Module 12 Shareholders Equity.docx

MODULE 12: Shareholders’ Equity
 RELATED STANDARDS: IAS 1 – Presentation of Financial Statements; IAS 32 – Financial

Instruments: Presentation; Batas Pambansa Bilang 68 – The Corporation Code of the
Philippines
 Definition of Terms (B.P. Blg. 68, IFRS, and various textbooks)

Authorized capital – The total amount of shares which a corporation is allowed to issue if shares
have a par value.
Capital stock – Amount specified in the articles of incorporation paid in, or procured to be paid
in for carrying on of the business of the corporation.
Callable preference shares – Preference shares which can be called in for redemption at a
specified price at the option of the corporation.
Convertible preference share – Preference shares which gives the holder the right to exchange
the holdings for other securities of the issuing corporation.
Legal capital – The portion of the contributed capital or the minimum amount of the paid-in
capital which must remain in the corporation for the protection of corporate creditors.
Ordinary share – Basic stock class ownership of a corporation without any advantage or
preference over any other class of shares.
Outstanding shares – Issued shares in the hands of the shareholders.
Paid in capital – The section of stockholders' equity that reports the amount a corporation
received when it issued its shares of stock. Also called contributed capital.
Preferred shares – Stock issued by a corporation which give preference in the distribution of the
assets of the corporation in case of liquidation and in the distribution of dividends, or such
other preferences as may be stated in the articles of incorporation.
Redeemable shares – Shares that provide for mandatory redemption by the issuer for a fixed or
determinable amount at a fixed or determinable future date, or gives the holder the right to
require the issuer to redeem the instrument at or after a particular date for a fixed or
determinable amount.
Retained earnings – Cumulative balance of periodic earnings, dividend distributions, prior
period adjustments and other capital adjustments.
Rights issue - Issue of rights to existing shareholders that entitles them to buy additional shares
at specified price in proportion to their existing holdings, within a fixed time period.
Share premium – The portion of the paid-in capital representing the amount in excess of par.
Also called additional paid in capital.
Share warrants – A financial instrument that gives the holder the right to purchase ordinary
shares.
Shareholders’ equity – The residual of assets minus liabilities.
Subscribed capital – The portion of the authorized capital which has been subscribed but not
yet fully paid.
Treasury shares – Shares of stock which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation by purchase, redemption, donation or through some
other lawful means. An entity’s own equity instruments, held by the entity or other members of
the consolidated group.
 Elements of shareholders’ equity

1. Share capital
 Classes of shares
a. Ordinary shares
b. Preference shares
2. Subscribed share capital
3. Subscriptions receivable – Deducted from subscribed shares capital if collectible for a period
of more than 12 months (contra equity account). Otherwise, subscription receivable is
presented as a current asset.
4. Share premium (Additional paid in capital)
a. Excess over par
b. Reissuance of treasury shares at more than cost
c. Donated capital
d. Share warrants (compound financial instruments - i.e. securities issued with warrants;
fractional warrants)
e. Conversion privilege (compound financial instruments - i.e. convertible bonds)
f. Quasi-reorganization and recapitalization
5. Stock dividend payable/share dividends distributable
6. Retained earnings
7. Revaluation surplus
8. Treasury shares – Contra equity account
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Shareholders’ Equity
9. Other comprehensive income
 Accounting methods for share capital

1. Memorandum method – No journal entry for authorized share capital. Shares issuance is
credited to the particular share capital account.
2. Journal entry method – Authorization to issue shares is recorded. Shares issuance is credited
to the unissued share capital account.
 Issuance of shares
 At least 25% of the authorized shares must be subscribed at the time of incorporation, and
at least 25% of the total subscription must be paid upon subscription.
 Shares without par value may not be issued for a consideration less than the value of P5 per
share.
 Consideration received in excess of par value is credited to share premium.
 Stocks shall not be issued for a consideration less than the par or issued price thereof.
 Discount on share premium for original issuance is prohibited by the Corporation Code.
Thus, shareholder must pay for the discount liability.
 Treasury shares may be sold or reissued for consideration less than par value.
 Watered share is share capital issued for inadequate consideration. Watered shares
overstate both equity and asset. Discount liability must be recognized for watered shares.
 Issuance of both ordinary and preference shares for a basket price (single price for both
securities)
 Consideration is allocated prorate based on the fair values of both shares
 When only one security has fair value, residual value of the consideration is assigned to
the other security.
 Issuance of shares for noncash consideration

