CFAS WEEK 3-6 - minimum stated value of a no-par

share: five pesos (P5.00) and is deemed

SHAREHOLDER’S EQUITY (Owner’s Equity/Net to be fully paid when issued.
Assets) – residual interest of the owners in a net
asset of a corporation. Not permitted to issue no-par value shares:
(BPI-TBP)
Following are components of shareholder’s 1. Banks
equity: 2. Public utilities
3. Insurance Companies
CLASSES OF SHARE IN GENERAL 4. Trust Companies
Par value shares 5. Buildings and Loans Associations
- specific amount is fixed in the articles of 6. Pre-need companies
incorporation and appearing on the
certificate of stock. No par value with stated value
- Has a nominal value appearing on the
- minimum issue price of the shares. articles of incorporation NOT in the share
certificate
- Nominal peso amount assigned to each
share. No par value, no stated value
- NO nominal value in A.O.I and share
- oftenly not the price at which corporation certificate
sells the share, this amount reflects the
minimum issue price of the shares Share certificate – proof that you are the owner
of shares (indicated kung ilan binili na shares w/
par value)
SELLING PRICE OF THE SHARE/MARKET
VALUE : usually higher than a share’s par value.
VOTING AND NON-VOTING SHARES
Influenced by a number of factors such as:
1. ORDINARY SHARES/COMMON SHARES
1. Anticipated future earnings of the
2. PREFERENCE SHARES/PREFERENCE
company
SHARES
2. Expected dividend rate per share
3. Current financial position
SHARE CAPITAL (Capital Stock)
4. Current state of the economy
5. Current state of the securities market - Paid in capital representing the total
amount of par/stated value of the shares
issued.
No-par value shares
- one without any value appearing on the
- Divided into shares evidence by a share
face of the certificate of stock.
certificate that is a document evidencing
the ownership of a share in a stock
- stated value which may be fixed in the
corporation. Issued only upon full
articles of incorporation or by the board
settlement of subscription.
of directors or the shareholders.
SHARE CAPITAL TRANSACTIONS (4)
- Has always an issued value based on the Transactions that affect the accounting of share
consideration fixed by the corporation for capital:
its issuance. 1. Authorization, Subscription, Issuance of
Shares
2. Acquisition of treasury shares
 3. Accounting for donated capital
4. Retirement of shares
- May increase/decrease by amending its
TWO CLASSES OF SHARE CAPITAL articles of incorporation and SEC
Ordinary Share Capital/Common Stock approval
- entitles holder to an equal pro-rata
division of profits without any preference. Issued Share
- Sold and paid in full
- Only one class of share capital issued
Outstanding Share
- Owner of this share capital receive the - Issues shares which are at the hands of
same rights and privilege without any the shareholders
preference or advantage over any class of
share Subscribed Share Capital
- or Subscribed Capital Stock
- Each share represents interest or rights of
shareholders in the corporation - portion of the authorized share capital
that HAS BEEN SUBSCRIBED but not yet
RIGHTS OF SHAREHOLDERS: (S.S.S.V) fully paid, therefore UNISSUED
1. Share in profit distribution
2. Share in distribution of assets Unissued Share Capital
3. Vote in election of directors - Portion of the authorized share capital
4. Stock rights/pre-emptive rights or right to not yet issued by the corporation
subscribe for additional new shares to be
issued to maintain the same percentage Share Subscription
ownership - Contract between corporation and buyer
of shares, which latter agrees to pay for it
Preference Share Capital or Preferred Stock at some future date
- entitles holder to certain advantages or
benefits over the holders of ordinary Subscription Reccivable
shares. - unpaid portion of the subscribed share
capital
- Prioritized in dividends (income of the
corporation distributed to shareholders), - shareholders equity account.
and net assets (upon liquidation).
- presented in the statement of financial
position as a deduction from the related
- Their shareholders HAS NO voting rights. subscribed share capital

- HOWEVER, when it is collectible within

- May be issued only PAR VALUE SHARES. twelve months from the date of
statement of financial position, this is
Authorized Share Capital presented as current asset in the current
- Maximum number of shares allowed by asset portion of the statement of financial
the Securities and Exchange Commission position. Thus, it is ignored in the
(SEC) that a corporation may issue computation of Shareholder's equity.

