SYNCH AUGUST 20, 2021

SHAREHOLDER’S EQUITY
Outline
1. Definition of corporation, its advantages, disadvantages as a form of business
2. Corporation capital structure
3. Classes of share capital
4. Shareholer’s Equity and the legal capital
5. Share capital transactions (Issuance, Reacquisition, Retirement)
6. Retained Earnings
7. Dividends (Cash, Property, Scrip, Bonus)
8. Accounting for Share Based payments (IFRS 2)
9. Accounting for Quasi-reorganization
10. Book value per share

DEFINITION OF CORPORATION, ITS ADVANTAGES, DISADVANTAGES AS A FORM OF BUSINESS

● Corporation is defined as: “An artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incidental to
its existence.”

Advantages Disadvantages

● Continuous existence (Right of ● More costly and complicated to

succession) form/operate
● Strong credit availability ● Subject to more stringent regulations and
● More capital taxes
● Limited liability ● Less participation of owners (Absentee
● Centralized management (BOD/BOT - Ownership)
Trust Fund Doctrine)
● Easy transfer of interest

- continuous existence:
- partnership is dissolved kapag naging insolvent, incapacitated, or namatay ang partner
- sa corporation hindi nadidisolve kapag namatay si shareholder -> may right of succession
- strong credit availability: more resources
- limited liability: the shareholders are liable up to extent of their investment
- trust fund doctrine: manage the affairs and activities of the entity
- easy transfer of interest: sell share without the need for approval of other shareholders

LUZARA, M.C.
CORPORATE CAPITAL STRUCTURE
Share Capital (Capital Stock)

Par Value Shares Stated Value Shares No/Par Stated Value Shares

Nominal value of the shares of Nominal value of the shares of Nominal value is not stated in
stock is indicated in the Stock stock is indicated in the Articles the stock certificate nor in the
Certificate of Incorporation or in the Articles of incorporation/
By-laws By-laws.

Minimum payment as required

by the Corporation Code is P5
per share.
- bawal bumaba sa P5
kapag bumaba it is
called watered stock

● Share capital of the corporation can be issued in consideration of any or combination of the
following: (1) cash; (2) non-cash assets (example: PPE items, Inventory) and; (3) Services
● A corporation could issue different classes of Share Capital such as Ordinary shares and
Preference Shares

CLASSES OF SHARE CAPITAL

Ordinary Shares Preference Shares

● enjoys the basic rights of shareholders
and where is the ultimate risk of loss and
benefits of success
● They have the capacity to control or vote
in the affairs of the corporation
- manage the affair of corporation -> officer
● Have a preference over ordinary shares in
terms of dividend distribution and
corporate assets in the event of corporate
liquidation
● Generally, they do not possess the right to
vote

● Kinds of preference shares are (can be in

combination):
1. Cumulative or Noncumulative
2. Participating or Nonparticipating
3. Convertible
4. Callable
5. Redeemable

Callable and Redeemable

- callable and redeemable -> more of a
liability rather than an equity -> substance
over form
- preference are required to be paid
dividends
- upon arrival of redemption period -> the
entity will retire the callable or redeemable
preference shares -> the entity will retire
the share

LUZARA, M.C.
 Cumulative:
- entitled to dividends in arrears

Participating
- the preference share capital ay may share
sa excess ng dividends after giving the
dividend in arrears, current dividend for
PS and OS

Convertible
- preference share can be converted into
another classes of share capital
- PS to OS
Here are some basic rights of shareholders (for a complete list, refer to the Corporation Code of the
Philippines)
1. Right to proportionately share in the profit or loss of the corporation.
2. Right to share proportionately in the management of the corporation.
3. Right to share proportionately in the distribution of corporate assets.
4. Right to share proportionately in the issuance of new shares (pre-emptive right).
● Right after the incorporation, the only available financial statement is the Statement of Financial
Position. Existing shareholders may be interested in determining their residual interest, which is
the information, provided in the Shareholder's Equity section of the Statement of Financial
Position

