SHAREHOLDER’S EQUITY
to conduct its operations
-residual interest of ownership in the net assets
of a corporation measured by excess of assets
over liabilities.
Share capital-portion of the paid in capital
representing the total par or stated value of the
shares issued.
Subscribed share capital- portion of the
authorized share capital that has been
subscribed but not yet fully paid and still
unissued.
Share premium-portion of paid in capital
representing excess over the par or stated
value.
- Comprises:
a) Excess over par value or stated
value
b) Resale of treasury shares at more
than cost
c) Donated capital
d) Issuance of share warrants
e) Distribution of share dividends
f) Quasi-reorganization and
recapitalization
Retained earnings- cumulative balance of
periodic earnings, dividend distributions, prior
period errors and other capital adjustments.
Revaluation surplus- excess of revalued amount
over the carrying amount of the revalued asset
Treasury shares- corporation’s own shares that
have been issued and then reacquired but not
canceled.
Deposits on subscriptions- may be reported as
part of SHE as separate item in the equity
section.
Capital stock- amount fixed in the articles of
incorporation to be subscribed, paid in or
secured to be paid in by SH of the corporation,
either in money or property, services at the
organization or after and upon which the corp is
Authorized share capital- amount fixed in the
articles of incorporation
Share- represents the interest or right of a
shareholder in the corporation
- Rights:
a) To share in the earnings
b) Vote in the election of directors and
certain corporate policies
c) Subscribe for addt’l share issues-
the preemptive right
d) Share in the net assets of Corp upon
liquidation
Share certificate- instrument that evidence the
ownership of a share and issued only when
subscription is fully paid.
Par value share- has specific value fixed in the
articles of incorp. And appearing on the share
certificate, purpose is to fix minimum issue
price of shares
No par value share- without value appearing on
the certificate. But has always an issued value
or stated value based on consideration for
which it is issued
Minimum issue price for no par share is P5.
Ordinary share capital-
-sh enjoy no preference over each other
-if there is only one class of share capital
- ordinary sh have the same rights and privileges
Preference share capital-
-Sh enjoy preferences like claims on dividends
and net assets upon liquidation.
-have only limted or fixed return on investment
Legal capital- portion of paid in capital arising
from issuance of share capital which cannot be
returned to the sh in any form during the
lifetime of the corp.
-determined as follows:
a) In the case of par value share, it is the issued, whichever is reliably
aggregate par value of the shares issued and determinable.
subscribed Share issuance costs-
- Include legal fees, CPA fees,
b) In the case of no par value share, the total
underwriting fees, commissions, cost of
consideration received from sh including excess
printing certs, doc stamps, filing fees
over stated value
with SEC, and cost of advertising and
TRUST fund doctrine promotion, or newspaper publication
fee.
-share capital of a corp is considered as trust - If directly attributable shall be deducted
fund for the protection of creditors from equity, net of any related income
-it is illegal to return legal capital to sh during tax benefit
lifetime of the corp. and pay dividends when - Shall be DR to share premium arising
there is deficit from the share issuance
-Corp. can only pay dividends to sh but limited - If the SP is insufficient to absorb such
to retained earnings expenses, the excess shall be debited to
ACCOUNTING FOR SHARE CAPITAL share issuance cost as deduction from
a) Memorandum method- No entry. Only a the ff. order of priority:
memorandum is made for the total a) SP from previous share issuance
authorized share capital b) Retained earnings
When SC is issued, CR share capital Issued at more than par:
account Sp xx
b) Journal entry method- recorded by DR Cash xx
unissued share capital and CR Issued at par:
authorized share capital Share issuance cost xx
When SC is issued, CR to the unissued Cash xx
share capital
Shared issued at discount Cost of public offering of shares-expensed
-share sold below par stated value when incurred, not considered as costs of an
-sh must pay for the discount, hence it’s a equity transaction since no equity instrument
liability to them has been issued.
- a deduction from total she Joint costs- shall be allocated prorate on the
Issuance of share capital for noncash basis of outstanding newly issued and listed
consideration shares and outstanding newly listed old existing
-such as tangible property, intangible property shares.
and services, share capital is recorded at an - A) Audit and other professional advice
amount equal to the following in the order of relating to prospectus
priority: - B) Opinion of counsel
a) FV of the noncash consideration received C) Tax opinion
b) FV of the shares issued D) Fairness opinion and valuating report
c) Par value of the shares issued E) Prospectus design and printing
Issuance of share capital for services
- Services must be already rendered
- The shares shall be recorded at the FV
of such services or FV of the shares
 outstanding b) A preference share that gives the holder
allocated the right to require the issuer to
Newly issued and listed shares 700 7/10 350 redeem the instrument for a fixed or
Newly listed old existing shares 300 3/10 150 determinable amount at a future date.
-classified as current or noncurrent
Watered share financial liability depending on the
- Share capital issued for inadequate or redemption date
insufficient consideration - difference between the redemption price
- Asset is overstated and capital is and the financial liability is accounted for as
overstated gain or loss on redemption.
