ILLUSTRATIVE PROBLEMS:

PROBLEM 1-1: SHARE SPLIT (Adapted: Practical Accounting 1, by Conrado O. Uberita, 2015

Edition, page 548)

Effective April 23, 2014, the shareholders of Warm Corporation approved a 2 for 1 share split of Warm

ordinary share and an increase in authorized ordinary share from 100,000 shares (par value P80 per

share) to 200,000 shares (par value P40 per share). Warm's Shareholders' Equity accounts

immediately before issuance of the share split shares were as follows:

Ordinary share (par value P80, 100,000 shares authorized, 50,000 shares outstanding) P4,000,000;

Share Premium (P12 per share on the issuance of ordinary share)-P600,000; and Accumulated Profits

and Losses -P5,400,000.

The split shares were issued on June 30, 2014

In Warm Corporation's June 30, 2014 statement of shareholders' equity, balances of Share Premium

and Accumulated Profits and Losses, respectively, are:

a) None & P2,000,000

b) P 600,000 & P1,400,000

c) P 600,000 & P5,400,000

d) P4,600,000 & P1,400,000

Answer: C

Share split is the issue of new shares in exchange for original shares will. Par value is reduced in

proportion to the increased number of shares (split up); par value increased in proportion to the

decreased/reduced number of shares (reverse split). The total peso value of share capital, share

premium, and accumulated profits and losses do not change.

PROBLEM 1-2: SHAREHOLDERS EQUITY (Adapted: Practical Accounting 1, by Conrado O.

Uberita, 2015 Edition, page 551)

Leave Company was organized on January 2, 2009 at which date it issued 200,000 shares of P10 par

ordinary share at P15 per share. During the period January 2, 2012 to December 31, 2014, Leave

reported cumulative net income of P900,000 and paid cash dividends of P460,000. On January 2,

2014, Leave purchased 12,000 of its ordinary share at P12 per share. On December 31, 2014, Leave

sold 8,000 treasury shares at P8 per share.

What is the total shareholders' equity at December 31, 2014?

a) P 3,360,000

c) P 3,376,000

b) P 3,408,000

d) P 3,440,000

Answer: A

SOLUTION:

January 2 issue (200,000 x P15) P 3,000,000

Net income 900,000

Dividends (460,000)

Treasury shares (144,000)

Re-issuance of Treasury shares (8,000 x 8) 64,000

Shareholder’s equity P 3,360,000

Proceeds from the re-issuance of treasury share will be the net Increase in the Shareholders' Equity,

regardless, whether the shares were issued at a gain (Share Premium) or at a loss (Share Premium or

Accumulated Profits and Losses).

PROBLEM 1-3: TREASURY SHARE AS SHARE OPTION (Adapted: Practical Accounting 1, by

Conrado O. Uberita, 2015 Edition, page 569)

Constellation, Inc. had 60,000 shares of treasury share (P10 par value) at December 31, 2011, which

it acquired at P11 per share. On June 1, 2011, Constellation issued 30,000 treasury shares to

employees who exercised options under Constellation's employee share option plan. The market

value per share was P13 at December 31, 2011, P15 at June 1, 2012, and P18 at December 31, 2012.

The share options had been granted for P12 per share. The cost method is used.

What is the balance of the treasury share on Constellation's statement of financial position sheet at

December 31, 2012?

a) P210,000

b) P270,000

c) P330,000

d) P360,000
Answer: C

SOLUTION:

Original cost (60,000 x P11) P660,000

Less: Cost of treasury shares issued (30,000 × 11) 330,000

Balance of treasury shares. P330,000

PROBLEM 1-4: TREASURY SHARES (Adapted: Practical Accounting 1, by Conrado O. Uberita,

2015 Edition, page 549)

The following capital accounts are shown in the balance sheet of Laughing Corporation:

Ordinary share, 10,000 shares, par value P1,000,000

Premium on ordinary share 20,000

Share premium - treasury shares 30,000

Accumulated profits and losses 750,000

Treasury share, 2,000 shares at cost 250,000

The entire 2,000 treasury shares were sold for P200,000.

What would be the balance of the Accumulated Profits and losses account after this sale?

a) P250,000

b) P700,000

c) P730,000

d) P750,000

Answer: C

SOLUTION:

Reissue price P200,000

Less: Cost old treasury share 250,000

Loss 50,000

Accumulated profits prior to reissuance P750,000

The loss on re-issue is charged according to priority:

1st priority (Share Premium from treasury) P30,000

2nd priority (Accumulated Profits) 20,000 20,000

Total Loss P50,000

Accumulated Profits after the sale P730,00

Journal entry to record the re-issue of treasury shares

Cash P200,000

Share premium-treasury 30,000

Accumulated profits and losses 20,000

Treasury shares P250,000

PROBLEM 1-5: RETIREMENT OF TREASURY SHARES (Adapted: Practical Accounting 1, by

Conrado O. Uberita, 2015 Edition, page 553)

The shareholders' equity section of Bless Corporation's balance sheet at December 31, 2013 was as

follows:

Ordinary share (P10 par value, authorized 1,000,000

shares issued and outstanding 900,000 shares) P 9,000,000

Share Premium 2,700,000

Accumulated Profits and Losses 1,300,000

Total Shareholders' Equity P 13,000,000

On January 2, 2014, Bless purchased and retired 100,000 shares of its own equity for P1,800,000.

Immediately after retirement of these 100,000 shares, the balance in the Share Premium and

Accumulated Profits should be

Share Premium Accumulated Profits

a) 900,000 1,300,000

b) 1,400,000 800,000

c) 1,900,000 1,300,000

d) 2,400,000 800,000

Answer: D

SOLUTION:

Share Premium prior to the purchase &

retirement of shares P2,700,000

Less: Share premium related to shares retired

(2,700,000/900,000 × 100,000) 300,000

Share premium after retirement P2,400,000

Accumulated Profits prior to purchase &

retirement P1,300,000

Less: Loss on retirement of share

Retirement price P1,800,000

Less: Par & related Share Premium

Par (100,000 x P10) P1,000,000

Share Premium

(100,000 x P3) 300,000 1,300,000 500,000

Accumulated profits after the retirement P 800,000

Journal entry to record the purchase and retirement of share capital

Share capital (100,000 x P10) P1,000,000

Share premium 300,000

Accumulated profits and losses 500,00

Cash P1,800,00