Shareholders’

Equity
 OUTLINE

Stock Rights
Treasury Shares
Dividends
Quasi-reorganization
Share-based payments
 Issuance of ORDINARY share & PREFERENCE share for CASH at a lump-sum amount

Ordinary Share = 10,000 shares x P25 = P250,000

Preference Share = 15,000 shares x P20 = P300,000

Cash 480,000
Ordinary share ( 250,000 / 550,000 ) x 480,000 218,182
Ordinary Share Capital ( 10,000 x P5 ) 50,000
Preference share ( 300,000 / 550,000 ) x 480,000 261,818 Preference Share Capital ( 15,000 x P15 ) 225,000
Share Premium - Ordinary ( 218,182 - 50,000 ) 168,182
TOTAL 480,000
Share Premium - Preference ( 261,818 - 225,000 ) 36,818
 Issuance of share capital for SERVICES RECEIVED

FAIR VALUE OF SERVICES RECEIVED or FAIR VALUE OF SHARES ISSUED

whichever is more clearly determinable

Expense ( 6,000 x 150 ) 900,000

Ordinary Share Capital ( 6,000 x P100 ) 600,000
Share Premium - Ordinary 300,000
 TREASURY SHARES

Shares that have been issued to shareholders and

have been reacquired

Recorded at cost irrespective of whether these

shares are acquired above or below the par value

Deduction from Shareholders’ Equity ( contra-equity )

Normal balance = DEBIT

Treasury Shares Transactions

Purchase
Reissuance
Retirement
 PURCHASE of Treasury Shares
Treasury Shares xx

Cash xx

REISSUANCE of Treasury Shares

Cash xx

Gain = Reissue price > Cost Treasury shares xx

Share premium - TS xx

Cash xx

Loss = Reissue price < Cost Share premium - TS

Retained Earnings, if applicable
xx
xx
Treasury Shares xx
 PURCHASE of Treasury Shares
Treasury Shares xx

Cash xx

RETIREMENT of Treasury Shares

Ordinary/Preference share capital xx

Gain = Original issue price > Cost Share premium - Ordinary/Preference

Treasury shares
xx
xx
Share premium - TS xx

Ordinary/Preference share capital xx

Loss = Original issue price < Cost Share premium - Ordinary/Preference

Share premium - TS
xx
xx
Retained Earnings, if applicable xx
Treasury shares xx
 TREASURY SHARES
Treasury Issued Outstanding Share Retained
TRANSACTIONS Journal entry TOTAL SHE
shares shares shares Capital Earnings
Treasury shares xx NO NO NO
PURCHASE Cash xx EFFECT EFFECT EFFECT

Cash xx
REISSUANCE NO NO NO
Treasury shares xx
AT A GAIN EFFECT EFFECT EFFECT
Share premium - TS xx
Cash xx
Share premium - TS xx NO NO
REISSUANCE
Retained earnings xx EFFECT EFFECT
AT A LOSS if applicable
Treasury shares xx

Ordinary/Preference share xx
Share premium - Ordinary/Preference xx
RETIREMENT Share premium - TS xx NO NO
AT A LOSS Retained earnings xx EFFECT EFFECT
Treasury shares xx if applicable

Ordinary/Preference share xx
RETIREMENT Share premium - Ordinary/Preference xx NO NO NO
AT A GAIN Treasury shares xx EFFECT EFFECT EFFECT
Share premium - TS xx
The PBB Company had 100,000 shares of Ordinary share capital on December 31, 2020. Its Statement of Financial Position
on that date showed the following Shareholders’ Equity balances:

Ordinary share capital, P10 par P1,000,000 ORIGINAL ISSUE PRICE = 1,300,000 / 100,000 shares
Share premium 300,000 = P13 per share

Retained Earnings 900,000

The following treasury share transactions took place in 2021:

1. Purchased 10,000 ordinary shares at P14 per share
2. Reissued 4,000 of the treasury shares above at P15 per share
3. Reissued 5,000 of the treasury shares above at P13 per share
4. Retired the remaining treasury shares

