Corporation

• Artificial being
• Created by operation of law
• Right of succession
• Powers, attributes and properties expressly
authorized by law or incident to its existence
Formation
• Corporation Code of the Philippines
• Special laws (GOCCs)
• Five or more persons not exceeding 15,
majority are residents of the Phils.
• Purpose must be lawful
• Articles of incorporation with SEC
Articles of Incorporation
• The name of the corporation
• The purpose or purposes for which the corporation is formed
• The place where the principal office is to be established or located which
must be in the Philippines
• The term for which the corporation is to exist not exceeding 50 years
• The names and residences of the incorporators
• The names and addresses of the incorporating directors who must not be
less than 5 nor more than 15
• The amount of share capital, its par value, and the number of shares into
which it is divided. If the share has no par value, the articles need state
only the number of shares but the fact that the share is without par shall
be stated therein
• The amount of share capital or the number of no-par shares actually
subscribed, including the names and residences of the subscribers with an
indication of the amount or number of no-par shares subscribed and paid
by each.
By-laws
• Rules of action adopted by the corporation for
its internal government
• Filed with the SEC within 1 month from the
date of incorporation
Contents of by-laws
• The time, place, manner of calling and rules for meetings of
shareholders and directors. The place of shareholders’ meeting
must be the principal place of business
• The number, qualifications, duties, powers and length of office of
directors. A director must be a registered owner of at least one
share of stock, and majority of the directors must be resident of
the Philippines
• The appointment, duties, powers, compensation and length of
office of corporate officers other than directors
• The manner of issuing share certificates
• The method of amending by-laws
• Any other rules governing the acts of officers and directors
Pre-incorporation subscription requirement

• At least 25% of authorized number of shares

must be subscribed
• At least 25% of the subscription be paid
• In no case the paid in capital be less than
P5,000
Components of a corporation
• Corporators
• Incorporators
• Shareholder or stockholders
• Members
Books and records of a corporation

• Minutes book
• Stock and transfer book
• Book of accounts
• Subscription book
• Shareholders’ ledger
• Subscribers’ ledger
• Share certificate book
Organization cost
• Cost of forming a corporation
• Includes (a)legal fees in connection with the incorporation
such as drafting of articles of incorporation and by-laws and
registration, (b) incorporation fees, (c) share issuance costs,
such as printing of stock certificates, cost of stock and
transfer book, seal of corporation, underwriting and
promotional fees, accounting and legal fees related to
share issuance
• Start-up costs which include legal and secretarial costs in
establishing a legal entity shall be recognized as expense
when incurred (PAS 38, par. 69)
Shareholders’ equity
• Capital stock/share capital
• Subscribed capital stock/subscribed share capital
• Common stock/ordinary share capital
• Preferred stock/preference share capital
• Additional paid-in capital/share premium
• Retained earnings (deficit)/accumulated profits (losses)
• Retained earnings appropriated/appropriation reserve
• Revaluation surplus/revaluation reserve
• Treasury stock/treasury shares
Definition of terms
• Share capital- the portion of the paid-in capital representing the total par
or stated value of the shares issued.
• Subscribed shared capital – portion of the authorized share capital that
has been subscribed but not yet fully paid and therefore still unissued.
• Additional paid-in capital or share premium – the portion of the paid-in
capital representing excess over the par or stated value.
• Retained earnings – the cumulative balance of periodic earnings,
dividend distributions, prior period errors and other capital adjustments.
• Revaluation surplus – excess of revalued amount over the carrying
amount of the revalued asset
• Treasury shares – corporation’s own shares that have been issued and
then reacquired but not cancelled
Share capital
• Authorized share capital – the amount fixed in
the articles of incorporation to be subscribed
and paid in by the shareholders of the
corporation, either in money, property or
services, at the organization of the
corporation, or afterwards and upon which
the corporation is to conduct its operations
Share certificate
• A document evidencing ownership of shares
by a shareholder in which share capital is
divided into.
• Generally, issued only when the subscription is
fully paid.
Par vs. No-par shares
• Par value shares – one with specific value fixed
in the articles of incorporation and appearing on
the share certificate. Its purpose is to fix the
minimum issue price of the share.
• No-par value shares – one without any value
appearing on the face of the share certificate. It
has always an issued value or stated value based
on the consideration for which it is issued. It
cannot be issued for an amount less than P5.
Share
• The interest or right of a shareholder in the
corporation
Ordinary share capital
• If there is only one class of share capital,
necessarily it must ordinary shares
• Enjoy no preference over each other
• Gives the owner the right to vote, to share in
the income, and in the event of liquidation, to
share in all assets after satisfying creditors’
and preference shareholders’ claims
• No fixed or specific return on investment
Preference share capital
• Preferred as to dividends and as to assets
• Limited or fixed return on investment
Legal capital
• The portion of the paid-in capital arising from
issuance of share capital which cannot be
returned to the shareholders in any form during
the lifetime of the corporation
• In case of par value shares, it is the aggregate
par value of the shares issued and subscribed
• In case of no par, it is the total consideration
received from the shareholders including the
excess over the stated value.
Accounting for share capital
• Memorandum method
• Journal entry method
Memorandum method
• No entry is made to record the authorized
share capital. Only a memorandum is made
for the total authorized share capital. When
share capital is issued, it is credited the the
share capital account.
Illustration ( Memorandum method)