- TOTAL AUTHORIZED SHARE X

PAR/STATED VALUE
 - If the problem is silent, Subscription - It is not available for distribution to
receivable is assumed to be collectible shareholders until the claims of
beyond 1 year. corporate creditors are satisfied.

- FULLY PAID SUBSCRIPTION: Legal Capital

Shareholder. Not a subscriber anymore - portion of the contributed capital or the
minimum amount of paid-in capital
Share Premium or Additional Paid-In Capital arising from the issuance of share capital
- portion of the paid-in capital representing
amounts paid by shareholders in excess - CANNOT BE RETURNED TO
of par. SHAREHOLDERS, must remain in the
corporation for the protection of
- may also result from (5) transactions corporate creditors.
involving treasury shares, retirement of
shares, donated capital, share dividends Determination of legal capital amount:
and any other "gain" on the corporation's - In case of par value shares, legal capital
own share transactions. is the aggregate par value of all issued
and subscribed shares.
Revaluation Reserve (revaluation surplus)
- excess of revalued amount of property, - In case of no-par shares, legal capital is
plant, equipment, over its carrying the total consideration received by the
amount corporation for the issuance of its shares
including the excess of issue price over
Accumulated Profits/Losses or Retained the stated value.
Earnings
- component of the shareholders' equity CONTRIBUTED CAPITAL
arising from the retention of assets - Portion of the subscribed or outstanding
generated from profit-oriented activities capital that is PAID.
of the corporation.
- Amount collected or contributed by
- Cumulative balance of periodic profits or shareholders
losses, dividend distributions, prior
period errors, other capital adjustments
- “Issued and outstanding” kasama sa
pag compute (if may beginning balance)
INCOME
- Final balance: CREDIT, Income Summary ACCOUNTING
SHARE ISSUANCE
Thus: DR: Income Summary, CR: Retained Measure of Capital When Issued:
Earnings With Par - CREDIT share capital at par any
excess to Share Premium
NET LOSS
or Capital Deficiency Without Par but with a Stated Value - Share
Capital is CREDITED at stated value with the
Trust Fund Doctrine excess to Share Premium
- mandates that the corporation must
maintain its Legal Capital for the Measure of the Consideration Received on the
protection of its creditors. Issue of Share Capital:
1. For Cash or Receivable - at Face value
 Less than par
2. For Non-Cash Consideration - at Fair - DEBIT: Cash (total issue price), Discount
Market Value (FMV) of non-cash or FMV of on Share Capital (excess of par over issue
the shares issued whichever is clearly price)
determinable. - CREDIT: Share/unissued share capital

3. For Services Rendered - at FMV of the ISSUANCE OF SHARE CAPITAL FOR NON CASH
services rendered or market value of the CONSIDERATION
shares issued whichever is clearly Order of priority:
determinable. 1. Fair value of non-cash consideration
received
Fair Value (quoted/stated/market) is the price 2. Fair value of shares issued
that would be received to sell an asset or paid to 3. Par value of shares issued
transfer a liability in an orderly transaction
between market participants at the ORGANIZATION COST
measurement date. (IFRS 13 par. 9 - Preliminary expenses (outright expenses)
incurred upon forming a corporation
SHARE CAPITAL including legal fees, incorporation fees
Journal Entry Method (unissued title) and share issuance costs.
- Authorization of Shares: DEBIT unissued
share capital, CREDIT authorized share - Expense as incurred EXCEPT for share
capital issuance cost

- Issuance of Shares: CREDIT unissued Share Issuance Cost

share capital - Transaction costs incurred by the
corporation to issue shares of stocks

Memorandum Method - Accounting, legal, commission, stock

- Memo Entry: Only for the TOTAL certificate, underwriter’s, documentary
AUTHORIZED SHARE CAPITAL. stamp tax fees