 Consideration for shares issuance may be other than cash, such as, tangible or intangible
property and service.
 Order of priority for measurement of equity issued:
a. Fair value of noncash consideration
b. Fair valued of shares issued
c. Par value of shares issued
 Share issue costs

 An entity typically incurs various costs in issuing or acquiring its own equity instruments.
Those costs might include registration and other regulatory fees, amounts paid to legal,
accounting and other professional advisers, printing costs and stamp duties.
 Order of priority for charging stock issuance costs
a. share premium from previous issuance
b. retained earnings
 The costs of an equity transaction that is abandoned are recognized as an expense.
 Joint costs shall be allocated between
a. Newly issued and listed shares (share premium)
b. Newly listed old existing shares (expense)
 Delinquent subscription
 Subscribed capital not paid by shareholders shall be considered delinquent and will be sold
at public auction.
 Highest bidder is the person willing to pay the offer price of the delinquent shares for the
smallest number of shares.
 If there is no winning bidder, delinquent shares will be reacquired by the entity as treasury
shares.
 Callable preference shares

 No definite redemption date and callable at the option of the issuer/corporation.
 Classified as equity instrument, part of shareholders’ equity account.
 Accounting for callable preference shares:
 Call price is more than the par value of preference shares, excess is debited to (order of
priority):
a. Share premium from original issuance
b. Retained earnings
 Call price is less than the par value of preference shares, excess is credited to share
premium.
 Redeemable preference shares
 Has mandatory redemption date or redeemable at the option of the shareholder.
 Classified as financial liability.
 Dividends paid shall be accounted as interest expense.
 The difference between the redemption price and the amount of the financial liability is
accounted for as gain or loss on redemption (part of profit or loss).
 Convertible preference shares

 Preference shares are normally convertible into ordinary shares. Preference shares may also
be convertible to bonds (debt securities).
 Issuance of convertible preference shares is accounted as normal issuance of shares.
 Accounting for conversion of preference shares into ordinary shares:
 Par value of ordinary shares is more than the par value of preference shares , excess is
debited to (order of priority):
a. Share premium from original issuance
 Par value of ordinary shares is less than original issue price of convertible preference
shares (par plus share premium), excess is accounted as share premium on ordinary
shares.
 Rights issue and warrants