SHAREHOLDER’S EQUITY AND THE LEGAL CAPITAL

Shareholder’s Equity

Total Contributed Capital

Share Capital XX

Share Premium XX XX

Other Comprehensive Income

Revaluation Surplus XX

UG/L on EIFV-OCI or DIFV-OCI XX

Actuarial Gains and Losses on Defined Benefit Plan XX

Foreign Currency Translation Gains and Losses XX XX

Retained Earnings XX

Contra equity accounts:

Treasury Shares (XX)

Subscriptions Receivable (XX)

Total Shareholder’s Equity XX

LUZARA, M.C.
 - Contributed capital: Total paid up/in capital
- Revaluation surplus: PPE

● Subscriptions Receivables may be alternatively presented as a contra equity account if they are
expected to be collected for more than 12 months. If they are collectible within 12 months or less,
they may be presented in the current assets section.
● Because of the limited liability concept, the corporation code prohibits the distribution to
shareholders corporate earnings that will reduce the legal capital — the purpose of which is to
protect the interest of corporate creditors
○ corporate legal capital - cannot be distributed to shareholders in the event of corporate
liquidation
Par Value Shares Stated Value / No-Par, No Stated Value Shares

Share Capital at Par Value Total Consideration Received

(Share Capital at Par Value + Share Premium
- legal capital: lahat ng par value + Accounts)
subscribed capital @ par

SHARE CAPITAL TRANSACTIONS

● Authorized shares - The maximum number of shares that the Corporation may issue as stated in
the articles of incorporation
○ max number na pwedeng i-issue na shares
● Issued shares - The number of shares that the corporation has issued to shareholders
○ in the hands of entity/shareholders
● Outstanding shares - Issued shares less treasury shares.These are the shares which are
currently in the hands of shareholders.
● Treasury shares - Shares that are reacquired either by repurchase or donation by the corporation
and for the purposes of either for reissuance or retirement. Does not enjoy the basic rights of
shareholders
○ shares at the hand of entity
● Subscribed shares - Shares which enjoy all the basic rights of the shareholders and are to be
issued to the subscriber upon payment of the full subscription price
○ share certificate is temporarily withheld until the full payment of subscription price

Issuance of Share Capital for Cash:

● If with par value, capital is credited for the par value and any excess to the share premium.
● If with stated value, capital is credited for the stated value and any excess to the share premium.
● If no par/no stated value, the whole proceeds is credited to the applicable capital account.

Cash XX
Share Capital (PV or SV) XX
Share Premium (excess) XX

Issuance of Share Capital for Non-cash Consideration

● If share capital is issued to another entity (not an employee of the corporation), it will be
measured in the order of priority:
1. Fair value of the non-cash asset/services
2. Fair value of the equity instrument issued

LUZARA, M.C.
 NCA/ Services XX
Share Capital (PV or SV) XX
Share Premium (excess) XX

● If share capital is issued on account of goods or services received from an employee, IFRS 2:
Share based payment will apply. The same standard suggests that the transaction shall be
measured at the FAIR VALUE OF THE EQUITY INSTRUMENTS.

Subscription of Share Capital

● A subscription gives the obligation to the subscriber to subscribe to the entity’s share capital
● It is a legally binding contract which provides that the subscriber will buy a specific number of
shares at an agreed-upon price and payment will be spread over a time period.
● Share certificates withheld until the final payment of the subscription

Cash (downpayment) XX
Subscription Receivable XX
Subscribed Capital (PV or SV) XX
Share Premium (excess) XX

Accounting for Delinquent Shares

● Subscribers who fail to pay the remaining balance of the subscription receivable (despite
repeated calls from the BOD or upon lapse of subscription period), the shares subscribed will be
declared as "delinquent".

● Delinquent shares will be sold at a public auction to the Highest Bidder. The highest bidder is the
one who will: (1) Pay the remaining balance of the Subscriptions Receivable plus interest; (2) Pay
the cost of public auction and; (3) Will receive the least number of shares.

Issuance of Share Capital with Other Securities

● This happens when two or more classes of share capital or equity securities are issued for a
single or lump sum payment.
● How much value to assign to each issued equity securities? RELATIVE FAIR VALUE
APPROACH OR RESIDUAL VALUE APPROACH.
● Under the RELATIVE FAIR VALUE APPROACH, we use the fair value of each security at the
date of issuance as the basis for the allocation of the values assigned.