• X Corp. was authorized to issue share capital

of P4,000,000 divided into 40,000 shares with
par value of P100
• Memo entry:
X Corp. was authorized to issue share capital
of P4,000,000, divided into 40,000 shares
with par of P100.
• Received subscription to 10,000 shares at par.
Journal Entry:
Subscription receivable 1,000,000
Subscribed share capital 1,000,000
• Collected 25% of the subscription
• Cash 250,000
Subscription receivable 250,000
• Received full payment for 6,000 shares
originally subscribed
• Cash 450,000
Subscription receivable 450,000

Subscription price (6,000xP100) P600,000

Less: Partial payment 150,000
Balance P450,000
• Issued the share certificates for 6,000 shares
originally subscribed

Subscribed share capital 600,000

Share capital 600,000
• Received a cash subscription for 5,000 shares
at par.
Cash 500,000
Share capital 500,000
• Shareholder’s equity:
Share capital, P100 par, 40,000
shares authorized,
11,000 shares issued P 1,100,000
Subscribed share capital 400,000
Subscription receivable ( 300,000)
Shareholder’s equity P 1,200,000
Journal entry method
• The authorization to issue share capital is
recorded by debiting unissued share capital
and crediting authorized share capital.
• When share capital is issued, it is credited to
the unissued share capital account.
Journal entry method
• Unissued share capital 4,000,000
Authorized share capital 4,000,000

• Subscription receivable 1,000,000

Subscribed share capital 1,000,000

• Cash 250,000
Subscription receivable 250,000

• Cash 450,000
Subscription receivable 450,000

Subscribed share capital 600,000

Unissued share capital 600,000

Cash 500,000
Unissued share capital 500,000
• Shareholders’ equity
Authorized share capital, P100 par,
40,000 shares P4,000,000
Unissued share capital, 29,000 shares (2,900,000)
Issued share capital P1,100,000
Subscribed share capital, 4,000 shares 400,000
Subscription receivable ( 300,000)
Shareholders’ equity P1,200,000
Issuance of share capital
• Not to be issued for a consideration less than
the par or stated value thereof
• No-par shares cannot be issued for less than
P5
• Proceeds from the issuance of par value
shares shall be credited to “Share capital” to
the extent of the par value, with any excess
being reflected as “share premium”
Illustration 1.
• Issued 10,000 ordinary shares with a par value
of P100 for P150 per share.
• Journal entry:
Cash 1,500,000
OSC 1,000,000
Share premium 500,000
Illustration 2
• Issued 20,000 ordinary shares with P50 stated
value for P80 per share.
• Journal entry:
Cash 1,600,000
OSC 1,000,000
Share premium 600,000
Share issued at a discount
• Prohibited by the CCP
• Not considered as a loss but the shareholder is
liable therefor.
• Issuance is not void but the contract is
unenforceable
Issuance of share capital for non-cash
consideration
• Valuation shall be determined first by the incorporators or the
board of directors subject to the approval of the SEC (CCP)
• For equity settled share-based payment transaction, the
entity shall measure the goods and services received and the
corresponding increase in equity directly at the FAIR VALUE of
the goods and services received (PFRS 2, par. 10)
• If the entity cannot estimate reliably the fair value of the
goods and services received, the entity shall measure their
value at the corresponding increase in equity indirectly by
reference to the FAIR VALUE OF THE EQUITY INSTRUMENTS
ISSUED
Illustration
• Issued 10,000 OS of P100 par in exchange for land with a FV of P1.5M. The FV
of the shares issued is P180/share.
• If the FV of the land is used:
Land 1,500,000
OSC 1,000,000
SP 500,000
• If the FV of the shares is used:
Land 1,800,000
OSC 1,000,000
SP 800,000
• If the par value of the shares is used:
Land 1,000,000
OSC 1,000,000
Issuance of Share Capital for services