3. REISSUANCE of TS at a LOSS
1. Purchase of TS Cash ( 5,000 x P13 ) 65,000
Treasury shares ( 10,000 x P14 ) 140,000 Share premium - TS 4,000
Cash 140,000 Retained earnings 1,000
Treasury Shares ( 5,000 x P14 ) 70,000

2. REISSUANCE of TS at a GAIN 4. RETIREMENT of TS at a LOSS

Cash ( 4,000 x P15 ) 60,000 Ordinary share capital ( 1,000 x P10 ) 10,000
Treasury shares ( 4,000 x P14 ) 56,000 Share premium - ordinary ( 1,000 x P3 ) 3,000
Share premium - TS ( 4,000 x P1 ) 4,000 Retained earnings 1,000
Treasury Shares ( 1,000 x P14 ) 14,000
 ACCOUNTING FOR STOCK RIGHTS
Cash xx
Share Capital xx
Share Premium xx

Retained Earnings xx
Cash xx

300,000 shares 300,000 stock rights

1:1 basis ( no. of Outstanding Shares = no of Stock Rights issued )

10 stock rights to buy one share
Policy ( no. of Stock Rights to be submitted to buy a certain number of shares)
Cash Received ( based on Shares Issued x Exercise Price )
300,000 / 10 x 1 = 30,000 shares P20 / share

300,000 shares

Cash ( 30,000 x P20 ) 600,000

Ordinary Share Capital ( 30,000 x P10 ) 300,000

Share Premium - Ordinary 300,000

Shares that have been issued and are still in the hands of the shareholders
 SHARE DIVIDEND / BONUS ISSUE

SMALL ( less than 20% ) = Retained Earnings @ FAIR VALUE

LARGE ( 20% or more ) = Retained Earnings @ PAR

Retained Earnings (par or fair value) xx

Share dividends distributable (par) xx
Share premium (if small bonus issue) xx

Share dividends distributable (par) xx

Ordinary share capital (par) xx
 QUASI - REORGANIZATION

Eliminate Deficit/Negative Retained Earnings/DEBIT balance in RE

Recapitalization = SHARE PREMIUM
Revaluation = REVALUATION SURPLUS
Initial De cit xx
4,000,000

Write-down of Assets 3,500,000 + 1,500,000 5,000,000

xx

Unrecorded Liabilities xx
-0-

TOTAL DEFICIT TO BE ELIMINATED xx

(9,000,000)

Share premium balance before elimination 11,000,000

3,000,000 + 8,00,000

Share premium balance after elimination 2,000,000

8,000,000 + 2,000,000 + 0

Retained Earnings 3,500,000

PPE 3,500,000 Share Capital, P10 16,000,000
Share Capital, P5 8,000,000
Share premium 8,000,000
Retained Earnings 1,500,000
Other Assets 1,500,000
fi
 PFRS 2:
SHARE-BASED PAYMENTS
 EQUITY-SETTLED SHARE-BASED PAYMENT CASH-SETTLED SHARE-BASED PAYMENT

DATE OF GRANT Share Options Share Appreciation Rights

BS DATE Compensation expense xx Compensation expense xx

MEASUREMENT Share options outstanding (Equity) xx Share appreciation rights payable (Liability) xx

DATE OF EXERCISE SHARES CASH

FREQUENTLY ASKED QUESTIONS

Compensation Expense

Share options outstanding, BS date

Share appreciation rights payable, BS date

Share premium to be credited upon exercise of the share options

Cash payments upon exercise of the share appreciation rights
EQUITY-SETTLED SHARE-BASED PAYMENTS

Number of share options EXPECTED to vest

FAIR VALUE of share options or INTRINSIC VALUE
VESTING period

Market Price xx
Note: Exercise price / Option Price (xx)
Intrinsic value XX
 40,800 options
42,300 options
45,200 options

