ACCOUNTING FOR

CORPORATIONS
CORPORATION FORMATION

EMPV
 CORPORATION
Is an artificial being created by operation of law having the right of succession, and the powers attributes and properties expressly authorized
by law or incident to its existence (Section 2 of Revised Corporation Code, R.A 11232)
- Generally composed of of 5 or more owners, but a corporation can now be incorporated with one owner ( One Person Corporation)
CHARACTERISTICS:
1. SEPARATE LEGAL EXISTENCE
- A corporation has a *juridical personality of its own separate and distinct from the shareholders. It can act on its own name wherein it can enter
into contracts, sue and be sued , have its own assets and liabilities under its own name.
* An entity that is created by law and granted with rights and responsibilities.
2. CREATED BY OPERATION OF LAW
- A corporation is created by law ( Revised Corporation Code or R.A 11232) which authorizes and regulates its existence. It is not created by mere
agreement by the parties who want to organize a corporation. In order for a corporation to be established, the rules and regulations in the RA 11232
must be strictly followed.

3. RIGHT OF SUCCESSION/ PERPETUAL LIFE

- A corporation can exist continuously regardless there is a death, withdrawal or incapacity of shareholders and regardless of the transfer or sale of
shareholder of its shares. Based of the Revised Corporation code the life of a corporation is perpetual, meaning it can exist
continuously without any limitations unless base on their articles of incorporation otherwise. Before, based on the Old Corporation code,
the corporate life of a corporation is for a period not exceeding 50 years at a time from the date of incorporation, however this may be extended, by
amending the articles of incorporation for periods not exceeding 50 years.
4. Powers, attributes and properties expressly authorized by law or incident to its existence.
A corporation is granted by the Revised Corporation Code the powers which are:

a.) Express powers – powers granted by the laws ( R.A 11232/ Special laws) or enumerated in the articles of incorporation.
Example of express power is the power to extend or shorten corporate term of a private corporation when approved by a majority vote of the
board of directors and ratified by at least 2/3 of the outstanding shareholders indicated in the articles of incorporation.

b.) Incidental powers - powers which are necessary for corporate existence and which can be exercised.
Example of incidental power is the power to buy assets like land or building to be used for the operations of the business.

c.) Implied powers – those derived from express and incidental powers.
Example of implied power is the power to hire employees to help in the fulfillment of the business’s goals.

5. Limited liability of shareholders

The owners of a corporation which are called the shareholders are liable to corporate creditors up to the extent of what they contributed only to
the corporation.

6. Corporate management – the management of the corporation is vested upon a group of shareholders which is called the Board of
Directors (BOD) .This group is elected by the shareholders.The BOD also elects their officers among its members.

7. Government regulations – Corporations are subject to strict government regulations from the time of its incorporation through its yearly
operations.This is to protect the interest of the owners since most of them do not actively participate in the day to day to management of the
business. Securities and exchange commission is the government body who mostly strictly regulates the corporations.
 CLASSES OF CORPORATIONS
AS TO PLACE OF INCORPORATION:

1. Domestic Corporation – organized and incorporated under the Philippine laws .

Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Foreign Corporation – organized and incorporated under the Foreign laws .

Examples : Apple Inc., McDonalds Corporation, Procter & Gamble , Unilever

AS TO PURPOSE :

1. Public Corporation– created for the purpose of governing a particular segment of the state, such as
municipalities and cities or to fulfill a government function.
Examples : Bangko Sentral ng Pilipinas, Ninoy Aquino International Airport, Davao City Water District

2. Private Corporation– organized for private purpose, aim or benefit.

Examples : Jollibee Foods Corporation , McDonalds Corporation, Procter & Gamble , San Miguel Corporation,

3. Quasi- Public Corporation– is a private corporation which was granted a franchise by the government to
perform public duties.
Examples : Meralco, Maynilad, GMA, PLDT, ABS-CBN, Grab, Angkas
STOCK OR NON-STOCK:

1. Stock Corporation – ownership is in the form of shares. This type of corporation are normally profit oriented
and are authorized to distribute dividends to its shareholders.
Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Non- stock Corporation – this type of corporation is not organized for profit purposes and does not distribute
dividends to its members. Normally non-stock corporations are established for the purpose of religious, educational,
social, scientific, civic or political.
Examples : University of Santo Tomas, UNICEF, Philippine Red Cross

RELIGIOUS OR NON-RELIGIOUS:

1. Ecclesiastical Corporation– is organized for religious purposes

Examples : Iglesia ni Cristo, Seventh Day Adventist Church, Roman Catholic Church.

