MODULE 1

1.1 CAPITAL MARKET

A capital market is a place that allows the trading of funding instruments such as
shares, debentures, debt instruments, bonds, ETFs, etc. It is a source for raising funds
for individuals, firms, and governments.
The securities exchanged here would typically be a long-term investment with over a
year lock-in period. On the other hand, short-term investments are usually found in the
money market.
Kindly note the following:

1. A capital market provides individuals and firms with an avenue to raise funds
for their needs and wants. It is of two types – primary
market and secondary market
2. .The market plays a crucial role in economic development. It mobilizes
savings from individuals, banks, financial institutions, real estate, and gold,
thus diverting savings from unproductive channels to productive areas.
3. Commercial banks, financial institutions, individual investors, insurance
companies, business corporations, and retirement funds are the major
suppliers of funds in the market.
4. There are usually long-term investments here, such as shares, shares, debt,
government securities, debentures, bonds, etc. Stock exchanges operate the
market predominantly.

How Does a Capital Market Work?

A capital market assists an economy by providing a platform to gain funds for business
operations, development activities, or wealth enhancement. The functioning of a capital
market follows the theory of the circular flow of money.
For example, a firm needs money for business operations and usually borrows it from
households or individuals. In the capital market, the money from individual investors or
households is invested in a firm’s shares or bonds. In return, investors gain profits as
well as goods and services.
The market comprises suppliers and buyers of finance, along with trading instruments
and mechanisms. There are also regulatory bodies. Stock exchanges, equity markets,
debt markets, options markets, etc., are some capital market examples.

1.2 TYPES OF CAPITAL MARKET

Primary Market
The primary market is for trading freshly issued securities, i.e., first-time trading. It
enables an initial public offering. It is also known as the new issues market.
 
Here, companies raise funds with the help of preferential allotment, rights issue,
electronic IPOs, or the pre-selected issue of securities or private placement. Usually, like
an investment bank, the intermediary attaches an initial price to the shares. Once the
sale materializes, firms take their shares to the stock exchange to facilitate trading
between different investors.
Secondary Market
The trading of old securities occurs in the secondary market, which occurs after
transacting in the primary market. Both stock markets and over-the-counter trades come
under the secondary market. We also call this market the stock market or aftermarket.
Examples of secondary markets are the Philippine Stock Exchange (PSE), the New York
Stock Exchange, NASDAQ, etc.

1.3 ELEMENTS OF A CAPITAL MARKET

Elements of a Capital Market

 Individual investors, commercial banks, financial institutions, insurance

companies, business corporations, and retirement funds are some
significant suppliers of funds in the market.
 Investors offer money intending to make capital gains when their investment
grows with time. In addition, they enjoy perks like dividends, interests, and
ownership rights.
 Companies, entrepreneurs, governments, etc., are fund-seekers. For instance,
the government issues debt instruments and deposits to fund the economy
and development projects.
 Usually, long-term investments such as shares, debt, government securities,
debentures, bonds, etc., are traded here. In addition, there are also hybrid
securities such as convertible debentures and preference shares.
 Stock exchanges operate the market predominantly. Other intermediaries
include investment banks, venture capitalists, and brokers.
 Regulatory bodies have the authority to monitor and eliminate any illegal
activities in the capital market. For instance, the Securities and Exchange
Commission overlooks the stock exchange operations.
 The capital market and money market are not the same. Securities exchanged
in the former would typically be a long-term investment with over a year lock-
in period. Short-term investments trade in the money markets and include a
certificate of deposits, bills of exchange, promissory notes, etc.
1.4 FUNCTIONS OF CAPITAL MARKET

Functions of Capital Market

 It mobilizes parties’ savings from cash and other forms to financial markets.
It bridges the gap between people who supply capital and people in need of
money.
 Any initiative requires cash to materialize. Financial markets are central to
national and economic development as they provide rich sources of funds.
For example, the World Bank collaborates with global capital markets to
mobilize funds to achieve its goals, such as poverty elimination.
 The International Bank for Reconstruction and Development (IBRD) has
assisted over 70 countries by raising nearly $ 1 trillion since the first bond in
1947. Likewise, a report suggested that the European Union companies need
to turn to this market to manage their pandemic balance sheet as banks alone
will not suffice.
 For the participants, the exchange instruments possess liquidity, i.e., they can
be converted into cash and cash equivalents.
 Also, the trading of securities becomes easier for investors and companies. It
helps minimize transaction and information costs.
 With higher risks, investors can gain more profits. However, there are many
products for those with a low-risk appetite. In addition, there are some tax
benefits obtained from investing in the stock market.
 Usually, the market securities can work as collateral for getting loans from
banks and financial institutions.