CLASS NO. OF SHARES FV PER SHARE TOTAL FV ALLOCATION

Equity Sec 1 100 10 P1,000 P1,000/P3,000

Equity Sec 2 100 20 P2,000 P2,000/P3,000

30 P3,000

● Under the RESIDUAL VALUE APPROACH, if one fair value is not determinable, we use the
available fair value of the equity security as its value assigned, and any excess of the
consideration over the fair value will be the value assigned to the equity security with missing fair
value information.

LUZARA, M.C.
Share Issuance Costs
● Costs incurred by an entity in issuing its equity instruments.
● Accounted for as a deduction in equity, particularly, deducted from the share premium arising
from such issuance (or retained earnings), net of any applicable tax.
○ decrease in equity in Share Premium or RE kapag na-exhaust na ang Share Premium
● Philippine Interpretations Committee of the FRSC clarified the expenditures considered as stock
issuance costs, namely they are (PIC Q and A 2011, No. 4):
1. Documentary stamp tax and other percentage tax imposed in public offerings of shares.
2. Underwriting costs.
3. Newspaper publication fees related to the issuance
4. SEC registration fees.
● The following issue costs are expensed:
1. Public relations consultant fees
2. Road show presentations
3. Stock exchange listing fees

SYNCH AUGUST 27, 2021

SHARE CAPITAL TRANSACTIONS
Reacquisition of Share Capital:
1. Repurchase for immediate retirement
○ retirement: reverting from issued basis to unissued basis
2. Treasury share transactions
○ two scenarios: reissue on a later date or retired the shares
○ reissuance: above the cost or below the cost
3. Donation of share capital
○ donation of shareholders to the entity
Reasons could be:
1. To improve earnings per share.
○ earnings per share - publicly listed entities (entities whose equity and debt instruments
are publicly traded in financial markets) are required by IAS 33 to disclose information
about earnings per share either in the face of the financial statements specifically
Comprehensive Income-Profit/Loss or anywhere in the face of SCI or in the explanatory
notes.
○ earnings per share = profit attributable to the oS shareholders/weighted average number
of outstanding ordinary shares
○ if you reacquire treasury shares -> mababawasan ang outstanding shares -> increase in
EPS
○ the higher the better
2. To improve fair value per share.
○ attractive to potential investors/lenders of the entity
○ the higher the better -> mean the shares of stock is / some investors will be interested to
hold a stake or invest in the entity
3. Increase/Improve debt to equity ratio
○ some creditors of the entity require a specific a financial ratio
○ sources of financing - debt and equity -> one way to improve by engaging in reacquisition
of share capital
4. Conversion of shares to other class
○ PS to OS - we may retire or reacquire some shares
○ partly retirement and artly issuance of share capital

LUZARA, M.C.
Repurchase for immediate retirement:
● If Retirement Price (RP) < Issue Price (IP) = Excess is credited to SP- Retirement:
Share Capital XX
Share Premium XX
Cash XX
SP - Retirement XX

- kapag ina-acquire si share capital from shareholders ireretire sa books

- when we retire share capital -> reverted from issued to unissued basis
- babawasan si share capital because of the retirement
- retirement price: the amount of cash paid by the entity to retire the
shares from the existing shareholders (babayaran ang existing
shareholder)
- issue price: total par value or stated value + share premium (excess)

● If Retirement Price (RP) > Issue Price (IP) = Excess is debited to (1) SP Retirement or
SP-Treasury Shares of the same class and (2) Retained Earnings:

Share Capital XX
Share Premium XX
SP - Retirement XX
SP - Treasury Shares XX
Retained Earnings XX
Cash XX

Treasury Shares:
● Acquisition of the entity's own shares.
● Reissuance or eventual retirement.
● Accounted for using the cost method (not an asset).
● Does not enjoy rights of shareholders.
● Contra-equity account.