Secret reserve
- Arises when asset is understated or Convertible preference share
liability is overstated, capital -gives the holder the right to exchange the
understated holdings for other securities of the issuing
- Arises from the ff: corporation.
a) Excessive provision for -normally converted to ordinary share
depreciation, depletion, -may be converted into bonds which is
amortization, and doubtful accounts actually a change of equity from that of an
b) Excessive writedown of receivables, owner to that of a creditor.
inventories, and investments Illustration
c) Capital expenditures are recorded Pref Share Capital 10k shs, p100par 1M
as outright expense OSC, 200k shares authorized
d) Fictitious liabilities are recorded. 100k shs issued,p30par 3M
Callable preference shares SP-PS 200K
-can be called in for redemption at a specified SP-Ord 1M
price at the option of the corp. Retained Earnings 2M
-no definite redemption date, dependent on the
call of the issuer Pref share converted to Ord share in ration
-an equity instrument rather than a financial of 1 pref:3 ord shs
liability Pref share capital 1M
PS called in at more than the original issue price SP-PS 200k
of the PS , excess is DR to retained earnings OSC(30kx30) 900k
Excess of the call price over the par value of the SP-Ord 300k
PS is charged to the ff: Pref share converted to Ord share in ration
a) SP from orig. issuance of the PS of 1 pref: 5 ord shs
b) Retained earnings Pref share capital 1M
PS called in less than the orig.price, difference is SP-PS 200k
CR to SP related to OS. Retained Earnings 300k
OSC(50kx30) 1.5M
Redeemable preference share
a) A preference share that provides for
mandatory redemption by the issuer for
a fixed of determinable amount at a
future date
 TS shares are subsequently reissued at
Treasury Shares 100/share
-an entity’s own shares that have been issued Cash 200k
and then reacquired but not canceled RE 100k
a) Shares must be the entity’s own shares. The TS 300k
acquisition of shares of another entity is not Excess of the cost over the reissue price is
treasury but an investment charged to the ff. in order of priority:
b) The shares must have been issued originally. a) SP from TS of the same class
This requisite distinguishes treasury shares from b) RE
unissued shares. Retirement of TS
TS can be legally reissued at a discount without -SC is DR at par value or stated value and the TS
any discount liability while unissued shares is CR at cost.
must be issued at least at par or stated value. -Gain= Par value>cost of TS, thus CR to SP from
c)The shares are reacquired but not canceled. TS.
Illustration:
Corporation can acquire TS only to the extent of 1000 OShs with par of 100 are held as treasury
retained earnings balance at a cost of 80K, and subsequently retired

Accounting for TS OSC 100k

-cost method TS 80K
-recorded at cost regardless of whether the SP-TS 20K
shares are acquired below or above the par or  If the retirement results in a loss(=cost of
stated value. TS>Par value) and thus DR to the ff. order of
-if acquired for cash, cost is equal to the cash priority:
payment a) SP from orig.issuance
-no gain or loss shall be recognized on the b) SP from TS
purchase, sale, issue, or cancelation of an c) RE
entity’s equity instrument Disclosure
-if acquired for noncash consideration, cost is a) Number of TS
usually measured by CA of the noncash asset b) Restriction on the availability of RE for
surrendered. distribution of dividends equal to the
Acquired 2000-150/share cost of TS
TS 300k If an entity reacquires its own equity
Cash 300k instruments, the TS shall be deducted from
Reissuance at cost equity.
2000TS-150/share Cost of TS shall be deducted from total SHE
Cash 300k Presentation
TS 300k OSC, 50Kshs,P100par 5M
Reissuance at more than cost Share premium 500K
2000TS-200/share RE(of which P800k is appropriated
Cash 400k For the cost of TS) 2M
TS 300k TS, 5K shs at cost (500k)
SP-TS 100k Total SHE 6.8M
Reissuance at below cost
Donated shares
-shs received by the entity from the
shareholders by way of donation.
-actually are TS and may be reissued at any
price without any discount liability
-secured without cost, the entity’s assets,
liabilities and she are not affected but the no. of
outstanding shs is reduced.
-its resale or reissue increases assets and
donated capital or share premium.
Illustration
“Received from shareholders as donation of 50K
ord.shs with P100par value.”
JE when sold at 150:
Cash 7.5M
Donated Capital 7.5M
JE when retired or canceled prior to reissuance:
OSC 50Kx 100 5M
Donated Capital 5M
Donation of capital
Contributions, including shares of an entity,
received from shareholders shall be recorded at
FV with the credit going to donated capital.
Capital gifts or grants shall be recorded at FV
when received or receivable. Such gifts from
nonshareholders are generally subsidiaries and
credited to income.
When shares are orig.issued at a discount, the
discount is actually a receivable from the
shareholder
Cash/share assessment receivable 100k
Discount on share capital 100K
When the corporation is in need of financial
assistance, shsholders can vote to assess
themselves a certain amount per share owned.
Cash/share assessment receivable 100k
SP- assessments 100k