 Rights issued in connection with right of pre-emption
 No journal entry for issuance of rights, memorandum entry only.
 Exercise of rights is accounted as regular issuance of shares.
 No journal entry for expiration of rights, memorandum entry only.
 Preference shares issued with warrants (Compound financial instruments)
o The consideration is allocated between the preference shares issued and share warrants
on the basis of their fair values.
o If there is no known fair value of the warrants, warrants is equal to the consideration
minus the fair value of thee preference shares.
 Bonds payable issued warrants requires measurement and classification of financial liability
and the equity component (warrant) using residual approach.
 Treasury shares
 Cost method is used in accounting for treasury shares.
 Treasury shares account is a contra equity account.
 Reissuance of treasury shares:
 Reissue price is equals to cost, treasury shares account is simply debited.
 Reissue price is more than cost, excess is accounted as share premium - treasury
shares.
 Reissuance below cost, excess is charged to the following accounts (order of priority):
a. Share Premium – Treasury Shares (same class of shares)
1. Retirement of treasury shares:
 Cost is less than par value of retired share capital, excess is credited to share premium
 Cost is more than par value of retired share capital, excess is charged to the following
accounts (order of priority):
a. Share premium (original issuance)
b. Share premium – Treasury shares
c. Retained earnings
 Donated capital
 Donation from shareholders
o Donated assets – accounted as donated capital (share premium)
o Donated shares – entity’s own shares donated by shareholders
 No journal entry when received. Memorandum entry only
 Recorded only when sold. Donated capital account is credited.
2. Donation from non-shareholders
 No restriction, accounted as income
 With restriction, accounted as liability, then transferred to income when restrictions are
met.
 Recapitalization
3. Types of recapitalization:
a. Change from par to no-par and vice versa
 Decrease in new share capital, charged to share premium – recapitalization
 Increase in new share capital, charged to retained earnings
b. Reduction of par value
 Decrease in new share capital, charged to share premium – recapitalization
c. Share split
 Split up – increases the number of outstanding shares, no effect on the amount of
share capital
 Split down/reverse share split – decreases the number of outstanding shares, no
effect on the amount of share capital
 Journal entry
Record the following equity transactions (memorandum method):
1. The corporation is authorized to issue 60,000, P10 par, ordinary shares and 50,000, P20 par,
preference shares.
2. Received subscriptions as follows: 16,000 ordinary shares for P200,000 and paid 40%, and
14,000 preference shares for P300,000 and paid 30%.
3. Issued 1,000 ordinary shares for an equipment. Fair value of equipment is P13,000 and fair
value per share is P12.
4. 1,000 ordinary shares and 1,000 preference shares were issued for P50,000 basket price.
Fair value of ordinary share is P15/share while preference share is P22.5/share.
5. Incurred and paid stock issuance cost of P11,000 for ordinary shares and P4,000 for
preference shares. (In connection with no. 4)
6. Collected P20,000 on the subscribed ordinary shares and the full amount due on subscribed
preference shares.
7. The subscription balance became delinquent. The shares were auctioned and the company
incurred P2,000 auction expenses.
8. The bidders are A = 7,200 shares, B = 7,000 shares and C = 6,800 shares. The full amount
of subscription was paid by the highest bidder including the auction expense and P5,000
interest.
9. Assume unsuccessful bidding of delinquent shares.
10. 2,000 callable preference shares were issued for P21 a share.
11. Half of the callable shares were called in for P23 a share.
12. Remaining callable shares were called in for P19 a share.
13. 5,000 Redeemable preference shares were issued for P23 a share. Mandatory redemption is
P20.
14. Dividends of P2,000 were paid to redeemable preference shareholders.
15. Redeemed all the redeemable preference shares.
16. 1,000 convertible preference shares were issued for P25/share. Conversion is one
preference share is to 3 ordinary shares.
17. Conversion option in the convertible preference shares were exercise altogether.
18. 16,000 stock rights were issued by way of pre-emptive rights. Two rights enables a
shareholder to buy one ordinary share for P11 a share.
19. Half of the stock rights were exercised and the rest expired.
20. 4,000 preference shares with 4,000 warrants were issued for P28.50 a share. Fair value of
preference share ex-warrant is P25 while the fair value of each warrant is P5. Two warrants
enable a shareholder to buy one ordinary share at P11.
21. Exercise all the warrants.
22. 3,000 ordinary shares were reacquired by the corporation at P12/share. Originally issued for
P11.
23. 1,000 of the treasury shares were reissued at P13.
24. 1,500 of the treasury shares were reissued at P9.
25. Remaining treasury shares were retired and cancelled.
