SHARE CAPITAL

➢ Ordinary share capital – subordinate to all other classes of equity instruments

Consideration Received other than Cash

 Noncash
1. Non-cash asset/ Service Recorded at an amount equal to the following:
1. Fair value of Noncash consideration Received
2. Fair value of share capital Issued
3. Par Value of share capital Issued
2. Liability Extinguished Items classified as debt for equity swap under
IFRIC 19( in order of Priority)
1. Fair value of share capital issued
2. Fair value of liability extinguished
3. Carrying amount of liability extinguished
**any difference between the CA of the financial liability extinguished and the measurement of
the equity instruments issued shall be recognized in profit or loss.

➢ Preference share capital – gives holder preferences over ordinary shareholders

 ✓ Preference over dividends

✓ Preference over assets

Two methods of accounting for share capital:

❖ Memorandum method – “Share capital”

❖ Journal entry method - “Unissued share capital”

Example

6-Feb XYZ Corporation was organized with an authorized to issue capital stock of 80,000 ordinary
shares, par value of P100. Issued and outstanding were 20,000 shares for P2,000,000 cash paid
by the Incorporators. Share certificates were issued.

9-Mar Cash of P20,000 was received and 200 shares of stock were issued to an investor

8-Apr Cash of P10,000 was received from a subscriber as 25% of his subscription price for 400 shares.

25-May Cash of P30,000 was received from the investor on April 08 . Share certificates were issued

Aug 20 Cash of P46,000 was received and 400 shares of stocks were issued
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD
DATE ACCOUNT TITLES DR CR ACCOUNT TITLES DR CR
6-Feb Memo Entry: Unissued Share Capital 8,000,000
Authorized to issue 80,000 shares at P100 Authorized Share Capital 8,000,000
par value.
Cash 2,000,000 Cash 2,000,000
Share Capital 2,000,000 Unissued Share Capital 2,000,000

9-Mar Cash 20,000 Cash 20,000

Share Capital 20,000 Unissued Share Capital 20,000

8-Apr Cash 10,000 Cash 10,000

Subscription Receivable 30,000 Subscription Receivable 30,000
Subscribed share capital 40,000 Subscribed share capital 40,000

25-May Cash 30,000 Cash 30,000

Subscription Receivable 30,000 Subscription Receivable 30,000

Subscribed Share Capital 40,000 Subscribed Share Capital 40,000

Share Capital 40,000 Unissued Share Capital 40,000

20-Aug Cash 45,000 Cash 45,000

Legal Capital
Share Capital 40,000 Unissued Share Capital 40,000
Share Premium 5,000 Share Premium 5,000
  Is the portion of paid in capital restricted for withdrawal during the lifetime of the corporation
for the protection of 3rd party.

 “Trust Fund Doctrine”

Formula:
 With PAR
Share capital XX
Subscribed share capital XX
Total Legal Capital XX
 No par value
Share capital XX
Subscribed share capital XX
Paid in capital in excess
Of stated value XX
Total Legal Capital XX
Illustrative Example 1: Computation of Legal Capital
Abacus Corporation provided the following information at year end:
Preference Share capital, P100 par 2,300,000
Computation of Legal
Share Premium - preference share 805,000 Capital:
Ordinary share capital, P10 par 5,250,000
Share premium ordinary share 2,750,000 Preference Share capital 2,300,000
Retained Earnings 1,900,000 Ordinary Share Capital 5,250,000
Subscribed ordinary share
Notes Payable 4,000,000 capital 400,000.00
Subscription Receivable - ordinary
share 400,000 Total Legal Capital 7,950,000

Note: In case of par value share, legal capital is the total amount of stated value issued and subscribed plus
any excess over the stated value is accordance with the Corporation code of the Philippines.
TREASURY SHARES – Company’s own stock previously issued,
reacquired but not cancelled
Accounting for Treasury shares
➢ Cost method
– Treasury shares are recognized at acquisition cost
– Subsequent reissuance or retirement also recognized at cost
– REQUIRED by the standards as the method to account for treasury shares
➢ Par value method
– Treasury shares are recognized at par
– Subsequent reissuance or retirement also recognized at par
❖ COST METHOD
▪ Reissuance
a. Above cost
– Credited to “Share premium – treasury shares”

b. Below cost
– Debited to:
✓ Share premium – treasury shares
✓ Retained earnings

▪ Retirement
a. Perceived gain
– Credited to “Share premium – treasury shares”

b. Perceived loss
– Debited to:
✓ Share premium – treasury shares
✓ Retained earnings
Equal to the amount paid by the delinquent
**When retiring shares of the corporation, share premium – original issuance is derecognized.
a. PS(4,000x100) 400,000
SP on PS(4,000/40,000 x 400,000) 40,000
RE(Balancing Figure) 80,000
Cash(130x4,000) 520,000

b. PS(4,000x100) 400,000
SP on PS(4,000/40,000 x 400,000) 40,000
Cash(90x4,000) 360,000
SP- retirement(balancing figure) 80,000