Cash Dividends

Investment at Fair Value Investment at Fair Value Investment at Amortized

through Profit or Loss through OCI Cost
- Treated as income - Treated as income -Treated as income
- Investment account are - Investment account are - Investment account are
not affected not affected not affected

Accrual of Dividend Income Collection of Dividend Income

Dividend Receivable xxx Cash xxx
Dividend Income Dividend Receivable xxx
xxx
Dividends - ON Ex- Dividend
- Shares are sold between date of - Shares are sold between date of
declaration and date of records. record and date of payment.
- New shareholders will be entitled to - Existing shareholders will be entitled
received the dividend to receive the dividends
 Illustration
A shareholder own 1,000 shares costing P100,000.
Subsequently, the shareholder receives notice of
dividend declaration of P5 per share or P5,000 and sold
for P150,000.
Dividends - ON Ex- Dividends

Cash 150,000 Cash 150,000

Investment in equity 100,000 Investment in equity 100,000
Dividend Income 5,000 Gain on Sale of Investments 50,000
Gain on Sale of Investments 45,000
Property Dividend (Kind/Non-Cash
Assets)
Shareholder’s Side Company Side
Valuation / Measurement Fair Market Value Fair Market Value
Accounting Treatment -dividend income -dividend payable

Shareholder’s Company
Date of Dividend Receivable xxx Retained Earnings xxx
Declaration Dividend Income xxx Dividends Payable
xxx
Date of Record - Update - Updates
Date of Payment Cash/Property xxx Dividends Payable xxx
Dividend Receivable xxx Cash/Property
xxx
Illustrations
1- X – Company distributes its holdings of 10,000 shares
in Company as property dividends. The shares of Y
Company have a market value of P 100 per share. A
shareholder receive 500 shares of company as property
dividends.

2- An entity declared P100 worth of merchandise for

every share as property dividends. A shareholder owns
500 shares.
 Entry
Shareholders Company
Illustration Investment in Equity Security 50,000 Retained Earnings 50,000
1 Dividend Income Investment in Equity Security
50,000 50,000

Illustration Merchandise Inventory 50,000 Retained Earnings 50,000

2 Dividend Income Merchandise Inventory
50,000 50,000
Liquidating Dividends
Non-Wasting Assets Wasting Assets
Recognition of Dividends
Cash /Appropriated Account xxx
Cash /Appropriated Account xxx Investment in Shares
Investment in Shares xxx
xxx

A shareholder received a P100,000 Partly Dividends / Return of

dividend designated as income, P60,000 Investments
and liquidating P40,000
Cash 100,000
Dividend Income 60,000
Investment in Shares 40,000

Liquidating dividends exceeds the costs - excess credited to gain on

of investments investments
-Profit & loss
 Shares Dividends
- Equivalent to shares “Bonus”
- Not treated as income
- Assets (remain the same), SHE (remain the same)
- Increase the number of shares / decrease the par value.
- Ordinary Share Dividends – same class
- Special Share Dividends – different class
- Illustration:
- A shareholders own 10,000 ordinary shares costing
P800,000. subsequently, the shareholder receives 10%
share dividends n the form of preference shares. Market
value of Ordinary is P150 and preference share is P100.
 Computation
Market Value Fraction
Allocation
Ordinary Share
(10,000 x P150) 1,500,000 15/16 750,000

Preference Share
(1,000 x P100) 100,000 1/16 50,000
Total 1,600,000 800,000
Entry:
Investment in Preference Shares 50,000
Investment in Ordinary Shares 50,000
Shares received in Lieu of Cash
Dividends
- Treated as income
- Valuation – Fair market value of the shares received
(treated as if property dividends)
- Fair market value is unknown – equal to cash
dividends that would been received.
- Illustration:
- A shareholder owns 10,000 shares costing P
1,000,000. Subsequently the shareholder receives
1,000 shares in lieu of cash dividends of P10 per share.
The market value of share is P150.
Entry
Fair Market Value is Known Fair Market Value is Un-known

Investment in shares 150,000 Investment in shares 100,000

Dividend Income Dividend Income
150,000 100,000
Cash Received in lieu of Share Dividends
- Shares is declared and received – not an income
- 2 methods used
- ‘As if approach method” – meaning that the share
dividends are assume to be received and subsequently sold
at the cash is received. Gain or loss will be recognized.
- “BIR approach” – all cash received, whether originally
designated as cash dividend or share dividend, is
recognized as income.
- Illustration:
- A shareholder owns 10,000 shares costing P1,100,000.
Subsequently, the shareholder receives P150,000 cash in
lieu of 1,000 shares originally declared as 10% share
dividend.
Entry
As if Approach BIR Approach
1,000 shares representing share
dividends are assumed to be sold for the
cash received.

Cash 150,000
Cash 150,000 Dividend Income 150,000
Investment in Share
100,000
Gain on Investment
50,000

P1,100,000 / 11,000 shares = P100 per

share
Recapitalization
- Share splits
- Split Up
- Split down

- Assets – remained the same

- Shareholders equity – remained the same
- Number of shares – increased/decreased
- Par Value – increased / decreased
Special Assessments
- Additional capital contribution of the shareholders.
- Recorded as additional cost of the investments
Illustration:
A shareholder owns 10,000 shares costing P500,000.
Subsequently, the directors pass a resolution to the effect
that the shareholders shall contribute P5 for each share held
to the corporation.
Shareholders Corporation
Investment in Shares 50,000 Cash 50,000
Cash 50,000 Share Capital
50,000
Redemption of Shares
- Callable and redeemable preference shares
- Recorded as the same manner as sale of shares.
- Redemption price – treated as the sale price.