2. Lay Corporation–– is organized for non-religious purposes

Examples : Jollibee Foods Corporation , McDonalds Corporation, Procter & Gamble , San Miguel Corporation,
OPEN OR CLOSE :

1. Open Corporation – ownership in the corporation is offered to public. This type of corporation does not
restrict anyone from becoming a shareholder of the corporation. An open corporation can either be listed or
over the counter. Listed corporation are corporations whose shares are traded in the stock exchanges like in the
Philippine stock exchange. Over the counter corporation is the one whose shares are traded in the market in which
securities buy and sell directly from and to the public.

Examples : Jollibee Foods Corporation , San Miguel Corporation, SM Investment Corporation (SM Group)

2. Close Corporation – this type of corporation is on whose ownership is limited to few persons and its shares is
not available for purchase in public. Normally example of this corporations are family corporations.
Examples : Smart Communications

SOLE OR AGGREGATE:

1. Corporation Sole – consist of only one corporator.

2. Corporation Aggregate–– consists of more than one corporator.

CIVIL OR ELEEMOSYNARY:

1. Civil Corporation – established for profit.

2. Eleemosynary Corporation – established for charity.

Examples : SM Foundation, Gawad Kalinga

AS TO COMPLIANCE OF LEGAL REQUIREMENTS:

1. De jure Corporation– one that exists both in fact and in law. It has complied all the legal requirements and
operates as a corporation.

2. De factot Corporation––one that exists in fact but not in law. It operates as a corporation but there are
certain legal requirements that are not complied.
 COMPONENTS OF A CORPORATION

1. CORPORATORS – those who compose the corporation.

2. INCORPORATORS- those who originally formed the corporation whose names are indicated and signed in
the articles of the incorporation. Natural and juridical persons can now be incorporators based on the RA
11232. There is no minimum number of incorporators but the maximum number remains at 15.
3. SHAREHOLDERS- are the corporators of a stock corporation and are owners of a share of stock. They may
be juridical or natural persons.
4. MEMBERS – are the corporators of a non-stock corporation.
5. PROMOTERS – persons who cause to bring the formation and organization od a corporation by bringing
together the incorporators, procuring subscriptions or capital for the corporation and setting the machinery which
leads to organization of the corporation.
6. SUBSCRIBERS – are persons who agreed to buy and pay for original, unissued shares of a corporation.
7. UNDERWRITERS – persons who sell the shares in public for the corporation.
 PROCESS OF INCORPORATION
1. PROMOTION
- Based on the Revised Corporation Code of the Philippines, at least one person but not exceeding 15 persons may organize
a corporation as incorporators. Normally, the incorporators are the promoters of the corporation who sets up a tentative
working organization and solicits subscriptions from investors to raise capital for the business.

2. INCORPORATION
- After promotion,the articles of incorporation shall be drafted and must contain the following information:
a.) corporate name
b.) purpose for which the organization is organized
c.) place of principal office
d.) corporate term – if they will operate with a fixed term
e.) number of directors or trustees
f.) names, nationalities and residences of incorporators
g.) authorized capital stock
h.) names of subscribers , number of shares and amount of subscription
• Based on RA 11232, there is no requirement anymore regarding the authorized capital stock to be subscribed at least 25%
and be paid at least 25%. With this, the Treasurer’s affidavit is no longer required to be submitted together with the articles
of incorporation because the amount of capital subscribed and/or paid is already included in the articles of incorporation.
• Bylaws must now be filed together with the articles of incorporation. It can no longer be filed within one month from
notice of issuance of the certificate of incorporation.
• Bylaws is a supplement to the articles of incorporation and contains provisions or policies for internal administration of
the corporation.
• So to obtain a certificate of incorporation, the articles of incorporation together with the bylaws must be filed with the
Securities and Exchange Commission (SEC) .The articles of incorporation must be signed by the incorporators and should
notarized. Then filing and publication fees are paid to SEC.
• The date of approval of the articles of incorporation is the same date that is stated in the certificate of registration as the
date of the commencement of the juridical personality of a corporation.

