SHARE RIGHTS AND Noel A.

Bergonia, CPA, MBA

SHARE WARRANTS
 SHARE RIGHTS
❖These are issued to existing shareholders to permit them to maintain a proportionate interest in
the ownership of the corporation in the event of new issue of share capital.
❖The issue of share rights would prevent the dilution of voting rights without the consent of the
existing shareholders.
❖Upon issue of share rights, the issuing corporation records the transaction by a memorandum
entry, listing the additional number of shares that may be acquired through the exercise.
❖Upon exercise of share rights, the transaction is recorded as an ordinary issuance of share capital
for cash, as
Cash xx
Ordinary Share Capital xx
Share Premium-Ordinary xx
❖ The expiry of share rights is recorded by a memorandum entry.
EXAMPLE: SHARE RIGHTS
On April 19, 2020, Seri’s Choice has 100,000 shares of P120 par value ordinary share
capital and decided to issue additional 20,000 shares. It issued one right for every share,
giving the holder of right to purchase one ordinary share for every five rights at P130 per
share. The rights expires on June 30, 2020.
Scenario 1: If all the rights were exercise on June 15, 2020
April 19, 2020 (For the issuance of rights)
Memo Entry: Issued 100, 000 share rights to shareholders permitting them to purchase one
share of P120 par ordinary share at P130 for every five rights submitted.

June 15, 2020 (Exercise of rights)

Cash (20,000 sh x P130) 2,600,000
Ordinary share capital (20,000 sh x P120) 2,400,000
Ordinary share premium 200,000
100,000 rights/5= 20,000 shares
EXAMPLE: SHARE RIGHTS
Scenario 2: If 80,000 rights were exercise on June 15, 2020 and the remaining rights
expired.
April 19, 2020 (For the issuance of rights)
Memo Entry: Issued 100, 000 share rights to shareholders permitting them to purchase one
share of P120 par ordinary share at P130 for every five rights submitted.
June 15, 2020 (Exercise of rights)
Cash (16,000 sh x P130) 2,080,000
Ordinary share capital (16,000 sh x P120) 1,920,000
Ordinary share premium 160,000
80,000 rights/5= 16,000 shares

June 30, 2020 (For the expiration of rights)

Memo Entry: 20,000 of 100,000 share rights issued to shareholders expired.
SHARE WARRANTS
❖A share warrant is issued by a corporation for cash in conjunction with
the issue of another security, either preference shares or bonds.
 ISSUE OF PREFERENCE SHARES WITH WARRANTS
❖The issue price of preference shares with warrants attached is allocated to
both preference shares and warrants based on their market values.
❖If the warrants are exercised, the value assigned to ordinary share is the
value allocated to warrants plus the cash proceeds from the issuance of
ordinary shares.
❖If the warrants expire, the value assigned to the warrants may be
transferred to another paid-in capital account.
 EXAMPLE: ISSUE OF PREFERENCE SHARES WITH
WARRANTS (IF WARRANTS WERE EXERCISED)
Captain Ri Corp. issued 1,000 preference shares of P100 par value at P130 per share. Each
preference share includes one detachable warrant that entitles the holder to buy one P20 par value
ordinary share at P30. At that time, the market value of each preference share without warrants
attached is P120 and the market value per warrant is P10. Each ordinary share sells at P25.
Entry for the sale of preference shares with warrants
Cash (1,000 sh x P130) 130,000
Preference share capital (1,000 sh x P100) 100,000
Preference share premium (1,000 sh x [130-120]) 20,000
Share warrants outstanding (1,000 sh x P10) 10,000
Entry to exercise the warrants
Cash (1,000 warrants x 1 x P30) 30,000
Share warrants outstanding 10,000
Ordinary share capital (1,000 x P20) 20,000
Ordinary share premium 20,000
 EXAMPLE: ISSUE OF PREFERENCE SHARES WITH
WARRANTS (IF WARRANTS EXPIRED)
Captain Ri Corp. issued 1,000 preference shares of P100 par value at P130 per share. Each
preference share includes one detachable warrant that entitles the holder to buy one P20 par value
ordinary share at P30. At that time, the market value of each preference share without warrants
attached is P120 and the market value per warrant is P10. Each ordinary share sells at P25.
Entry for the sale of preference shares with warrants
Cash (1,000 sh x P130) 130,000
Preference share capital (1,000 sh x P100) 100,000
Preference share premium (1,000 sh x [130-120]) 20,000
Share warrants outstanding (1,000 sh x P10) 10,000

Entry for the expiration of the warrants

Share warrants outstanding 10,000
Share premium from expired warrants 10,000
ISSUE OF BONDS WITH WARRANTS
❖When warrants are included in the issue of bonds, the market price of the bonds
without warrants attached is first determined, and the remainder of the issue price
over the bond price is allocated to the warrants.
❖If the warrants are exercised, the value assigned to share is the value allocated
to warrants plus the cash proceeds from the issuance of ordinary shares.
❖When warrants are allowed to expire, the allocated or assigned value of the
warrants is transferred to another additional paid in capital appropriately
described.
EXAMPLE: ISSUE OF BONDS WITH WARRANTS
Tomato Cultivator Inc. issued 5-year, P1,000,000, 10% bonds at 109. Interest is payable
annually. Each P1,000 bond includes one detachable warrant that entitles the holder to buy
one P25 par value ordinary share at P30. The bonds without the warrants are sold to yield
8%. The market values of each warrant and each ordinary share are P5 and P25,
respectively.
Entry to record issuance of bonds
Cash (1,000,000 x 1.09) 1,090,000
Bonds payable 1,000,000
Premium on bonds payable 80,000
Share warrants outstanding 10,000
Total issue price (1,000,000 x 1.09) 1,090,000
Market value of bonds without the warrants
1,000,000 x 0.681 681,000
1,000,000 x 10% x 3.99 399,000 1,080,000
Amount allocated to equity (warrants) 10,000
EXAMPLE: ISSUE OF BONDS WITH WARRANTS
Scenario 1: The share warrants were exercised.
Cash (1,000 warrants x 1 x P30) 30,000
Share warrants outstanding 10,000
Ordinary share capital (1,000 x P25) 25,000
Ordinary share premium 15,000

Scenario 2: If the warrants were not exercised.

Share warrants outstanding 10,000
Paid in Capital from Expired Warrants 10,000