- when we acquire our own shares from the existing shareholders -> outstanding shares is
reduced by the amount of treasury shares
- treasury shares-> still part of the issued shares but in the hands of the issuing shares
- outstanding shares: hindi counted ang treasury shares sa outstanding -> issued minus
treasury share
- shares in the hands of shareholders
- to account for the treasury shares -> COST method
- no preemptive rights; they cannot vote; and receive dividends
- scenario: reissuance of retirement
- reissuance: above cost or below cost
- retirement: just follow the preceding discussion

● When treasury shares are acquired (Cost Method):

Treasury Shares XX
Cash XX

LUZARA, M.C.
 ● When treasury shares are reissued above cost:
Cash XX @reissue price
Treasury Shares XX @cost
Share Premium - TS XX @excess

● When treasury shares are reissued below cost:

Cash XX @reissue price
Share Premium-TS XX (if available)
Retained Earnings XX (if may excess pa rin at ubos na SP-TS)
Treasury Shares XX @cost

● When treasury shares are retired: (excess -> debit side)

Share Capital XX @par value
Share Premium XX @for the specific SP/share or average issue price
SP - Retirement XX
SP - Treasury Shares XX
Retained Earnings XX
Treasury Shares XX

- average issue price = (total PV + share premium)/ total number of issued shares
- average share premium per share = total share premium/total number of issued shares
- use specific issue price per share if given

● When treasury shares are retired: (excess -> credit side)

Share Capital XX
Share Premium XX
Treasury Shares XX
SP -Treasury Shares XX

Donation of Share Capital

● Donation from shareholders.
● Already reached the maximum number of shares that can be issued and no longer possible to
issue additional.
○ need capitalization pero na-meet na yung maximum authorized number of shares
● Does not affect the shareholders equity.
● Decreases the outstanding shares.

- accounting for donation of share capital -> depends if the fair value is known or
unknown at the time of donation
- regardless if unknown or known ang fair value -> DOES NOT AFFECT TOTAL
SHE
- it will decrease the total outstanding shares

Fair value of shares is unknown

● Upon donation and fair value of the shares is unknown:
MEMO ENTRY ONLY
- DOES NOT AFFECT TOTAL SHE upon the acquisition of the donated shares
kasi memo entry lang

LUZARA, M.C.
 ● Upon reissuance of the donated shares:
Cash XX
Share premium - donation XX

Fair value of shares is known

● Upon donation and fair value of the shares is known:
Treasury Shares XX
Share premium - donation XX

- treasury shares decreases SHE

- share premium - donation increases SHE
- so off set lang kaya di nakakaapekto sa SHE

● Upon reissuance of the donated shares (assuming above FV):

Cash XX @reissue price
Treasury shares XX @fair value at the time of donation
Share premium - donation XX @excess

LUZARA, M.C.
 SYNCH AUGUST 28, 2021
DIVIDENDS AND STOCK SPLIT

DIVIDENDS
● Distribution of corporate earning from accumulated profits (unappropriated retained earnings) to
shareholders entitled to receive cash
● may be in the form of cash, non cash assets, scrip, or bonus issue
○ non cash: inventory, ip, intangibles, ppe, shares of stock another entity
○ scrip: promissory notes
● Dividends depend on the business entity’s practices and policies set by the BOD (this includes
the amount, frequency, and type of dividends distributed)
○ retained earnings
○ pwede lang magbigay as dividends is yung unappropriated retained earnings
○ cash, property, scrip and bonus issuance

3 important dates of dividends:

● Date of declaration — the date where the BOD formally acknowledges its liability to distribute
dividends to its shareholders.
● Date of record — the date where shareholders who are entitled to receive dividends are
listed/prepared. This is usually stated during the time of dividend declaration.
● Date of payment — the date where the liability to distribute dividends is settled or satisfied. This is
also stated during the time of dividend declaration.

- date of declaration - sinasabi yung date of record and payment; for recording
nagkakaroon ng JE for dividends payable
- date of record: formally nililista yung mga shareholders na makakareceive ng dividends;
no formal entry
- date of payment: formally satisfies the obligation to settle the obligation;
- Journal entry: pag-extinguish ng obligation

If an equity security is issued in-between important dates:

● Dividends-on: The selling price of the instrument is said to be dividends-on if it is issued in
between the date of declaration and date of record. Acquirers are required to pay the right to
receive dividends and the purchase price of the instrument.
● Ex-dividends: The selling price is said to be ex-dividends if it is issued between the date of record
and date of payment. Acquirers are only required to pay the purchase price of the instrument.

