 50,000 shares at cost

4,000,000

Share premium

3,000,000

Retained earnings

20,000,000

The book value per share of ordinary is

a. 156    b.    286.67      c. 172     d. 190

2)The shareholders’ equity for the ABC, Inc. on December 31, 2010 follows:

12% Preference share capital, P100 par, 20,000 shares

P2,000,000

Ordinary share capital, P25 par, 200,000 shares

5,000,000

Share premium

500,000

Retained earnings

    750,000

Total shareholders’ equity

P8,250,000

Preference shares have a liquidation value of P110; shares are cumulative, with dividends in arrears for 3 years including the current year and fully payable in the event of liquidation. The book value of an ordinary share is

a. 22.90    b. 26.65    c. 28.95   d. 25.35

3.) On January 1, 2019 ABC granted to a senior executive 30,000 share options, conditional upon the executive’s remaining in the entity’s employ until December 31, 2021. The par value per share is P25. The exercise price is P50.

However, the exercise price drops to P40 if the entity’s earnings increase by at least an average of 10% per year over the three year period.

The entity estimated that the fair value of the share option is P15 if the exercise price if P40.

If the exercise price is P50, the fair value of the share option is P12.5

During 2019 and 2020, the earnings increase by 11% and 12% respectively, However, during 2021, the earnings increase only by 5%.

How much is the total share premium upon exercise of the share options on December 31, 2021?

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Answer #1

1)

Answer:

option c. 172

Explanation:

Book value per shares of ordinary = ordinary shareholders equity / total number of ordinary shares outstanding

ordinary shareholders equity = [ (ordinary share capital – net subscription receivable on subscribed ordinary shares) – ordinary treasury shares + share premium + retained earnings] = $20,000,000 - $4,000,000 + $4,000,000 + $3,000,000 + $20,000,000]

= $43,000,000

Note: net subscription receivable on subscribed ordinary shares is subtracted because it is already included in ordinary share capital

total number of ordinary shares outstanding = ordinary shares + ordinary treasury shares = 200,000 + 50,000 = 250,000

Book value per ordinary shares = $43,000,000 / 250,000 = $172

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