• If shares are issued for services, the shares

shall be recorded at the FAIR VALUE OF SUCH
SERVICES OR FAIR VALUE OF THE SHARES
ISSUED WHICHEVER IS RELIABLY
DETERMINABLE (PFRS 2)
Illustration
• Issued 1,000 OS of P100 par value to lawyers
for their legal services in getting the
corporation organized. The FV of such services
is reliably determined to be P120,000
• Journal entry:
• Legal expenses 120,000
OSC 100,000
SP 20,000
Share issuance costs
• Direct costs to sell share capital
• Include legal fees, CPA fees, underwriting fees, commissions, cost of printing
certificates, documentary stamps, filing fees with SEC and cost of advertising
and promotion or newspaper publication fee
• Transaction costs that are directly attributable to the issuance of new shares
shall be deducted from the equity, net of any related income tax benefit. (PAS
32, par. 37)
• Share issuance costs therefore shall be debited to Share Premium arising from
the share issuance
• If the premium is not sufficient to absorb such expenses, the excess shall be
debited to “share issuance costs” to be reported as a contra equity account, as
a deduction from the following in the order of priority:
a. share premium from previous share issuance
b. retained earnings
Costs of public offering of shares
• Costs that relate to stock market listing, or otherwise are
not incremental costs directly attributable to the issuance
of new shares shall recorded as expense in the I/S.
• Costs of listing shares are not considered as costs of an
equity transactions since no equity instruments has been
issued. Such costs are recognized immediately as an
expense when incurred.
• Cost of listing shares include:
1. roadshow presentation
2. public relations consultant fees
Delinquent subscription
• The BOD may at any time declare due and payable
unpaid subscriptions (CCP)
• A a shareholder may be declared delinquent on his
subscription if he does not pay his subscription on
the date fixed by a call made by the BODs
• Delinquent shares will be sold at public auction to
the highest bidder to cover the balance of the unpaid
subscription, interest accrued on the subscription,
expenses of the advertisement and other costs of
sale.
Who is the highest bidder?
• Bidder who is willing to pay the offer price of
the delinquent shares for the smallest number
of shares.
• Offer price normally includes: balance due on
subscription, interest accrued on the balance
of unpaid subscription and expenses of
advertising and other costs of sale
Illustration
• X subscribed for 10,000 shares at par P100 paying P600,000
as initial payment. The balance of the subscription was called
and X failed to pay. Consequently, the subscription was
declared delinquent.
• Assume that the offer price is P450,000 including the
balance due on the subscription, interests of P20,000 and
auction costs of P30,000. There are three bidders who are
willing to pay the offer price:
A 4,500 shares
B 5,000 shares
C 6,000 shares
• A is the highest bidder
• All the 10,000 shares shall be deemed fully
paid
• A gets 4,500 shares
• X gets 5,500 shares
Journal entries
• Subscription receivable ` 1,000,000
Subscribed share capital 1,000,000