- Dividends-on: dalawa ang binabayaran

- right to receive dividends + selling price of the investment alone
- Ex-dividends: in between record and payment
- selling price is ex dividends
- selling price only ang binabayaran

Cash Dividends
● Payment of dividends in the form of cash
● Most common type
● Expressed as a percentage of the par value of person amount per share
- kahit walang qualifying adjective: it is understood as cash dividends

LUZARA, M.C.
 DATE ACCOUNT DEBIT CREDIT

On the date of Retained Earnings XX

declaration
Dividends Payable XX

On the date of No journal entry. BOD lists down all shareholders entitled to receive dividends
record

On the date of Dividends payable XX

payment
Cash XX

Cash Dividends
● Distribution/Allocation between OS and PS depends on the characteristics of the PS.
○ Cumulative vs. Non-cumulative
○ Participating vs. Non-participating
● PS have preference over OS in terms of dividends.

- Cumulative: the PS is entitled to receive dividends in arrears

- nag-declare ng 100k pero ang required ng PS ay 150k, yung 50K ay dividends in
arrears
- the dividend in arrears is not recorded in journal entry but disclose in the notes
- Noncumulative: nag-declare ng 100K dividends pero ang required sa PS ay 150K ->
yung 50k is gone forever; not entitled to any dividends in arrear; hindi babayaran in the
future yung 50k
- Fully Participating - no limitation ang participation
- Participating - tapos na mabigyan ng dividends and PS and OS pero may excess pa, ano
ang gagawin?
- kapag fully participating: hati ang OS and PS based on the total par values on
pro rata basis
- if partially participating: certain extent; 9% to 12% additional na 3%
- Nonparticipating - kapag may excess na kay OS na lahat mapupunta

Share Dividends (bonus issue):

● Distribution of the entity's shares as dividends.
● Same class of shares vs. different class of shares.
● No effect on the total shareholder's equity.
● Large bonus issuance (20% or more) vs. Small bonus issuance (less than 20%).

- does not affect SHE

- kasi nililipat lang ang balances
- account title share dividends payable - not a liability account; it is an equity account ->
part of share capital in total contributed capital
- large: 20% or more of outstanding share + subscribed shares
- kasi kapag issued shares baka may kasamang treasury
- and treasury bawal makareceive ng dividends

LUZARA, M.C.
 - kasama si subscribed shares -> ito nakakenjoy ng basic rights of the owner
- small: less than 20% -> may share premium account
- large: recorded at par value

Share dividends (large bonus issuance):

DATE ACCOUNT DEBIT CREDIT

On the date of Retained Earnings PV

declaration
Share Dividends Payable PV

On the date of No journal entry. BOD lists down all shareholders entitled to receive dividends
record

On the date of Share Dividends payable PV

payment
Share Capital PV

Share dividends (small bonus issuance)

DATE ACCOUNT DEBIT CREDIT

On the date of Retained Earnings FV

declaration
Share Dividends Payable PV

Share Premium Excess

On the date of No journal entry. BOD lists down all shareholders entitled to receive dividends
record

On the date of Share Dividends payable PV

payment
Share Capital PV
Fractional Shares:
● Results from bonus issuance to shareholders with fractional or incomplete shares (example: a
shareholder with 315 shares will receive 31 shares and .50 fraction of a share assuming a 10%
bonus issue)
● The entity may: (1) issue fractional share warrants; (2) pay the shareholder equal to FV the
fractional share; (3) Require the shareholder to pay a sufficient amount to receive a full share.
- may hawak ng 315 and declared 10%
- 31 shares and .50 fraction of a share
- to solve:
- issue fractional share warrants - holders ha right to purchase fractional
share at relatively lower to the FV at the time it become exercisable
- pay the shareholder equal to FV of the fractional share - surrender the
fractional share

LUZARA, M.C.
 - pay sufficient amount to receive a full share

Scrip dividends
● Does not have enough cash balance but does have adequate RE
● In the form of a promissory note called SCRIP
● Provision of interest