- Issuance of Shares: recorded by Share - Deducted from share premium

Capital
Share premium insufficient to absorb
(refer to book in page 412-413, board in pic) transaction costs, excess amount will be
highlighted are DIFFERENCES: contra equity account and deducted to this
1. Authorized Capital Share order:
2. Issuance of Shares 1. Share premium from previous issuance
2. Retained Earnings
ISSUANCE OF SHARE CAPITAL FOR CASH
Par/stated value DELINQUENT SUBSCRIPTION (Subscription
- DEBIT: Proceeds from sale (e.g Cash) Defaults)
- CREDIT: Share Capital
Delinquent shares - subscriber fails to settle
Above par the subscriptions in full on the date specified in
- DEBIT: Cash (total issue price), the subscription contract or in the call made by
Share/unissued share capital at Par the board of directors
- CREDIT: Share Premium
Remedy of the corporation: dispose of the share is recorded at cost of purchase regardless
shares in a public auction for the account of the of whether it is acquired below or above par.
delinquent subscriber.
Thus:
These shares will be sold to the highest bidder - The purchase of treasury shares does not
person who is willing to pay the offer price which decrease the number of ISSUED SHARES; only
includes the full amount of the subscription the OUTSTANDING SHARE.
balance plus accrued interest, cost of
advertisement and expenses of auction sale in Authorized Shares - Unissued Shares = Issued
exchange for the smallest number of shares. Shares

No bidder - corporation may bid for the Issued Shares = Outstanding Shares (without the
delinquent shares and the total amount due presence of treasury)
shall be credited as paid in full in the books of
corporation. These delinquent shares shall be Issued Shares = Outstanding Shares + Treasury
considered as treasury shares. Shares (with Treasury shares)

Due from highest bidder / Advances to highest Therefore, unless retired, treasury shares remain
bidder / Advances on delinquency sale / to be considered issued.
Receivable form highest bidder – Expenses
incurred related to auction Treasury share is always debited for the cost of
the shares purchased (acquisition cost) or
If delinquent subscriber paid, he will still receive credited for the cost of the shares reissued. Par
shares (his shares – bidder’s shares). The lower value is ignored.
the bid, the higher shares he will receive
Retained earnings unappropriated – portion of
TREASURY SHARE retained earnings that can be declared and
- shares of stock which have been issued distributed as dividends
and fully paid for, but subsequently
reacquired by the issuing corporation Retained earnings approproated – portion of
either by purchase, redemption, donation retained earnings that is not available or
or through other lawful means restricted for dividend distribution

- may again be disposed of for a REISSUANCE OF TREASURY SHARES

reasonable price fixed by the board of Frees retained earnings from restriction
directors.
If the reissue price exceeds the cost of the
treasury, the excess over cost is not regarded a
- Can only reacquire/repurchase its own "gain" but component of share premium (Share
share only if it has unrestricted retained Premium-Treasury)
earnings
On the other hand, if the cost exceeds the
- deduction from total shareholders' reissue price, the difference should be debited
to: (2)
equity. (contra-equity account).
- share premium - treasury to the extent of its
balance.
Cost Method - preferred method of accounting
for treasury shares. Under this method, treasury
- In the absence of any balance in this account,
or if it has already been depleted, the "loss" is LOW DEBIT: SP and R.E
debited to retained earnings.
RETIREMENT OF SHARE CAPITAL
Retained Earnings account may be debited, but - Shares are reacquired and cancelled
is never credited for TREASURY SHARE
transactions. - Unlike treasury shares, retired shares
cannot be issued
Retirement of treasury share
- No plans to sell it - demands cancellation of share
certificate, cancellation of share capital
- Cancel the carrying value of the share and account and the related share premium
the cost of treasury. account.