3. FORMAL ORGANIZATION AND COMMENCEMENT OF BUSINESS OPERATIONS

• On the date when the certificate of incorporation is issued, the corporation can now commence its business. Failure of a
corporation to formally organize and commence its business within 5 years from the date of its incorporation shall
be render the certificate of incorporation deemed revoked as of the day following the end of the 5-year
period.
• Formal organization includes adoption of the bylaws, election of directors or trustees and election of directors.
 CORPORATE C APITAL STRUCTURE
• The capital of a corporation is called SHAREHOLDER’S EQUITY. The Shareholder’s equity is composed of the
following:

SHARE CAPITAL ACCOUNTS – is the amount fixed, subscribed and paid by the shareholders from its authorized
shares based on the articles of incorporation. Authorized shares is the maximum number of shares a corporation can issue
as indicated in the articles of incorporation. A shareholder can buy different classes of stocks depending on what the
corporation is offering. There are two classes of shares in which a corporation can issue depending on authorization given
to them:
1. Ordinary shares – is the primary issue of shares, normally it gives the holders of this stock basic rights to the
corporation. When there is only one class of shares being issued, it is presumed to be ordinary shares whether
designated or not. The ordinary shareholders normally have less priority when it comes to the distribution of assets
upon corporate liquidation and distribution of dividends.
2. Preference shares – are shares which gives the holder preference when it comes to distribution of dividends and as
to distribution of assets in the event of corporate liquidation .This type of share has a higher price compared to
ordinary shares because the shareholders of this type of share paid for the priority when it comes to distributions of
asset in the event of corporate liquidation and dividends. Dividends to be received are normally expressed in fixed
percentages or peso amount per share.
When the shares are issued to a shareholder, it is normally issued higher than the par value of the shares. Par value is
the nominal value of the share indicated in the share certificate and also in the articles of incorporation. This is like
the minimum price in which a share can be issued. So the excess of the consideration received over the par value is
credited to an additional paid in capital account.
When a share issued does not have a par value indicated in the the share certificate, the corporation may assign a
stated value in the corporate bylaws. Accounting for a no-par but with stated value is just the same with par value
shares.
When a share does not have a par and also a stated value, the total issue price or the amount of consideration
received is credited in full to the share capital account. In no case could a no- par, no stated value shares be issued
less than a consideration of P5.

ADDITIONAL PAID IN CAPITAL – these are the excess of the consideration received from issuance of shares
over their par or stated value and others.

RETAINED EARNINGS – this is the accumulated profits of the corporation. If the corporation earns more profit,
it will have a credit balance of the retained earnings account, but if the retained earnings have a debit balance or have
accumulated more losses, it will be called a deficit.