Annual Compensation Expense ( 2019 ) = 40,800 x P30 / 3 years = 408,000

Compensation expense 408,000

Share options outstanding 408,000
 40,800 options
42,300 options
45,200 options

Revised Annual Compensation Expense ( 2020 ) = 42,300 x P30 / 3 years = 423,000

Cumulative Compensation Expense ( 2019 & 2020 ) = 423,000 x 2 years = 846,000
Compensation Expense ( 2020 ) = 846,000 - 408,000 = 438,000
Compensation expense 438,000

Share options outstanding 438,000

 40,800 options
42,300 options
45,200 options

Revised Annual Compensation Expense ( 2021 ) = 45,200 x P30 / 3 years = 452,000

Cumulative Compensation Expense ( 2019 to 2021 ) = 452,000 x 3 years = 1,356,000
Compensation Expense ( 2021 ) = 1,356,000 - 408,000 - 438,000 = 510,000
Compensation expense 510,000

Share options outstanding 510,000

 40,800 options
42,300 options
45,200 options

40,000 options exercised

Cash ( 40,000 x P120 ) 4,800,000

Share options outstanding ( 40,000 x P30 ) 1,200,000
Ordinary Share Capital ( 40,000 x P100 ) 4,000,000
Share Premium - Ordinary 2,000,000
CASH-SETTLED SHARE-BASED PAYMENTS

Number of share appreciations rights EXPECTED to vest

FAIR VALUE of share appreciation rights ( BS date measurement )

INTRINSIC VALUE ( Cash Payment )

VESTING period
 18,500 SARS
18,200 SARS
18,700 SARS

Compensation Expense ( 2019 ) = 18,500 x P24.80 / 3 years = 152,933

Cumulative Compensation Expense (2019 & 2020 ) = 18,200 x P30.40 x 2/3 = 368,853

Compensation Expense ( 2020 ) = 368,853 - 152,933 = 215,920

 18,500 SARS
18,200 SARS
18,700 SARS

Cumulative Compensation Expense (2019, 2020 & 2021) / SARs Payable as of December 31, 2021

18,700 x P32.80 x 3 / 3 = 613,360

EARNINGS PER SHARE
PAS 33

BASIC Earnings Per Share (BEPS)

DILUTED Earnings Per Share (DEPS)

 Net Income to
Net Income - Preference Dividend
BASIC EARNINGS PER SHARE = Ordinary
(BEPS) WANOSO

Cumulative = Deduct from net income whether declared or not

Non-Cumulative = Deduct from net income when declared only
Weighted Average Number of Ordinary Share Outstanding

1.

1/1/22 200,000 200,000 x 1.10 x 2 x 12/12 440,000

4/1/22 10% stock dividend - -

10/1/22 20,000 20,000 x 2 x 3/12 10,000

11/1/22 2 for 1 share split - -

WANOSO 450,000
 DILUTED EARNINGS PER SHARE (DEPS)

Potential Ordinary Share:

Convertible Preference Shares

Convertible Bonds

Options and Warrants Exercise Price < Average Market Price

Earnings Per Incremental Share (EPIS)

POS Adjustment to Numerator Adjustment to Denominator

Convertible Preference Shares Preference dividend is not deducted Converted shares

Convertible Bonds Add back Interest expense, net of tax Converted shares

No. of shares assumed issued

Options and Warrants -No adjustment- without consideration
 1.

2.

500,000 -0-
= P10.00
50,000

500,000 -0-
DEPS = P9.43
50,000 + 3,000

Number of shares issued = (Ave. market price - Exercise price)

without consideration x no. of shares related to the options or warrants
Ave. market price
Number of shares issued without consideration = 105 - 70 / 105 x 9,000 = 3,000
No. of shares issued if sold at Ave. market price = P630,000 / P 105
Cash proceeds = 9,000 shares x P70 = P630,000 = 6,000 shares
No. of shares issued without consideration = 9,000 - 6,000 = 3,000
 “When life gives you a hundred
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life that you have a million reasons to
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