26. Received donation of an equipment with cost of P10,000 and fair value of P9,000.
27. Received 1,000 donated ordinary shares from a shareholder when fair value is P12 each.
28. Half of the donated shares were sold for P13 a share and the rest were retired.
29. Par value per preference share was reduced by P1. 19,000 preferences shares were issued
and outstanding.
30. Ordinary shares were split up 2-for-1.
********************************************************
Illustrative Problems
1. Defined as an entity’s own equity instruments held by the entity or other members of the
consolidated group.
A. Ordinary shares C. Callable shares
B. Redeemable shares D. Treasury shares
2. Defined as shares that provide for mandatory redemption by the issuer for a fixed or
determinable amount at a fixed or determinable future date, or gives the holder the right to
require the issuer to redeem the instrument at or after a particular date for a fixed or
determinable amount.
A. Ordinary shares C. Callable shares
3. Defined as basic stock class ownership of a corporation without any advantage or
preference over any other class of shares.
A. Ordinary shares C. Preference shares
4. Defined as The total amount of shares which a corporation is allowed to issue
A. Authorized capital C. Paid in capital
B. Legal capital D. Subscribed capital
5. Defined as the portion of the contributed capital or the minimum amount of the paid-in
capital which must remain in the corporation for the protection of corporate creditors.
A. Authorized capital C. Paid in capital
B. Legal capital D. Subscribed capital
6. The following equity transactions are considered illegal under Philippine laws, except
A. Returning legal capital to shareholders during the lifetime of the corporation.
B. Issuance of shares at a discount.
C. Reissuance of treasury shares at less than cost.
D. Paying dividends if the entity has a deficit.
7. When shares are issued for noncash consideration, the equity component shall be recorded
at
A. Fair value of the shares issued C. Book value of the noncash consideration
B. Fair value of the noncash consideration D. Par value of the shares issued
8. Share issuance cost shall be accounted as
A. Operating expense it is an expense C. Deduction from share premium
B. Deduction from retained earnings D. Loss – part of other comprehensive
income
9. Watered share capital will
A. Understate asset and overstate capital C. Understate asset and capital
B. Overstate asset and understate capital D. Overstate asset and capital
10. Which of the following shall be classified as liability instead of equity?
A. Callable preference share at the option of the issuer.
B. Redeemable preference share at the option of the holder
C. Both A and B
D. Neither A nor B
11. Which statement about treasury share is incorrect?
A. Treasury shares are shares reacquired but not cancelled.
B. Treasury shares must be the entity’s own shares.
C. Treasury shares cannot be legally reissued at a discount (below par value).
D. Retained earnings must be appropriated to the extent of the cost of the treasury shares.
12. For reissuance of treasury shares at more than cost, the excess shall be credited to
A. Share premium C. Gain – other comprehensive income
B. Gain – profit or loss D. Retained earnings
13. For reissuance of treasury shares at less than cost, the excess shall be debited to
A. Retained earnings C. Share premium - treasury
B. Share premium – share capital D. Loss - other comprehensive income
14. Which statement about donated capital is false?
A. Donated capital is credited when contribution is received from shareholders.
B. Donated capital is part of the share premium.
C. No journal entry is need for receipt of an entity’s own shares as donation.
D. Donated capital account is closed to retained earnings at year-end.
15. The following equity transactions do not necessitate a journal entry. Choose the exception.
A. Reduction of par value per ordinary share C. Receipt of entity’s own shares as
donation
B. Share split up D. Issuance of rights issue by way of pre-emptive
right
16. Kazakhstan Company is authorized to issue 600,000 ordinary shares, P10 par. The company
had the following transactions in year 1:
 Issued 20,000 shares at P30, received in cash
 Issued 2,800 shares for legal services costing P100,000.
20,000 x 10 = 200,000
2,800 x 10 = 28,000
125,000 x 10 = 1,250,000
1,478,000
Issued 125,000 shares in exchange for a building valued at P2,950,000 and land
valued at P800,000. The building has original cost of P2,500,000 and P1,000,000
accumulated depreciation. The land was originally acquired for P300,000
Share capital would be
A. 1,485,000 C. 1,478,000
B. 3,978,000 D. 1,543,000
17. Refer to the preceding problem. Share premium would be
A. 2,965,000 C. 2,907,000 400,000+ 72,000 + 2,500,000 =
B. 2,972,000 D. 2,722,000 2,972,000
18. Pakistan shareholders’ equity accounts prior to treasury shares transactions:
Ordinary shares, P10 par P1,200,000
Share premium - issuance 140,000 computation on retired
2,000/ 30,000= 15 share
Retained earnings 720,000
Treasury shares transactions are as follows: 1,200 x 15 = 18,000 800 x 15cost = 12,000
 Acquired 2,000 shares for P30,000 cost 1,200 x 18 = 21,600 800 x 10par = 8,000
