ACCOUNTING FOR SUBSEQUENT SHARE

CAPITAL TRANSACTIONS

Subsequent Share Capital Transaction

After the original issuance of share capital, there may be some other share capital
transactions that may affect the equity section of the statement of financial position.
Basically, there are many involve transactions related to the following:

1.Treasury Share;
2.Share Capital Donation;
3.Conversion of Preference Shares to ordinary shares;
4.Recapitalization; and
5.Retirement of Share Capital
 Retirement of Treasury Shares
Notes:
•  When treasury shares are retired resulting in a loss, the loss shall be charged to the
following accounts in the following order:
1.Share premium, APIC in excess of par to the extent of the credit when the share capital was
originally issued
2.Share premium, APIC from treasury shares
3.Accumulated profits
• When treasury shares are retired resulting in a gain, the excess is credited to the share
premium, APIC from treasury shares.
• The accounting methods for treasury shares with stated value or no-par value are the
same as those for treasury shares with par value.
 Case 1: Retirement cost less than original
issuance price
ABC reacquires 1,000 shares at P80 per share on July 1,
20x1 and retires them on September 1, 20x1.
Reacquisition:
July 1, 20x1 Treasury Shares 80,000
Cash 80,000

Retirement:
Sept. 1, 20x1 Share Capital 100,000
Share Premium- original issuance 20,00
Treasury Shares 80,000
Share Premium- Retirement 40,000
 Case 2: Retirement cost greater than
original issuance price
ABC reacquires 1,000 shares at P140 on July 1, 20x1 and
immediately retires them.
Reacquisition:
July 1, 20x1 Treasury Shares 140,000
Cash 140,000

Retirement:
Sept. 1, 20x1 Share Capital 100,000
Share Premium- original issuance 20,00
(a) Share Premium- Treasury Shares 5,000
(b) Retained Earnings 15,000
Cash 140,000
 SHARE CAPITAL DONATION
• When a corporation acquired its own shares from its shareholders
by mode of donation, such transaction is called Share Capital
Donation of Stock Donation.
• The stock donation is in substance a treasury share provided that
the related shares reacquired are not retired. Accordingly, the
corporation can sell the donated shares to increase its share
premium.
 Conversion of Preference Share into
Ordinary Share
• A convertible preference share gives the right or privilege to its holder to
exchange the same for other securities of the issuing corporation.

• Preference shares are normally converted into ordinary shares because

when business operations are successful, the earnings for ordinary shares
are unlimited.
• Any “indicated gain” from conversion is credited to share premium and any
“indicated loss” is debited to accumulated profits.

• Case 1: There is no indicated gain or loss on conversion.

• Case 2: There is indicated gain on conversion.
• Case 3: There is indicated loss on conversion.
 Recapitalization
• A change in the capital structure of a corporation by canceling the old shares
and changing them with shares. Generally, recapitalization is undertaken to
establish a share premium (APIC) that will be used in capital restructuring.

Usual types of recapitalizations

1. change from par value to no par value
2. change from no-par value to par value.
3. reduction of par value
4. reduction of no-par value
5. share splits.
 Share Split
MEMORANDUM ENTRY
Case 1: Split Up
“Issued 500,000 new ordinary shares with par value of P10 per
share, as a result of a ‘5-for-1’ split of 100,000 old ordinary shares
with a par value of P50.”
Case 2: Split Down
“Issued 20,000 shares with par value of P200 as a result of ‘1-for-2’
reverse share split of 10,000 old shares with a par value of P100.”
 Share Split
Before Share Ater Split Up After Split Down
Split

Number of 100,000 500,000 20,000

Outstanding share

Par Value P50 P10 P250

Total Par Value P5,000,000 P5,000,000 P5,000,000

 Share Split
JOURNAL ENTRY METHOD
Split Up:
Ordinary share capital, P50 (old) XX
Ordinary share capital, P10 (new) XX

Split Down:
Ordinary share capital, P50 (old) XX
Ordinary share capital, P250 (new) XX
 Fractional Shares
• These shares are the excess of shareholders holding
which can not be given certificates because these are
less than the required ratio for a full share. Thus, can be
settled through the issuance of warrant or payment of
cash equivalent of the fractional shares.
 Retirement of Share Capital
If a share capital is reacquired immediately retired, the
following accounting procedures should be observed:

Rule 1: If the purchase price is equal to par value or stated

value
Share Capital XX
Cash XX
 Retirement of Share Capital
Rule 2: If the purchase price is lesser than the par value or
stated value
Share Capital XX
Cash XX
Share Premium on share retirement XX
 Retirement of Share Capital
Rule 3: If the purchase price is greater than the par value or
stated value, the excess cash payment over the par value
or stated value may be:

a)Charged to additional paid in capital applicable to the class of

share capital when originally issued.
b)Allocated between share premium (APIC) and accumulated
profits.
c)Charged entirely to accumulated profits.