- Carrying value: Par and Share Premium - If the retirement resulted in a gain
at the time the shares were originally (original issue price exceeds retirement
issued. price), such gain is not recognized in
profit or loss but credited to share
- ordinary shares account and the share premium- from retirement of shares.
premium attaching to it when it was
originally issued are DEBITED and the - However, if the retirement resulted in a
corresponding CREDIT is the treasury loss (retirement price exceeds original
share at cost. issue price), such loss is not recognized
in profit or loss but debited to retained
- Any positive excess (excess debits over earnings.
credits) is CREDITED to share premium
account (Share Premium – Treasury - Retirement of share capital reduces the
Shares). total assets, total stockholders' equity,
number of share issued and outstanding.
- Any negative excess (excess credits over
debits) is DEBITED to the following - Decreases number of ISSUED SHARES
priority: and OUTSTANDING SHARES
1. Share premium – Original Issuance
2. Share premium – treasury shares
3. Retained Earnings GAIN:
DEBIT:
ALWAYS COMPARE 1. Shares na ic’convert x par value of PS
- Resell price 2. Share premium – orginal issuance
- Acquisition cost of treasury share computation

RESELL PRICE HIGHER THAN ACQUISITION CREDIT:

COST: Transaction will result in SHARE 1. Shares to be converted x each number x
PREMIUM par value of OS
2. Share Premium – Share Retirement
ACQUISITION PRICE HIGHER THAN RESELL
PRICE: Results in LOSS. Thus: (1) SP (2) R.E Removed from the books of the company:
- Share capital at par value
LOW CREDIT: Share Premium – Treasury Share - Its related share premium
Retirement
(refer to p. 418, note tab for illustration) - Purpose of share split is to increase the
marketability of the shares by lowering
DONATED CAPITAL the market price per share.
- Gifts received by entity from shareholders
and non shareholders - does not affect the balance in
shareholders' equity accounts and
- ADDED to shareholder’s equity therefore a formal journal entry
is not required.
- Actually treasury shares that may be
reissued at any amount
- Any kind of shares may be splitted
- Contributions from shareholders are
measured and recorded at Fair Market - Illustration (refer to note tab)
Value of the items received with the
CREDIT going to a share premium e.g., a 2-for-I split means that one share with a
account. value of P10 will be exchanged for 2 shares each
with a value of PS.
- If significant, separate share premium
account may be set up designated as 2 KINDS OF SHARE SPLIT
Donated Capital. SPLIT UP: old shares will become larger
SPLIT DOWN (or REVERSE SPLIT): old shares will
- Donation is in the form of shares of the reduce
corporation: receipt of the donated
shares is recorded by MEMORANDUM -
ENTRY only. BASKET VALUE
Share Premium + Amount a par value
- Nonshareholders: recognized as fair 1. Check for FVM
value. Not using Donated Capital, rather, 2. Create fraction and add their total
Donated Income/Other Income 3. Apply percentage to total given
percentage
- Government: recognized as government 4. Journal entries, if needed
grants
TRANSFERRING OF NON CASH ITEM
- The account share premium or donated - Kapalit ng share issuance mo ay ordinary
capital is CREDIT at the time the shares shares issues, kapalit nung SFP/corpo
are to be reissued. (refer to notes)

Share Split SHARE PREMIUM

- involves the issue of additional shares Issue Price – Par Value = Share Premium Price
according to the percentage ownership of
shareholders SHARE PREMIUM – ORIGINAL ISSUANCE
Share premium x Retired shares / total no. of
- original shares are called in for shares issued
cancellation and replaced by a
smaller/larger number accompanied by a ISSUE PRICE
reduction/addition in the par or stated Total no. of share capital + share premium /
value total no. of issued shares
Or

Total no. of consideration / total no of shares

issued

DETERMINE IF GAIN/LOSS
Issue Price – Retirement price

CONVERSION OF PREFERENCE SHARES TO

ORDINARY SHARES
- shares which give the holder the right to
exchange (convert) the shares for other
securities.

- Usually convertible preference shares are

exchanged to ordinary shares.

- The accounting for conversion

preference shares into ordinary shares
are similar to retirement of share capital,
where:

Preference share capital is canceled (DEBITED),

ordinary shares are recorded (CREDITED) and
any gain is credited to SHARE PREMIUM, while if
it is a loss it is debited to RETAINED EARNINGS.

(refer to notes tab)