 Sold 1,200 shares at P18 per share 3,600 4,000
 Retired the remaining treasury shares
Share premium after treasury shares transactions Share premium issuance
140,000 + 3,600 - 4,000 = 139,600
A. 136,000 C. 143,600
B. 140,400 D. 139,600
19. The accounts shown below appear in the December 31, year 1 trial of Afghanistan
Corporation:
Preference share capital, authorized P100 par P10,000,000
Unissued Preference share capital 3,600,000
Ordinary share capital, authorized P20 par 4,000,000
Unissued Ordinary share capital 2,000,000
Subscription receivable, Preference 380,000
NOT INCLUDED
Subscription receivable, Ordinary 360,000
Subscribed Preference share capital 600,000
Subscribed Ordinary share capital 440,000
Treasury share capital, preferred, at cost 1,360,000
Share premium 1,700,000
Retained earnings 2,000,000
All subscription receivables are due in year 2. How much is the total stockholder’s equity of
Afghanistan Corporation?
A. 11,040,000 C. 12,400,000
B. 11,780,000 D. 13,760,000
20. Turkmenistan Company issued 6,000 shares of its P10 par common stock to Max as
compensation for 1,000 hours of legal services performed. Max billed Turkmenistan for
P500 per hour of legal services. On this date of issuance, the stock was selling at a public
trading at P150 per share. By what amount should the share premium of Turkmenistan
Company increase as a result of the issuance of those shares?
A. 60,000 C. 900,000
B. 440,000 D. 3,000,000
21. The shareholders’ equity section of Uzbekistan Inc. statement of financial position shows the
following:
Preference share capital, P100 par 2,300,000
Ordinary share capital, P10 par 5,500,000
Treasury shares – ordinary, P12 cost/share 132,000
Share premium – ordinary 1,140,000
Share premium – preference 620,000
Subscribed ordinary shares 250,000
Subscription receivable (2 years collectability) 100,000
Donated capital 125,000
Share warrants outstanding 110,000
How much is the legal capital
A. 7,800,000 C. 7,950,000
B. 8,050,000 D. 9,560,000
22. Refer to the preceding problem. How much is the total share premium?
A. 1,995,000 C. 1,760,000
B. 1,885,000 D. 1,870,000
23. Refer to the preceding problem. How many are the outstanding ordinary shares?
A. 550,000 C. 564,000
B. 525,000 D. 539,000
24. Refer to the preceding problem. How much is the total shareholders’ equity?
A. 16,792,000 C. 16,917,000
B. 16,817,000 D. 16,353,000
25. Tajikistan Company issued 100,000 ordinary shares. Of these, 5,000 shares were held in
treasury as of January 1, Year 1. During Year 1, equity transactions are as follows:
May 1 1,000 shares of treasury were sold
Aug 1 10,000 shares were issued
Nov 25 2-for-1 share split took effect
As of December 31, Year 1, how many shares were issued and outstanding?
Issued Outstanding Issue
100,000
Treasury
100,000ordinary - 5,000 treasury= 95,000
5,000
A. 220,000 212,000 10,000 (1,000) 1,000
------------
B. 220,000 216,000 110,000
---------
4,000
--------
96,000
C. 222,000 214,000 x2
--------------
+ 10,000
D. 222,000 218,000 220,000
------------
106,000 x 2 = 212,000
26. During the current year, Kyrgyzstan Co. issued 10,000 ordinary shares with P200 par value
and 20,000 convertible preference shares with P200 par value for a total of P8,000,000. On
the date of issuance, the ordinary share selling at P360 and the preference share is selling
at P270. What amount of the proceeds should be allocated to the convertible preference
shares?
A. 6,000,000 C. 4,800,000
B. 5,400,000 D. 4,400,000
27. Bhutan Corporation reported the following information on December 31, Year 3:
Ordinary share capital, P3 par 600,000 150,000
(50,000) 600,000
Share premium 800,000 800,000
(20,000)
Treasury shares, at cost 50,000 __________ 200,000
Net unrealized loss on available for sale securities 20,000 80,0000 80,000
Retained earnings appropriated for uninsured earthquake loss 150,000 ------------
Retained earnings unappropriated 200,000 1,680,000
What amount should be reported as total shareholders’ equity on December 31, Year 3?
A. 1,680,000 C. 1,780,000
B. 1,720,000 D. 1,820,000
28. Albania Inc. had 700,000 ordinary shares authorized and 300,000 shares outstanding on
December 31, Year 1. The following events occurred during Year 2:
June 30. 330,000-100,000 =
January 31 Declared 10% stock dividend 230,000
June 30 Purchased 100,000 shares 300,000 x 10%= 30,000 Aug. 1 230,00 + 50,000=
August 1 Reissued 50,000 shares 300,000 + 30,000= 330,000 (as a base)280,000
November 30 Declared 2 for 1 stock split
On December 31, Year 2, how many ordinary shares are outstanding? Nov. 30 280x 2 = 560,000
A. 560,000 C. 630,000
B. 600,000 D. 660,000
29. During the current year, Algeria Co. issued 6% bonds with a maturity value of P6,000,000,
together with 10,000 ordinary shares with P50 par value for a combined cash amount of
P11,000,000. The market value of the ordinary share cannot be determined. If the bonds
were issued separately, the bonds would have sold for P4,000,000 on an 8% yield to
maturity basis. What amount should be reported for share premium on the issuance of the
ordinary shares? 11,000,000 - 4,000,000 = 7,000,000
A. 7,500,000 C. 5,500,000 10,000 x 50 = 500,000

