SHAREHOLDER’S EQUITY

 The residual interest of owners in the net assets Authorized Share Capital
of a corporation measured by the excess of
assets over liabilities.  The amount fixed in the articles of incorporation.
 The share capital is divided into SHARES evidenced
by a SHARE CERTIFICATE
Elements of Shareholder’s Equity
1. Share Capital
2. Subscribed share capital SHARE
3. Ordinary share capital
 Represents the interest or right of a shareholder in
4. Preference share capital
the organization
5. Share Premium
a. To share in the earnings of a corporation
6. Accumulated profits (losses)
b. To vote in the election of directors and in the
7. Appropriation reserve
determination of certain corporate policies
8. Treasury share
c. Right of preemption
d. To share in the net assets of the corporation
TERMS TO REMEMBER
upon liquidation
Share Capital
A. SHARE CAPITAL
 Portion of the paid in capital representing the
 may be par value share or no-par value share
total par or stated value of the shares issued.

Subscribed share capital  PAR VALUE SHARE

 The portion of the authorized share capital that
has been subscribed but not yet fully paid and
therefore still unissued.
 The subscribed share capital is reported minus
subscription receivable not collectible currently.
Share Premium
 Portion of the paid in capital representing
excess over the par or stated value.
Sources of Premium
a. Excess over par value or stated value
b. Resale of treasury shares at more than cost
c. Donated capital
d. Issuance of share warrants
e. Distribution of share dividends
f. Quasi-reorganization and recapitalization
Retained Earnings
 The cumulative balance of periodic earnings,
dividends distributions, prior period errors and
other capital adjustments.
Revaluation Surplus
 The excess of the revalued amount over the
carrying amount of the revalued asset.
Treasury Shares
 The corporation’s own shares that have been
issued and then reacquired but not cancelled.
 With specific value fixed in the articles of
incorporation and appearing on the share
certificate.
 The purpose of the par value is to fix the
minimum issue price of the share.
 NO-PAR SHARE
 One without any value appearing on the
face of the share certificate.
 A no-par share has always an issued value
or stated value based on the consideration
for which it is issued.
Minimum – P5.00
 If there is only one class of share capital, it
necessarily is ordinary shares.
 Ordinary Share Capital
 Ordinary shareholders have the same rights
and privileges
 Have no fixed or specific return on investment
 Preference Share Capital
 Preference claims on dividends and net
assets in the event of liquidation
 Have only a limited or fixed return on
investment
 A holder of P100 par value, 12%
preference share is entitled to an annual
dividend, if declared, of 12% of P100 or
P12.

Deposits of Description B. LEGAL CAPITAL

 To a proposed increased in share capital may  Portion of the paid in capital arising from issuance
be reported as part of the shareholders’ equity of share capital which cannot be returned to the
as a separate line item in the shareholders’ shareholders in any form during the lifetime of the
equity. corporation.
 a) Par Value Share- The aggregate par value  Issued the certificate for 6,000 shares which are
of the shares issued and subscribed fully paid.
b) No Par Value Share- Total consideration
received from shareholders including the Subscribed share capital 600,000
excess over the stated value Share capital 600,000
TRUST FUND DOCTRINE
 The Revised Corporation Code provides that
o The share capital of a corporation is considered shares are issued only when subscriptions are
as a trust fund for the protection of creditors fully paid.
o It is illegal to return such legal capital to
shareholders during the lifetime of the  Received a subscription for 5,000 shares at par.
corporation.
o However, the corporation can pay dividends to Cash 500,000
shareholders but limited only to the retained Share capital 500,000
earnings balance.
o It is illegal to pay dividends if the entity has a
 A cash subscription is directly credited to the
deficit.
share capital account. It is not necessary to
set up a subscription receivable account.
ACCOUNTING FOR SHARE CAPITAL
a) Memorandum Method STATEMENT PRESENTATION
o Only a memorandum is made for the total  If a statement of financial position is prepared, the
authorized share capital. share capital would be shown under shareholders’
o When share capital is issued, it is credited to the equity.
share capital account.
Share capital, P100 par, 40,000 shares 1,100,000
authorized, 11,000 shares issued
Subscribed share capital, 4,000 shares 400,000
ILLUSTRATION Subscription receivable (300,000)
 An entity was authorized to issue share capital of Shareholders’ Equity 1,200,000
P4,000,000 divided into 40,000 shares.