There some other components of shareholder’s equity, we’ll just focus on these three.
 ACCOUNTING FOR SHARE C APITAL TRANSACTIONS
Accounting for the share capital transactions of a corporation can be accounted in two methods : it can either use the memorandum
entry or the journal entry method. Under the memorandum entry, the authorization to issue shares is done by preparing a
memorandum entry only and every time a share is issued a credit is made to the appropriate share capital account while in journal entry
method, a formal entry is done by debiting Unissued share capital account and crediting Authorized Share Capital. When a share is issued a
credit to Unissued share capital account is made. So to illustrate:
ABC Corporation was organized on January 1,2019 and is authorized to issue 100,000 ordinary shares with a par value of
P 10 and 50,000 preference shares with no par value.The stated value of the preference shares is at P 50.The following
transactions happened during the year:
a. Issued 10,000 ordinary shares for cash at par value.
b. Issued 5,000 ordinary shares for cash at P15 per share.
c. An equipment was received from an investor in exchange for a 5,000 ordinary shares. The fair value of the equipment is at P 75,000 and
the fair value of each share is at P 20.
d. Issued 500 ordinary shares for the legal services rendered by a lawyer. The fair market value of the legal services is P 10,000. Fair market
value of each share is P 13.
e. Issued 5,000 preference shares and 2,000 ordinary shares for a lumpsum price of P 300,000. The ordinary shares and preference
shares of ABC Corporation has a fair value market value of P 55 and 20 each,respectively.
f. Received subscriptions from various subscribers for 5,000 ordinary shares at P 17 each. The subscribers paid 50% of the subscription
price and the remaining is payable within 60 days from the subscription date.
g. Received subscriptions from various subscribers for 2,000 preference shares at P 60 each. The subscribers paid 30% of the subscription
price and the remaining is payable within 60 days from the subscription date.
h. Receive the balance due from the subscribers of ordinary shares in letter (f) and corresponding share certificates were issued.
 i. After 60 days, the subscribers of preference shares in letter (g) failed to pay the balance of his subscription. Thirty
days after the due date. The shares were declared delinquent and were advertised for sale at a public auction.
j. Expenses for advertising the sale amounted to P 5,000, which were paid by the corporation.
k. Received bids from the following:
X- 500 shares
Y – 400 shares
Z – 600 shares
l. The amount from the highest bidder is collected and certificates of share capital were issued.
m. Received subscriptions from various subscribers for 3,000 ordinary shares at P 17 each. The subscribers paid 20%
of the subscription price and the remaining is payable within 60 days from the subscription date.
n. Issued 1,000 ordinary shares at P 15 each. Transaction cost related to the issuance of shares were also paid at the
amount of P 5,000.
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
MEMO: Authorized to issue 100,000 ordinary shares with a par Unissued Ordinary Share Capital* 1,000,000
value of P 10 and 50,000 preference shares with a stated value of Unissued Preference Share Capital** 2,500,000
P 50. Authorized Ordinary Share Capital 1,000,000
Authorized Preference Share Capital 2,500,000
*100,000 shares x P 10
**50,000 shares x P 50

a.) Issuance of shares for cash at par value Issued 10,000 ordinary shares for cash at par value.
Cash 100,000 Cash 100,000
Ordinary Share Capital 100,000 Unissued Ordinary Share Capital 100,000
10,000 shares x P 10

b.) Issuance of shares for cash more than par value Issued 5,000 ordinary shares for cash at P15 per share.

Cash* 75,000 Cash 75,000

Ordinary Share Capital** 50,000 Unissued Ordinary Share Capital 50,000
Ordinary Share Premium*** 25,000 Ordinary Share Premium 25,000
*5,000 shares x P 15
**5,000 shares x P 10
***5,000 shares x( 15-10)
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
c.) Issuance of shares in exchange of non-cash assets – If a share is issued in exchange of the non-cash asset, the asset is
recorded at its fair market value. If the fair market value of the asset is not determinable then the asset is recorded at the fair
market value of the shares.
An equipment was received from an investor in exchange for a 5,000 ordinary shares. The fair value of the equipment is at P
75,000 and the fair value of each share is at P 20.
Equipment 75,000 Equipment 75,000
Ordinary Share Capital* 50,000 Unissued Ordinary Share Capital 50,000
Ordinary Share Premium** 25,000 Ordinary Share Premium 25,000
*5,000 shares x P 10
**75,000 – 50,000

Because the fair value of the asset is given, the asset is going to be
recorded at its fair market value.

Assuming the fair market value of the asset is not determinable, the asset is going to be recorded at the fair value of the shares.

Equipment* 100,000 Equipment 100,000

Ordinary Share Capital* 50,000 Unissued Ordinary Share Capital 50,000
Ordinary Share Premium** 50,000 Ordinary Share Premium 50,000
*5,000 shares x P 20
**5,000 shares x P 10
***5,000 shares x( 20-10)
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
d.) Issuance of shares in exchange for services rendered – If a share is issued in exchange of services, an expense account is
debited at its fair market value. If the fair market value of the services is not determinable then the expenses is recorded at the fair
market value of the shares.
Issued 500 ordinary shares for the legal services rendered by a lawyer. The fair market value of the legal services is P 10,000.
Fair value of each share is P 13.
Legal Expenses 10,000 Legal Expenses 10,000
Ordinary Share Capital* 5,000 Unissued Ordinary Share Capital 5,000
Ordinary Share Premium** 5,000 Ordinary Share Premium 5,000
*500 shares x P 10
**10,000 – 5,000

Because the fair value of the services is given, the expense is going to be
recorded at its fair market value.