1.5 DOWNSIDES

Downsides

 Investments in shares and mutual funds are deemed risky as the investment

is highly volatile due to market fluctuations. Therefore, there is a massive
chance of losing money to market risks.
 Market fluctuations risk one’s investments and hinder a fixed income. Those
who are investing their hard-earned savings, such as retired employees and
senior citizens, will prefer the safety of their funds to high earnings.
 With the wide range of investment alternatives present in the market, an
investor may not make a fruitful choice without professional advice.
 Trading of securities may involve a brokerage fee, commission, etc.,
increasing the cost of transactions.
MODULE 2

2.1 PHILIPPINE STOCK EXCHANGE (PSE)

The Philippine Stock Exchange (PSE) is the only stock exchange in the Philippines. 
 Considered one of the oldest bourses in Asia, PSE traces its roots back to the country’s
two former bourses – the Manila Stock Exchange (formed in 1927) and the Makati Stock
Exchange (formed in 1963). The Manila and Makati bourses were unified in 1992 to form
the PSE. 
 The PSE continues to serve and regulate the Philippine equities market with the
objective of maintaining efficiency, fairness, and transparency. At present, the PSE offers
a comprehensive end-to-end roster of services which include listing, trading, market
data, clearing, and settlement.
 From the regulatory, technology, and business aspects of its operations, the PSE
commits to present various opportunities for its ecosystem of investors, issuers, trading
participants, data vendors, regulators, and shareholders; and ultimately, deliver greater
value to the capital markets.    

2.2 PSE’S VISION, MISSION, AND VALUES

Vision
A premier exchange with world-class standards for trading securities and raising capital that
serves as a strong engine for a robust economy.
 
Mission

 Offer products and services responsive to the needs of investors and other
stakeholders.
 Develop a highly motivated and professional workforce, committed to serve and
excel.
 Be a preferred venue for raising capital.
 Operate efficiently to optimize shareholder value.
 Practice and promote good governance within the Exchange and among listed
companies and trading participants.
 Adopt world-class systems and global best practices for an efficient, fair, and orderly
market.
  Provide a facility for fair, accurate, complete, and timely information about listed
companies, while extending market education and awareness programs to
investors.

Corporate Values

 Professionalism in delivering quality service and in meeting the highest standards of

excellence.
 Integrity, transparency, and accountability in implementing business programs and
enforcing decisions.
 Teamwork in working towards a common and favorable goal for the market.
 Mutual respect in relating with fellow employees.
 Inner strength in prioritizing the common good of the market instead of individual
interest.
 Corporate responsibility in promoting market growth hand in hand with community
welfare.

2.3 PSE’s CORPORATE STRUCTURE AND ORGANIZATIONAL CHART

Corporate Structure

Organizational Chart
Board of Directors
2.4 PSE LISTING’S ADVANTAGE

Access to long term CAPITAL

► Raise capital from selling shares available for use in strategic growth initiatives, servicing of
debt, and/or funding of acquisitions.
► The company may return to the stock market for succeeding offerings post-IPO to raise
additional funding.
Enhanced FINANCIAL POSITION
► Increased transparency from market-driven valuation and regular disclosure reporting of the
company contribute to potentially more favorable corporate financing terms from other
sources (e.g., banks, bond market, etc.).
Strengthened LIQUIDITY & VALUATION
► Liquidity and ready valuation of listed securities have a favorable impact on the potential
entry of strategic investors in the company.
► Easier for investors to buy or sell shares of a company that is listed, as these can be done
online or via a traditional broker.
Enhanced CORPORATE GOVERNANCE
► Publicly listed companies are required to comply with strict corporate governance rules and
require greater transparency via regular disclosures to the investing public. This results in a
professionally-run company with a sound management team leading it. It also enhances the
sustainability of a company’s overall operations.

2.5 INITIAL PUBLIC OFFERING (IPO) AND LISTING APPLICATION PROCESS

Initial Public Offering (IPO)

 A private company with a profitable track record raises capital by offering its shares
to public investors.
 Distribution or offer to sell new shares and/or existing shares of a company to the
general public.
 Listing by Way of Introduction Private company applies for listing of securities that
are already issued or securities that will be issued upon listing.
 No public offering is undertaken prior to initial listing either because the company’s
securities are already deemed publicly held, or when listing is mandated by law, the
SEC, or other government agencies.
 Public offering after listing may be required for specific applicants.
2.6 INVESTING PROCEDURE