Memo Entry b) Journal Entry Method

o The authorization to issue share is recorded
The entity was authorized to issue share capital of by debiting unissued share capital and
P4,000,000 divided into 40,000 shares with par crediting authorized share capital.
value of P100. o When share capital is issued it is credited to
the unissued share capital account.
 Received subscription to 10,000 shares at par
ILLUSTRATION
Subscription receivable 1,000,000
Subscribed share capital 1,000,000
 An entity was authorized to issue share capital of
P4,000,000 divided into 40,000 shares
 Collected 25% of the above subscription
Cash 250,000 Unissued share capital. 4,000,000
Subscription receivable 250,000 Authorized Share capital 4,000,000
To record authorization to issue share capital of
P4,000,000 divided into 40,000 shares with
 Received full payment for 6,000 shares originally par value of P100.
subscribed
 Received subscription to 10,000 shares at par.
Cash 450,000
Subscription receivable 450,000
Subscription receivable 1,000,000
Subscribed Share capital 1,000,000
Subscription price (6,000 x 100.00) 600,000 To record received subscription to 10,000
Partial Payment (25% x 600,000) (150,000) shares at par collected 25% of the above
Balance 450,000 subscription
 ILLUSTRATION: With Share Premium
 Collected 25% of the above subscription
If 10,000 ordinary shares of P100 par value
are sold at P150 per share, the journal entry is:
Cash 250,000
Subscription receivable 250,000 Cash 1,500,000
To record collection of 25% of the above Ordinary share capital 1,000,000
subscription Share premium. 500,000

 Received full payment for 6,000 shares originally

subscribed.  When shares without par value are sold, the
proceeds shall be credited to the share capital
Cash 450,000 account to the extent of the sated value, any
Subscription receivable 450,000 excess being reflected as share premium.
To record received full payment for 6,000
shares originally subscribed
ILLUSTRATION: With Share Premium
 Issued the certificate for 6,000 shares which are If 20,000 ordinary shares of P50 stated value are
fully paid. issued at P80 per share, the journal entry is:

Subscribed share capital 600,000 Cash 1,600,000

Unissued share capital 600,000 Ordinary share capital 1,000,000
Issued the certificate for 6,000 shares which Share premium. 600,000
are fully paid
 Shares sold or issued at a price below par or
 Here lies the difference between the journal stated value are said to be issued at a
entry method and memorandum method. DISCOUNT.
 The issuance of share capital is credited to the  The Revised Corporation Code prohibits the issue
unissued share capital account under the journal of share at a discount.
entry method.  When a share is sold at a discount, the discount is
not considered a loss to the issuing corporation,
 Received a subscription for 5,000 shares at par. but the shareholder is held liable therefor.
 The issuance of share is not cancelled but the
Cash 500,000 shareholder must pay for the discount. This is
Unissued share capital 500,000 called the DISCOUNT LIABILITY of the
Received a subscription for 5,000 shares at shareholder.
par
ILLUSTRATION: With Discount
If 10,000 shares of P100 par value are sold for
STATEMENT OF PRESENTATION P800,000 cash, the journal entry is:

Authorized Share capital, P100 par, 4,000,000 Cash 800,000

40,000 shares Discount on share capital 200,000
Unissued share capital, 29,000 shares (2,900,000) Share premium 1,000,000
Issued share capital 1,100,000
Subscribed share capital, 4,000 shares 400,000
Subscription receivable (300,000)  The account discount on share capital is a
Shareholders’ Equity 1,200,000 deduction from total shareholders’ equity.
NOTE: The prohibition to issue share at a discount
refers to the original issue of a share but not to a
ISSUANCE OF SHARE CAPITAL subsequent transfer of such share by the
corporation.
 A share shall not be issued for a consideration less
than the par or stated value.
 The no par share must have a stated value of at
least P5.
 When shares with par value are sold, the
proceeds shall be credited to the share capital
account to the extent of the par value, any excess
being reflected as share premium.
ISSUANCE OF SHARE CAPITAL FOR NONCASH
CONSIDERATION
 If share capital is issued for noncash consideration
such as tangible property, intangible property and
services, the share capital is recorded at an amount
equal to the following in the order of priority.

1) Fair value of the noncash consideration

received
2) Fair value of the shares issued
3) Par value of the shares issued

ILLUSTRATION:
o An entity issued 10,000 ordinary shares of P100
par value in exchange for land with a fair value
of P1,500,000.00
o The fair value of the shares issued is P180 per
share or a total of P1,800,000.

 If the fair value of the land is used, the journal

entry is:
Land 1,500,000
Ordinary Share capital 1,000,000
Share premium 500,000

 If the fair value of the shares issued is used,

the journal entry is:
Land 1,800,000
Share capital 1,000,000
Share premium 800,000

 If the par value of the shares issued is used,

journal entry the is:
Land 1,000,000
Share capital 1,000,000

ISSUANCE OF SHARE CAPITAL FOR SERVICES

 Shares may be issued for services as long as the
services are already rendered.
 The shares shall be recorded at the fair value of
such services or fair value of the shares issued,
whichever is reliably determinable.

ILLUSTRATION:
 An entity issued 1,000 ordinary shares of
P100 par value to lawyers for their legal
services in getting the corporation organized.
 The fair value of such services is reliably
determined to be P120,000.

Legal expenses 120,000

Ordinary Share capital 100,000
Share premium 20,000