Assuming the fair market value of the services is not determinable, the expense is going to be recorded at the fair value of the shares.

Legal Expenses 6,500 Legal Expenses 6,500

Ordinary Share Capital* 5,000 Unissued Ordinary Share Capital 5,000
Ordinary Share Premium** 1,500 Ordinary Share Premium 1,500

*500 shares x P 13
**500 shares x P 10
***500 shares x( 13-10)
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
e.) Issuance of ordinary and preference share for a lump sum price – When two classes of shares are issued for a
lumpsum amount, the lump sum price must be allocated based on the total fair market values of each classes.
Issued 5,000 preference shares and 2,000 ordinary shares for a lumpsum price of P 300,000. The preference shares and ordinary
shares of ABC Corporation has a fair value market value of P 55 and 20 each, respectively.

No. of shares Fair market value Allocation Share in Lumpsum

price
Preference 5,000 shares 275,000 (275,000/315,000) x 261,904.76
(5,000 x 55) 300,000

Ordinary 2,000 shares 40,000 (40,000/315,000) x 38,095.24

(2,000 x 20) 300,000
Total 315,000 300,000

Cash 300,000 Cash 300,000

Ordinary Share Capital* 20,000 Unissued Ordinary Share Capital 20,000
Preference Share Capital** 250,000 Unissued Preference Share Capital 250,000
Ordinary Share Premium*** 18,095.24 Ordinary Share Premium 18,095.24
Paid in Capital in excess of Stated value- Preference**** 11,904.76 Paid in Capital in excess of Stated value - Preference 11,904.76
* 2,000 x 10 **** 261,904.76-250,000
**5,000 shares x P 50
***38,095.24-20,000
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
f.) Issuance of shares in subscription basis – If a share is issued under subscription basis, the shareholders signs a contract to
purchase a specified number of shares on credit with payment due at one or more specified future dates. The share premium
account is recorded at the time of subscription rather when cash is collected. A subscription receivable account is recognized for
the balance not yet paid and is generally presented as a contra account to the shareholder’s equity as an offset to the subscribed
share capital if it is not expected to be collectible within 12 months from the end of reporting period. If it is expected to be
collected within 12 months, it is presented as part of the current asset section of the balance sheet. If the subscription is now fully
paid, share certificates will be issued and the subscribed share capital account will be reclassified.

Received subscriptions from various subscribers for 5,000 ordinary shares at P 17 each. The subscribers paid 50% of the
subscription price and the remaining is payable within 60 days from the subscription date.

Cash* 42,500 Cash 42,500

Subscription Receivable- Ordinary** 42,500 Subscription Receivable- Ordinary 42,500
Subscribed Ordinary Share *** 50,000 Subscribed Ordinary Share 50,000
Ordinary Share Premium**** 35,000 Ordinary Share Premium 35,000

*(5000 shares x P 17 )X 50%

**(5000 shares x P 17 )X 50%
***5000 shares x 10
**** 85,000 – 50,000
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:

g. ) Received subscriptions from various subscribers for 2,000 preference shares at P 60 each. The subscribers paid 30% of the
subscription price and the remaining is payable within 60 days from the subscription date.

Cash* 36,000 Cash 36,000

Subscription Receivable- Preference** 84,000 Subscription Receivable- Preference** 84,000
Subscribed Preference Share Capital*** 100,000 Subscribed Preference Share Capital*** 100,000
Paid in Capital in excess of Stated value- Preference **** 20,000 Paid in Capital in excess of Stated value - Preference **** 20,000
*(2000 shares x P 60 )X 30%
**(2000 shares x P 60)X 70%
***2000 shares x 50
**** 120,000 – 100,000

h.) Receive the balance due from the subscribers of ordinary shares in letter (f) and corresponding share certificates were issued.

Cash 42,500 Cash 42,500

Subscription Receivable- Ordinary 42,500 Subscription Receivable- Ordinary 42,500

Subscribed Ordinary Share 50,000 Subscribed Ordinary Share 50,000

Ordinary Share Capital 50,000 Unissued Ordinary Share Capital 50,000
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
i.) Delinquent Subscription – If share who is under subscription is not paid on the date fixed in the contract or upon call of the
Board of Directors and after 30 days from the call date, the subscriber still failed to pay the balance on the subscription price, said
subscription is deemed delinquent and shall be advertised for sale at a public auction, unless the BOD decided otherwise.