Cash 600,000
Subscription receivable 600,000

Due from Highest Bidder 400,000

Subscription receivable 400,000

Due from Highest Bidder 50,000

Interest income 20,000
Cash 30,000

Cash 450,000
Due from Highest Bidder 450,000

Subscribed Share Capital 1,000,000

Share Capital 1,000,000
Treasury shares
• Entity’s own shares that have been issued and
then reacquired but not cancelled.
• Requisites:
1. the shares must be entity’s own shares
2. the shares must have been issued
originally.
3. the shares are reacquired but not cancelled
Legal limitation on treasury shares
• There must be adequate amount of
unrestricted retained earnings
• Treasury shares can be acquired only to the
extent of retained earnings balance
Accounting for Treasury Shares
• Cost method
• If acquired for cash, cost is equal to the cash
payment
• If acquired for non-cash consideration, cost is
measured by the carrying amount of non-cash
asset surrendered
Illustration:
An entity acquired 2,000 shares with par of P100
at P150 per share

Journal entry:
Treasury shares 300,000
Cash 300,000
Reissuance at cost
• If the TS are subsequently reissued at P150
per share,

Cash 300,000
Treasury shares 300,000
Reissuance at more than cost
• If the TS are subsequently reissued at P200
per share

Cash 400,000
Treasury shares 300,000
Share premium-TS 100,000
Reissuance below cost
• If the TS are subsequently reissued at P100 per
share, the excess of the cost over the reissue price
is charged to the following in proper order:
1. share premium from TS of the same class
2. retained earnings

Cash 200,000
Retained earnings 100,000
Treasury shares 300,000
Retirement of Treasury shares
• “Share capital” is debited at par or stated value
and “treasury shares” is credited at cost
• If the par value exceeds the cost (gain), the excess
is credited to “share premium from TS”
• If the cost exceeds the par value (loss), the excess
is debited to the following:
a. share premium from original issuance
b. share premium from TS
c. retained earnings
Illustration:
Ordinary share capital, 50,000 shares, P100 par 5,000,000
Share premium – original issuance 500,000
Share premium – treasury shares 100,000
Retained earnings 1,000,000
Treasury shares, 5,000 shares at cost 750,000

Journal entry:
Ordinary share capital500,000
Share premium – issuance 50,000
share premium – TS 100,000
Retained earnings 100,000
Treasury shares 750,000
Disclosure of TS
• Number of shares held in treasury
• Restriction on the availability of retained
earnings for distribution of dividends
Presentation
• Deduction from total SHE
Retained earnings (DIVIDENDS)
• The cumulative balance of periodic net
income or loss, dividend distribution, prior
period errors, changes in accounting policy
and other capital adjustments.
Appropriated and Unappropriated
• Unappropriated – that portion which is free
and can be declared as dividends to
shareholders
• Appropriated – portion which has been
restricted and therefore is not available for
any dividend distribution
DIVIDENDS
• Distributions of earnings or capital to the
shareholders in proportion to their
shareholdings
Relevant dates:
• Date of declaration
• Date of record
• Date of payment
Forms:
• Cash
• Property
• Liability dividend (bond and scrip)
• Stock dividends/ bonus issue
Cash dividends
• Most common type of dividend
• May be expressed as follows:
a) a certain amount of pesos per share
b) a certain percent of the par or stated value
Illustration 1:
• The BOD at their meeting on October 10, 2015 declared a dividend
of P20 per share payable April 30, 2016, to shareholders of record
on December 31, 2015. The entity had 20,000 shares issued and
outstanding with par value of P100.

• Journal entries:
October 10 Retained earnings 400,000
Dividends payable 400,000

Dec. 31 No entry

April 30 Dividends payable 400,000

Cash 400,000
Property dividends
• Distribution of earnings of the entity to the
shareholder in the form of non-cash assets
• Covered by International Financial Reporting
Interpretations Committee (IFRIC) 17
• Two accounting issues:
1) Measurement of the property dividend
payable
2) Measurement of the non-cash asset to be
distributed as property dividend
Measurement of Property Dividend
Payable
• Entity shall measure a liability to distribute non-cash asset as dividend
to its owner at the FV of the asset to be distributed (IFRIC 17, par. 11)
• At the end of each reporting period and at the date of settlement, the
entity shall review and adjust the carrying amount of the dividend
payable with any change recognize in equity as adjustment to the
amount of distribution
• It simply means that the dividend payable is initially recognized at the
FV of the non-cash asset on date of declaration and is increased or
decreased as a result of the change in the FV of the asset at year-end
and date of settlement.
• The offsetting debit/credit is through equity or directly to retained
earnings.
Settlement of Property Dividend Payable