Illustration:
If the shareholder acquires 10,000 preference shares for
P100 per share. And subsequently, the preference are
called in by the issuing entity at P110 per share.
 Entry
Transaction Shareholders Corporation
s

Acquisition Investment in P/S 1,000,000 Cash 1,000,000

Cash 1,000,000 Preference Share – Callable
1,000,000

Redeem/Call Cash 1,100,000 Preference Share – Callable 1,000,000

-In Investment in P/S Loss on Redemption 100,000
1,000,000 Cash
Gain on Investment 1,100,000
100,000
Share Right / Stock Right
- Also known as share right or pre-emptive right
- IAS term – “right to issue”
- One right = One share
- Purpose:
- To retain the percentage of ownership interest
- Price – lower than in market price
- Shares warrants – evidence of ownership of rights
- 100,000 +5000 = 105,000
- 10,000 10% = 10,500 = 500
Accounting of Stock Rights
- PFRS 9 – no clear accounting treatment but treated as
financial asset.

- Acceptable Methods
- Share rights are accounted for separately
- Share rights are not-accounted for separately
 Accounted for Separately
Accounting Treatment Investment in Equity

Initial Measurement/Valuation Fair Market Value

Acquisition Date -portion of the carrying amount of original

investments in equity shares is allocated to the
share rights at an amount equal to the fair value of
the share rights.

Exercise/Issuance of Shares -two share is being issued the original shares and
the related rights

Presentation -current Assets

 Not -Accounted for Separately
Accounting Treatment -embedded derivative but not a “stand-alone
derivative”
Embedded derivative - Is a component of a hybrid or combined contract
(host contract) with the effect that some of the cash
flows of the combined contract vary in a way
similar to a stand –alone derivatives
PFRS 9, paragraph 4.3.3 -An embedded derivative shall be separated from
host contract and accounted for separately under
certain conditions
-Simply means that the host contract is a financial
assets, the embedded derivative is not separated.

Valuation / Measurement -Host contract is measured at fair value through

profit or loss , the embedded derivative is not
separated

Share right as embedded -Is not accounted separately therefore treated as

derivatives one
 Different dates for share rights
Dates Explanations
Declaration - The issuance of share was approved by the BOD.

Record - The stock and transfer book of the entity will be closed
for registration and only those shareholders registered as
of the record date are entitled to receive share rights.

Expiration - The share rights are exercised

Right - On - Between the date of declaration and date of record
- Share and the right are inseparable and treated as one
- The cannot be sold without also selling the right or vice-
versa
Subsequent sale prior to Gain or loss on sale = Selling Price – Carrying Amount
record date
Illustration – Right - On
A shareholders owns 5,000 share costing P500,000.
Subsequently, the shareholder receives notice of shares
rights to subscribe for 1,000 shares at the par value of
P100 per share. Prior to the issuance of the share
warrants, the shareholders sells the investments for
P750,000.
Entry:
Cash 750,000
Investment in Shares 500,000
Gain on sales of Investments 250,000
Ex- Right ( Between date of record
and Expiration date)
- Date of record – the warrants evidencing the share
rights are issued to the shareholders
- Meaning that the share can now be sold separate from
the right or vice versa.

- Methods
- Accounted Separately
- Not-Accounted Separately
Illustration – Accounted Separately
A shareholder acquired 10,000 shares costing P
1,800,000. Subsequently, the shareholders received
10,000 shares rights to subscribe for new shares at P100
per share for every five rights held.
The market value of the share is P150 and the market
value of the right is P10.
 Entry
Date Particulars
Acquisition Investment in Shares
1,800,000
Cash
1,800,000
Receipts of rights – initially
valued at Fair Market
Increased/decreased in FMV
= Unrealized Gain/Loss Shares Rights 100,000
No FMV = Theoretical or Investment in Shares
Parity Value 100,000
Exercise of Rights Investment in Shares 100,000
10,000 / 5 = 2,000 x P100 Cash
100,000

Sale of Rights – sold at Cash 300,000

FMV Share Rights
100,000
Gain on Sale of Share Rights
200,000
Illustration – Not Accounted
Separately
A shareholder acquired 10,000 shares costing P
1,500,000. Subsequently, the shareholders received
10,000 shares rights to subscribe for new shares at P100
per share for every five rights held.
The market value of the share is P150 and the market
value of the right is P10.
 Entry
Date Particulars
Acquisition Investment in Shares
1,500,000
Cash
1,500,000
Receipts of rights
Memo Entry – Received 10,000 shares to subscribe for
new shares at P100 per share for every five rights held,
or a total of 2,000 new shares.
Exercise of Rights
10,000 / 5 = 2,000 x P100 Investment in Shares 200,000
Cash
200,000

Sale of Rights – sold at Cash 300,000

FMV Investment in Shares
300,000

Expiration of Rights – did Memorandum entry

not exercise