In a public auction, interested buyers of the delinquent shares shall make a bid for the number of shares they are willing to accept in
exchange of the unpaid subscription price and any additional expenses incurred relating to the delinquent shares. The highest
bidder is the one who is willing to accept the lowest number of shares in exchange for the amount due.
After 60 days, the subscribers of preference shares in letter (g) failed to pay the balance of his subscription. Thirty days after the due
date, the shares were declared delinquent and were advertised for sale at a public auction.

Receivable from highest bidder 84,000 Receivable from highest bidder 84,000
Subscription Receivable- Preference 84,000 Subscription Receivable- Preference 84,000

j. Expenses for advertising the sale amounted to P 5,000, which were paid by the corporation.

Receivable from highest bidder 5,000 Receivable from highest bidder 5,000
Cash 5,000 Cash 5,000
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:

k. Received bids from the following:

X- 500 shares
Y – 400 shares
Z – 600 shares

Cash 89,000 Cash 89,000

Receivable from highest bidder 89,000 Receivable from highest bidder 89,000

Because Y bid the lowest number of shares in exchange of the amount due, Y is the highest bidder

l.) The amount from the highest bidder is collected and certificates of share capital were issued.

Subscribed Preference Share 100,000 Subscribed Preference Share 100,000

Preference Share Capital 100,000 Unissued Preference Share Capital 100,000

Because Y is the highest bidder, he will receive the number of shares he bid equivalent to 400 shares.The remaining shares from the original number of shares
subscribed of 2,000 will be issued to the original subscriber which is equivalent to 1,600 shares. If there is no bidder, all the subscribed shares will be issued in the
name of the corporation, provided that it has sufficient amount of retained earnings and it will be considered as treasury shares.The receivable from highest bidder
balance will be charged to the Treasury shares account.
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
m. Received subscriptions from various subscribers for 3,000 ordinary shares at P 17 each. The subscribers paid 20% of the subscription price and the
remaining is payable within 60 days from the subscription date.

Cash* 10,200 Cash 10,200

Subscription Receivable- Ordinary** 40,800 Subscription Receivable- Ordinary 40,800
Subscribed Ordinary Share *** 30,000 Subscribed Ordinary Share 30,000
Ordinary Share Premium**** 21,000 Ordinary Share Premium 21,000

*(3000 shares x P 17 )X 20%

**(3000 shares x P 17 )X 80%
***3000 shares x 10
**** 51,000 – 30,000
 ENTRIES:
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD:
n.) Issuance of shares with transaction costs – transaction costs incurred related to issuance of shares are charged to the
related share premium account. When the issuance does not result to a share premium account, the transaction cost is charged to
retained earnings.

Issued 1,000 ordinary shares at P 15 each for cash. Transaction cost related to the issuance of shares were also paid at the amount of P
5,000.

Cash 15,000 Cash 15,000

Ordinary Share Capital 10,000 Unissued Ordinary Share Capital 10,000
Ordinary Share Premium 5,000 Ordinary Share Premium 5,000

Ordinary Share Premium 5,000 Ordinary Share Premium 5,000

Cash 5,000 Cash 5,000

WHAT IF THE TRANSACTION COST IS P 7,000?

Cash 15,000 Cash 15,000
Ordinary Share Capital 10,000 Unissued Ordinary Share Capital 10,000
Ordinary Share Premium 5,000 Ordinary Share Premium 5,000

Ordinary Share Premium 5,000 Ordinary Share Premium 5,000

Retained Earnings 2,000 Retained Earnings 2,000
Cash 7,000 Cash 7,000
 CONTRIBUTED CAPITAL SECTION OF
SHAREHOLDER'S EQUITY