• When an entity settles the dividend payable,

the difference between the carrying amount
of the dividend payable and the carrying
amount of the asset distributed shall be
recognized in the P/L (IFRIC 17, par. 14)
Measurement of non-cash asset
distributed
• An entity shall measure a non-current asset
classified for distribution to owners at the
“lower of carrying amount and fair value less
cost to distribute” (PFRS 5 par. 15A)
• If the FV less cost to distribute is lower than
the carrying amount of the asset at the end of
the reporting period, the difference is
accounted for as an impairment loss
Illustration
An entity owned 50,000 shares of another entity
accounted for as nonmarketable equity investments. The
carrying amount of the investment is P1,000,000. On
December 1, 2015, the entity declared these shares as
property dividend to be distributed on January 31, 2016.
The investment had the following FV less cost to distribute:
December 1, 2015 1,500,000
December 31, 2015 1,800,000
January 31, 2015 1,900,000
Journal entries:
• To recognize the dividend payable on the date
of declaration on December 1, 2015:

• Retained earnings 1,500,000

Dividends payable 1,500,000
Journal entries:
• To recognize the increase in dividend payable at the end of
the reporting period on December 31, 2015

• Retained earnings 300,000

Dividend payable 300,000

FV – Dec. 31, 2015 1,800,000

FV – Dec. 1, 2015 1,500,000
increase in DP 300,000
Journal entries:
• To recognize the increase in dividend payable
on the date of settlement on January 31,
2016:

• Retained earnings 100,000

Dividend payable 100,000
(1,900,000 – 1,800,000) = 100,000
Journal entries:
• To record the settlement of the dividend payable on
January 31, 2016:

Dividend payable 1,900,000

Investment in equity securities 1,000,000
Gain on distribution 900,000

On the date of settlement of a property dividend payable,

the difference between the carrying amount of a dividend
payable and carrying amount of property is recognized in P/L
Illustration 2:
• On Nov. 1, 2015, an entity declared a property
dividend in the form of equipment payable on
March 1, 2016. The carrying amount of the
equipment is P3,000,000 and the FV is P2.5M
on Nov. 1, 2015. However, the FV less cost to
distribute the equipment is P2.2M on Dec. 31,
2015 and P2M on March 1, 2016
Journal entries:
• To recognize the dividend payable on the date
of declaration on Nov. 1, 2015:

• Retained earnings 2,500,00

Dividends payable 2,500,000
Journal entries:
• To recognize the decrease in dividend payable
at the end of reporting period on Dec. 31,
2015:

• Dividend payable 300,000

Retained earnings 300,000
Journal entries:
• To measure the equipment on Dec. 31, 2015
at the lower of carrying amount and FV less
cost to distribute:

• Impairment loss 800,000

Equipment 800,000
(3M-2.2M) = 800,000
Journal entries:
• To recognize the decrease in dividend payable
on the date of settlement on March 1, 2016:

• Dividend payable 200,000

Retained earnings 200,000
Journal entries:
• To record the settlement of the dividend
payable on March 1, 2015:

• Dividend payable 2,000,000

Loss on distribution 200,000
Equipment 2,200,000
Liability dividends
• Deferred cash dividends
• Includes bond dividend and scrip dividend
Scrip dividend - illustration
• The BOD declared scrip dividends in the amount of
P200,000 payable in 6 months at 12% interest:

• Retained earnings 200,000

Scrip dividend payable 200,000

Scrip dividend payable 200,000

Interest expense 12,000
Cash 212,000
Stock dividend/Bonus issue
• Distribution of the earnings of the entity in the form of
the entity’s own shares
• When stock dividends are declared, the retained
earnings of the entity are in effect capitalized, meaning
transferred to share capital
• Assets of the entity remain the same before and after
the issuance of the stock dividends
• The stock dividends create only a change in the
components of the shareholders’ equity – decrease in
retained earnings but increase in share capital
Large and small stock dividends
• If stock dividend is 20% or more (large), the
par or stated value is capitalized
• If stock dividend is less than 20%, the fair
value (or par if higher than fair value) is
capitalized
Illustration 1:
Share capital, P100 par, 20,000
shares authorized, 10,000 shares
issued and outstanding 1,000,000
Share premium 500,000
Retained earnings 500,000