B. 6,500,000 D. 4,500,000 7,000,000 - 500,000 = 6,500,000
30. During the current year, Bulgaria Mfg. issued 50,000 convertible preference shares with
P100 par value for P110 per share. One preference share can be converted into three
ordinary shares with P25 par value at the option of the preference shareholder. At year-end,
when the market value of the ordinary share was P40 per share, all of the preference shares
were converted. What amount should be credited respectively to ordinary share capital and
share premium as a result of the conversion?
A. 3,750,000 and 1,750,000 C. 5,000,000 and 500,000
B. 3,750,000 and 2,250,000 D. 6,000,000 and 0
31. Croatia Company acquired 60,000 shares with P10 par value at P30 per share. During the
current year, the entity issued 30,000 of these shares at P50 per share. The cost method is
used in accounting for treasury shares. What accounts and amounts should be credited to
record the issuance of the 30,000 shares?
A. Share capital P300,000, share premium P600,000, and retained earnings P600,000
B. Share capital P300,000 and share premium P1,200,000
Cash 1,500,000
C. Treasury shares P900,000 and share premium P600,000 Treasury share 900,000
D. Treasury shares P900,000 and retained earnings P600,000 Share Premium 600,000`
32. Estonia Co. was organized on January 1, Year 1 with 100,000 shares authorized with P100
par value. On same date, the entity issued 75,000 shares at P140 per share and on
December 31, Year 1, it purchased 5,000 shares at P110 per share to be held as treasury.
The entity used the par value method of recording treasury shares. What is the balance in
the share premium account arising from treasury share transaction on December 31, Year
1? dedma sa par Cash (5,000 x 140 ) 700,000
A. 200,000 treasury is always at cost C. 50,000 Treasury Share (5,000 x 110) 550,000
Share Premium 150,000
B. 150,000 D. 0
33. On January 1, Year 2, Lithuania Inc. had 125,000 shares issued, 25,000 shares of which were
held as treasury. During the current year, transactions were as follows:
January 1 through October 31 – 13,000 treasury shares were distributed to officers as part
of share compensation plan.
November 1 – A 3 for 1 share split took effect.
December 1 – The entity purchased 5,000 of its own shares to discourage an unfriendly
takeover. These shares were not retired. 125,000 - 25,000 = 100,000
100,000 + 13,000 = 113,000 x 3= 339,000
On December 31 Year 2, how many shares were outstanding? 25,000 - 13,000 = 12,000 x 3= 36,000
A. 375,000 C. 334,000
339,000 - 5,000purchased = 334,000
B. 360,000 D. 324,000
34. Latvia Corporation reported the following shareholders’ equity on January 1, Year 4:
Share capital, P10 par, outstanding 225,000 shares2,250,000
Share premium 900,000 270,000/ 6,000 = 45
Retained earnings 2,190,000 3,600 x 45 = 162, 000 900,000 - share premium
3,600 x 50 = 180, 000 + 18,000
During the current year, the entity had the following share transactions:------------
(9,600)
 Acquired 6,000 treasury shares for P270,000. 18,000 ----------
 Sold 3,600 treasury shares at P50 a share. 908,400
 Sold the remaining treasury shares at P41 per share. remaining shares
2,400 x 45= 108,000
What is the total amount of share premium on December 31, Year 4? 2,400 x 41 = 98,400
A. 891,600 C. 908,400 ----------------
B. 870,000 D. 927,600 9,600
35. On December 31, Year 2, Mongolia Co. cancelled 5,000 shares of P50 par value held in
treasury at an average cost of P120 per share. Before recording the cancelation of the
treasury share, the entity had the following shareholder’s equity:
Share capital (50,000 shares originally 2,500,000 5,000 x 50= 250,000
issued at P75)
Share premium 1,250,000 2,500,000 - 250,000 = 2,250,000
Treasury shares, at cost 600,000
On December 31, Year 2, what amount should be reported as share capital outstanding?
A. 2,500,000 C. 2,250,000
B. 1,900,000 D. 2,125,000
36. Nigeria Co. was organized on January 1, Year 1. On that date, the entity issued 200,000
shares with P10 par value at P15 per share. During the period January 1, Year 1 through
December 31, Year 2, the entity reported net income of P2,000,000 and paid cash dividends
of P500,000. On January 5, Year 2, the entity purchased 10,000 shares at P20 per share to
be held as treasury. On December 31, Year 2, 5,000 treasury shares were sold at P30 per
share and the remaining treasury shares were retired. What is the total shareholders’ equity
on December 31, Year 2?
A. 4,450,000 C. 4,400,000
B. 4,350,000 D. 4,950,000
- End of discussion
“He who would learn to fly one day must first learn to stand and walk and run and climb and
dance; one cannot fly into flying.” – Friedrich Nietzsche
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MODULE 12: Shareholders’ Equity

 RELATED STANDARDS: IAS 1 – Presentation of Financial Statements; IAS 32 – Financial

 Definition of Terms (B.P. Blg. 68, IFRS, and various textbooks)

 Elements of shareholders’ equity

 Accounting methods for share capital

 Issuance of shares for noncash consideration

 Share issue costs

 Callable preference shares

 Convertible preference shares

 Rights issue and warrants

A. 7,500,000 C. 5,500,000 10,000 x 50 = 500,000

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