The contributed capital section of the shareholder’s equity is composed of the following :
SHARE CAPITAL ACCOUNTS – (ORDINARY AND PREFERENCE)
SUBSCRIBED SHARE CAPITAL ACCOUNTS – (ORDINARY AND PREFERENCE)
SHARE PREMIUM/ ADDITIONAL PAID IN CAPITAL ACCOUNTS
TOTAL CONTRIBUTED CAPITAL à If payment of subscription receivable is beyond one year or not
given, subscription receivable must be subtracted to the total contributed capital.
RETAINED EARNINGS
(TREASURY SHARES) à If there is any shares buy back by the corporation from the its shareholders
TOTAL SHAREHOLDER’S EQUITY
CONTRIBUTED CAPITAL SECTION OF ABC COMPANY
UNDER MEMORANDUM ENTRY METHOD

SHAREHOLDER’S EQUITY
CONTRIBUTED CAPITAL:
Preference Share Capital, P 50 stated value , 50,000 shares
authorized; 7,000 shares issued and outstanding P 350,000
Ordinary Share Capital, P 10 par, 100,000 shares authorized;
28,500 shares issued and outstanding 285,000
Subscribed Ordinary share 30,000
Paid in capital in excess of stated value – Preference 31,904.76
Ordinary Share Premium 129,095.24
TOTAL CONTRIBUTED CAPITAL 826,000

Because the remaining balance of subscription receivable – ordinary of P 40, 800 is collectible within one year
(payable within 60 days), it will be presented under the current asset section of the statement of financial position. If
this subscription receivable is collectible beyond one year, it will be deducted to the contributed capital(total
contributed capital = 785,200).
CONTRIBUTED CAPITAL SECTION OF ABC COMPANY
UNDER JOURNAL ENTRY METHOD

SHAREHOLDER’S EQUITY
CONTRIBUTED CAPITAL:
Preference Share Capital, P 50 stated value
Authorized 50,000 shares P2,500,000
Less: Unissued 43,000 shares 2,150,000 P 350,000
Ordinary Share Capital, P 10 par,
Authorized 100,000 shares P 1,000,000
Less: Unissued 71,500 shares 715,000 P 285,000

Subscribed Ordinary share 30,000

Paid in capital in excess of stated value – Preference 31,904.76
Ordinary Share Premium 129,095.24
TOTAL CONTRIBUTED CAPITAL 826,000

Either of the method used, the total contributed capital computed would still be the same.
 LEGAL C APITAL

The Legal capital of a corporation is the portion of the contributed capital not allowed to be distributed or
impaired to protect the interest of the corporate creditors because of the limited liability characteristic of a
corporation.
The LEGAL CAPITAL OF A CORPORATION is composed of :
1. If the corporation issues shares with par value—the legal capital is composed of the total par value of
share issued and subscribed (ORDINARY SHARE CAPITAL + PREFERENCE SHARE CAPITAL +
SUBSCRIBED ORDINARY SHARES + SUBSCRIBED PREFERENCE SHARE )
2. If the corporation issues shares with no par value—regardless there is a stated value or no stated
value, the legal capital is composed of the total consideration received or receivable from share issued and
subscribed ( ORDINARY SHARE CAPITAL + PREFERENCE SHARE CAPITAL + SUBSCRIBED ORDINARY
SHARES + SUBSCRIBED PREFERENCE SHARE + PAID IN CAPITAL IN EXCESS OF STATED VALUE –
ORDINARY + PAID IN CAPITAL IN EXCESS OF STATED VALUE – PREFERENCE)
IF A SHARE IS ISSUED WITHOUT ANY PAR OR STATED VALUE, THE TOTAL CONSIDERATION RECEIVED
OR RECEIVABLE IS CREDITED IN FULL IN THE SHARE CAPITAL ACCOUNT.

ILLUSTRATION:
ABC Company issued 1,000 shares for cash with no par, no stated value. The shares are currently selling at P
20 per share.

The entry in the books of ABC upon issuance of the shares is as follows:

Cash 20,000
Ordinary Share Capital 20,000

In no case could a no- par, no stated value shares be issued less than a consideration of P5.
 OTHER TERMS:

ISSUED SHARES – The number of shares sold.

SUBSCRIBED SHARES – The number of shares issued but not fully paid.
OUTSTANDING SHARES – The number of shares sold in the hands of the shareholders other than the
corporation
TREASURY SHARES – The number of share sold in the hands of the corporation.