The entity declared 20% stock dividend or 2 shares for every 10 shares held, or a total of 2,000 shares as
stock dividend

Journal entry:
Retained earnings 200,000
Stock dividend distributable 200,000

Stock dividend distributable 200,000

Share capital 200,000
Note:
• The amount capitalized is equal to the par
value of the shares
• Prior to the issuance of stock dividend, the
“stock distributable” account is an addition to
share capital
• The stock dividend distributable cannot be
classified as liability because a stock dividend
never reduces assets
Illustration 2:
Share capital, P100 par, 20,000
shares authorized, 10,000
shares issued 1,000,000
Share premium 500,000
Retained earnings 750,000
• If a 10% stock dividend is declared and the MV
of the share is P150 ,

Retained earnings 150,000

SDD 100,000
Share premium 50,000

SDD 100,000
Share capital 100,000
• If a 50% stock dividend is declared and the MV
of the share is P150

Retained earnings 500,000

SDD 500,000

SDD 500,000
Share capital 500,000
Treasury shares as stock dividends
• TS may be declared as stock dividend
• TS may be reissued as dividends in which case
the cost of the shares shall be charged to RE
• Declaration of TS as dividends is considered as
property dividend under the CCP but should
be accounted for as stock dividend
Liquidating dividend
• When capital is returned to shareholders, it is
known as dividend out of capital or liquidating
dividend
• LD are paid to shareholders when the entity is
dissolved or liquidated
• Wasting asset corporations (those engaged solely or
substantially in the exploitation of natural resources)
may declare dividends which are in part distribution
of earnings and in part distribution of capital
Dividend Preferences
Illustration: In 2011, Mason Company is to distribute $50,000 as
cash dividends, its outstanding ordinary shares have a par value of
$

400,000, and its 6 percent preference shares have a par value of

$100,000.
1. If the preference shares are noncumulative and nonparticipating:
Illustration: In 2011, Mason Company is to distribute $50,000 as
cash dividends, its outstanding ordinary shares have a par value of
$400,000, and its 6 percent preference shares have a par value of
$100,000.

2. If the preference shares are cumulative and non-participating,

and Mason Company did not pay dividends on the preference
shares in the preceding two years:
3. If the preference shares is noncumulative and is fully participating:

10
Illustration: In 2011, Mason Company is to distribute $50,000 as
cash dividends, its outstanding ordinary shares have a par value of
$400,000, and its 6 percent preference shares have a par value of
$100,000.

4. If the preference shares are cumulative and fully participating,

and Mason Company did not pay dividends on the preference
shares in the preceding two years:
Book value per share
• The amount that would be paid on each share
assuming the entity is liquidated and the
amount available to shareholders is exactly
the amount reported as shareholders’ equity
BV/share (if one class of share capital only)

BV/share = TSHE ÷ no. of shares outstanding

BV/share (2 classes of share capital)

BV/preference share = PSHE ÷ no. of preference

shares outstanding

BV/ordinary share = OSHE ÷ no. of ordinary

shares outstanding
Liquidation value of PS
• LV is the amount which the preference shareholders
normally receive upon the liquidation of the
corporation. It may be more than par value
• In the absence of LV, the preference shareholders
shall receive an amount equal to the par or stated
value unless there is a deficit in which case the
preference shareholders would share on a pro-rata
basis with ordinary shareholders
• Call price is ignored
Preference as to assets
• Preference shareholders are entitled to
payment not only for the LV but also for
dividends in arrears
Preference as to dividends
• If dividends are declared, the preference
shareholders have the right to receive
dividends first before the ordinary
shareholders are paid
• Absence of any statement to the contrary, PS
has preference as to dividends
Notes:
• In the absence of any designation PS is assumed to be non-
cumulative and nonparticipating
• Dividends in arrears usually include current dividends.
Dividends in arrears in prior years shall be specifically
disclosed . Otherwise there is no arrearages
• In case where there are two classes of PS with different
dividend rates and both are participating the lower rate
shall be used as a basis for allocation to the ordinary share
• If only one preference share is participating, the rate of the
participating PS shall be used as a basis for ordinary share
dividend
Illustration 1
Share capital, P100 par,
50,000 shares 5,000,000
Share premium 1,000,000
Retained earnings 2,000,000
Revaluation surplus 1,500,000
Total 9,500,000