DATE ACCOUNT DEBIT CREDIT

On the date of Retained Earnings XX

declaration
Scrip Dividends Payable XX

On the date of No journal entry. BOD lists down all shareholders entitled to receive dividends
record

On the date of Share Dividends payable XX

payment
Interest Expense XX

Cash XX

Property dividends
● Dividends in the form of non-cash assets (inventories, PPE, Investment Prop, Intangibles, etc.) or
shares of stock of another entity.
● IFRIC 17: Distribution of NCA to Owners.
● IFRS 5: Non-current asset held for sale and discontinued operations.
● IFRIC 17 says that entities are required to recognize the liability (property dividends payable)
equal to the FV of the asset to be distributed.
● IFRIC 17 also further says that: (1) End of reporting period; and (2) Date of payment required to
remeasure the liability.
● Changes in the CV of the liability should be recognized in equity (RE).
● IFRS 5 says that if an asset to be distributed is a NCA, must be reclassified to a CA account
—NCAHFS (Non-current asset held for sale).
● Initial measurement: LOWER OF CV VS. FV LESS COST TO SELL.
● Required to be remeasured: End of Reporting Period.

Property Dividends
- declaration: RE; Dividends Payable
- Payment: Property DP, Cash
IFRIC 17
- kapag nag-recognize ng liability amount: recorded at FV of the asset to be distributed
- remeasure at FV on the end of reporting period at date of payment
- changes in cv of the liability -> RE
IFRS 5
- reclassify to CA account -> NCHFS
- applies only if

LUZARA, M.C.
 - initial measurement: lower of CV vs. FV less cost to sell
- required to remeasured -> end of period only

STOCK SPLIT
● Must be approved by the BOD.
● Ordinary stock split vs. Reverse stock split.
● Ordinary stock split will increase the number of shares with a corresponding decrease in the PV
per share.
● Reverse stock split will decrease the number of shares with a corresponding increase in the PV
per share
● Memo entry only: "Effected a 2-for-1 share split reducing the par value to PXX.XX and increase
the number of shares to XXX."

STOCK SPLIT
- lahat gagalaw
- gamitin ang new par value
- 1 for 3: nagiging 1 na lang yung 3 na hawak ng shareholder -> tataas ang par value
- sa pagcredit ng share capital ay based na sa par value

Cash dividends
- if silent - non cumulative and nonparticipating
- CYD -current year dividends
- laging una si PS

LUZARA, M.C.
 ADDITIONAL NOTES:

Computation of Legal Capital

With Par Value
Preference share @ par value XX

Ordinary share @ par value XX

Subscribed Ordinary Share XX

Subscribed Preference Share XX

Share Dividends Payable XX

Total XX

No par value
Preference share XX

Ordinary share XX

Share premium - OS XX

Subscribed Ordinary Share XX

Share Dividends Payable XX

Total XX

- Note: Under the corporation code, preference shares should always be issued with par value.
- Share dividends declared but have not yet been issued (Share Dividends Distributable) also form
part of legal capital, because soon they will form part of the balance of the Share Capital Account.

Contributed Capital
● Contributed capital also known as paid in capital represents the amount invested or contributed
by owners
● It is composed of share capital and share premium
○ Share capital - contribution equal to the par
○ Share premium (additional paid in capital)
■ Issuance of share capital in excess of par value or stated value
■ Resale or retirement of treasury shares
■ Distribution of share dividends (capitalization or bonus issue)
■ Issuance of detachable share purchase warrants
■ Stock recapitalization
■ Donation of assets to the corporation
■ Transactions from corporate readjustments or quasi-reorganization

Share Issuance Cost

The stock issuance cost shall be debited in the following order:

LUZARA, M.C.
 1. Share premium from issuance
2. Share premium from previous issuance
3. Retained earnings

To record payment of share issuance cost

Share premium
Retained earnings
Cash

Issuance of Share Capital for Cash

❖ To record share issuance at par
Cash xx
Ordinary Share Capital xx

❖ To record share issuance above par

Cash xx
Ordinary Share Capital xx
Share Premium-OS xx

❖ To record share issuance at a discount

Cash xx
Discount on share capital xx
Ordinary share capital xx

Share Capital Sold on Subscription

1. At the time of subscription
Cash xx @downpayment
Subscription Receivable xx @balance of subscription price
Subscribed Share Capital xx @par value
Share Premium xx @excess

2. Amount due is collected

Cash xx
Subscription Receivable xx

3. Full collection, the issuance of shares is recorded by

Subscribed Share Capital xx
Share Capital xx

- The balance in the Subscribed Share Capital account is presented in the SHE particularly under
Contributed Capital
- Subscription Receivable account is reported as a deduction from SHE or may be shown as a
current asset if collection is expected within one year or less.