BV per share = (9,500,000 ÷ 50,000) = P190

Illustration 2
The SHE account as of Dec. 31, 2014 showed the following:

Preference share capital, 12% P100

par, 25,000 shares 2,500,000
Ordinary share capital, P100
par, 50,000 shares 5,000,000
Share premium 600,000
Retained earnings 3,000,000
Total SHE 11,100,000

Dividends have been paid on the PS up to Dec. 31, 2012

Case 1: PS is non-cumulative and non-
participating
Excess over Preference Ordinary
par
Balances P 3,600,000 P 2,500,000 P 5,000,000
Preference dividends (300,000) 300,000
Balance to Ordinary P 3,300,000 3,300,000
Total SHE P 2,800,000 P 8,300,000
÷ shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 112 P 166
Case 2: PS is cumulative and non-
participating
Excess over par Preference Ordinary
Balances P 3,600,000 P 2,500,000 P 5,000,000
Preference dividend (600,000) 600,000
Balance to ordinary P 3,000,000 3,000,000
Total SHE P 3,100,000 P 8,000,000
÷ Shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 124 P 160
Case 3: PS is cumulative and participating
Excess over par Preference Ordinary
Balances P 3,600,000 P 2,500,000 P 5,000,000
Preference dividend (600,000) 600,000
Ordinary dividend (600,000) 600,000
Balance for participation P 2,400,000
Preference (1/3) 800,000
Ordinary (2/3) 1,600,000
Total SHE P 3,900,000 P 7,200,000
÷ shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 156 P 144
Case 4: PS is cumulative and participating
up to 16%
Excess over par Preference Ordinary
Balances P 3,600,000 P 2,500,000 P 5,000,000
Preference dividend (600,000) 600,000
Ordinary dividend (600,000) 600,000
Balance for participation P 2,400,000
Preference 100,000
Ordinary 2,300,000
Total SHE P 3,200,000 P 7,900,000
÷ shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 128 P 158
Case 5: PS is cumulative, non-participating
with LV of P106 per share
Excess over par Preference Ordinary
Balances P 3,600,000 P 2,500,000 P 5,000,000
Liquidation premium (25,000 x (150,000) 150,000
P6)
Preference dividend (600,000) 600,000
Balance to Ordinary P 2,850,000 2,850,000
Total SHE P 3,250,000 P 7,850,000
÷ outstanding shares ÷ 25,000 ÷ 50,000
Book Value per share P 130 P 157
Illustration 3
The shareholders’ equity at December 31, 2014 showed the
following balances:

Preference share capital, 12% P100

par, 25,000 shares cumulative P 2,500,000
Ordinary share capital, P100
par, 50,000 shares 5,000,000
Retained earnings (deficit) (900,000)
Total SHE P 6,600,000

No dividends have been paid on preference share since 2011

Case 1: PS has preference as to assets
(dividends in arrears are fully payable)
Excess over Preference Ordinary
par
Balances P (900,000) P 2,500,000 P 5,000,000
Preference dividend (1,200,000) 1,200,000
Balance to Ordinary P (2,100,000) (2,100,000)
Total SHE P 3,700,000 P 2,900,000
÷ shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 148 P 56
Case 2: PS has preference as to
dividends
Excess over Preference Ordinary
par
Balances P (900,000) P 2,500,000 P 5,000,000
Share in deficit:
Preference (1/3) 300,000 (300,000)
Ordinary (2/3) 600,000 (600,000)
Total SHE P 2,200,000 P 4,400,000
÷ shares outstanding ÷ 25,000 ÷ 50,000
Book Value per share P 88 P 88