Delinquent Subscription - with highest bidder

❖ To record subscription without down payment
Subscription receivable XX
Subscribed OS XX
Share premium-OS XX

LUZARA, M.C.
 ❖ To record subscription with down payment
Cash XX
Subscription receivable XX
Subscribed OS XX
Share premium-OS XX

❖ To record receivable from highest bidder

Receivable from highest bidder XX
Subscription receivable XX
Cash XX

❖ To record collection from highest bidder

Cash XX
Subscription receivable XX

❖ To record issuance of share capital

Subscribed share capital@par XX
Share capital @par XX

Delinquent Subscription - without highest bidder

❖ To record acquisition of entity’s own shares
Treasury shares XX
Receivable from highest bidder XX

Treasury Shares
- recorded at cost
- not an asset
- it reduces capitalization

1. Acquisition
Treasury shares XX
Cash XX
2. Reissuance
❖ At cost
Cash XX
Treasury shares XX

❖ At above cost
Cash XX
Treasury shares XX
Share premium - treasury shares XX

❖ At below cost
Cash XX
Share premium - treasury shares XX
Retained earnings XX
Treasury shares XX

LUZARA, M.C.
 3. Retirement
❖ When treasury shares are retired: (excess -> debit side)
Share Capital XX @par value
Share Premium XX @for the specific SP/share or average issue price
SP - Retirement XX
SP - Treasury Shares XX
Retained Earnings XX
Treasury Shares XX

- average issue price = (total PV + share premium)/ total number of issued shares
- average share premium per share = total share premium/total number of issued
shares
- use specific issue price per share if given

❖ When treasury shares are retired: (excess -> credit side)

Share Capital XX
Share Premium XX
Treasury Shares XX
SP -Treasury Shares XX

Issuance of Share Capital

1. Issuance of Share Capital for Cash
Cash XX
Discount on share capital XX (if issued below par)
Share capital XX
Premium on share capital XX

2. Issuance of Share Capital for Non-cash

Property XX
Share capital XX
Share premium XX

Cash Dividend
❖ Date of declaration
Retained Earnings XX
Dividends Payable XX

❖ Date of record - No entry

❖ Date of payment
Dividends Payable XX
Cash XX

ACCOUNTING FOR SHARE DIVIDEND

Small Dividend Large Dividend

A. Percentage declared Less than 20% of outstanding 20% or more of outstanding

LUZARA, M.C.
 shares shares

B. Amount to be charged to Fair value or par value of Par value of shares

Retained Earnings shares, whichever is higher

C. Amount credited to Excess of fair value over par None

share premium value

1. Small Bonus Issue

❖ Date of declaration
Retained Earnings XX
Share Dividends Payable (at par) XX
Share Premium XX
❖ Date of record
No entry

❖ Date of payment
Share Dividends Payable (at par) XX
Ordinary Share Capital XX

2. Large Bonus Issue

❖ Date of declaration
Retained Earnings XX
Share Dividends Payable (at par) XX

❖ Date of record
No entry

❖ Date of payment
Share Dividends Payable (at par) XX
Ordinary Share Capital XX

Fractional Share Dividends - (Large and Small bonus)

❖ Date of declaration
Retained earnings XX
Share dividends payable (at par) XX
Share premium XX

❖ Issuance of full share dividends and the fractional share warrants or rights
Share dividends payable XX
Share capital XX
Fractional warrants outstanding XX

❖ Date of payment
Fractional share warrants outstanding XX
Share capital XX
Share premium XX

- Expired - while in equity will remain in equity

LUZARA, M.C.