Investing Procedure 
Step 1: Choose a Broker
Choose a stockbroker. The PSE has a complete list of information about all its trading
participants who are authorized and qualified to trade securities for you. This list is also
available on the PSE’s website and the telephone directory’s Government and Business listings
yellow pages under the category of stock and bond brokers. Aside from representing you in the
stock market, a stockbroker can also offer you services such as access to market
reports/studies, on-time delivery of important documents, and advise on your investments. It is
then important that you trust your stockbroker and that you are satisfied with its services.
Step 2: Open an account
You shall be required to open an account and fill out a Customer Account Information Form and
to submit identification papers for verification. The stockbroker will then assign a trader or
agent to assist you in either buying or selling any listed security. There are also stockbrokers
who have an online trading facility that allows you to post orders by yourself, but sufficient
understanding of how the stock market works is key. If you choose to be assisted by a trader or
agent, you can discuss with him/her what stocks you want to buy or sell.
Step 3: Give your Order
Give the order to your trader, and then ask for the confirmation receipt. Your buy or sell orders
are relayed to the stockbroker’s dealer for execution. In an automated system as in PSE, the
order is keyed in through a trading terminal and automatically matched. Confirmation of done
trades – via phone, email or online – is made as soon as possible and subsequently, an official
confirmation or invoice should be delivered to you.
Step 4: Pay before your settlement date
Pay before settlement date. The delivery or payment should be made before the settlement
date of T+3. For traditional stockbrokers, settlement of transactions is usually done after three
(3) working days from the transaction date. This means that for transactions done on Monday,
as an illustration, payment should be received by Thursday. Meanwhile for online stockbrokers,
settlement of all transactions is done on the transaction date. Settlement of accounts is
performed by the clearing house. 
Step 5: Receive Your Proceeds/Shares
You shall receive from your broker either the proceeds of sale of your stocks (after 3 business
days) or proofs of ownership of stocks you bought (confirmation receipt and invoice). If you
wish to have a physical certificate of the stocks you bought, you can give instructions to your
broker and pay the required upliftment fee. You can purchase shares of stocks either through
an initial public offering (IPO) or through the open market (also referred to as the secondary
market). Shares sold through IPOs are offered for the first time to the public by the company
(primary market) whereby proceeds of the sale go directly to the company. Shares of listed or
publicly traded companies are only bought during trading hours. These shares have since been
transferred from one owner to another and proceeds of the sales do not go directly to the
company but to the owners of the shares.
You’re all set!

2.7 TRADING CYCLE

All equity transactions, whether buying or selling, have a settlement period of T+3 (trading day
+ 3 working days). This means that a seller should be able to deliver the stock certificate, if any,
to his broker and the buyer must have paid the cost of transaction to his broker within 3
working days after the trade was done. Historically, settlement was done manually (27-day
cycle). With scripless trading, wherein settlement is done via the book-entry-system (thru
Philippine Central Depository or PCD), transactions are settled on the third day after trade date.
Under this system, the investor has the option to hold on to his certificate (uplift) or deposit
(lodge) this certificate in PCD through his broker-participant account.

2.8 BOARD LOT SYSTEM

Equity trading is done by board lot or round lot system. The Board Lot Table determines the
minimum number of shares an investor can buy or sell at a specific price range. Therefore, the
minimum amount of initial investment varies and will depend on the market price of the stock
as well as its corresponding board lot. Prices of stocks move through a scale of minimum price
fluctuations.
2.9 BUYING TRANSACTION

Mr. X wishes to buy a stock whose market price is P10.00. Based on the Board Lot Table, the
number of shares he can buy at a regular transaction should be in multiples of 100 shares. In
this case, if Mr. X wants to buy 1,000 shares (which is a multiple of 100 shares) his required cash
outflow will be as follows:

*Broker’s commission varies depending on value of transaction, with a maximum allowable

commission rate of 1.5% (please refer to Table 2 below)
**VAT included
***If a buying client chooses to be issued and maintain a physical certificate in his/her name,
an upliftment/withdrawal fee of P50.00 per certificate issuance request and transfer fee of
P100.00 + 12% VAT will be charged. In the illustration above, the combined
upliftment/withdrawal fee and transfer fee to be paid by the buying client will amount to
P162.00 (P50.00 + P112.00).
2.10 SELLING TRANSACTION
Ms. Y wishes to sell a stock that is trading at P10.00. Based on the Board Lot Table, the number
of shares she can sell at a regular transaction should be in multiples of 100 shares. In this case,
if Ms. Y wants to sell 1,000 shares (which is a multiple of 100 shares), her cash inflow will be as
follows:

*Broker’s commission varies depending on value of transaction, with a maximum allowable rate
of 1.5% (please refer to Table 2 below)
**Stock transaction tax levied on sellers only
***VAT included
****If a selling client has certificates, he/she needs to have this converted into book-entry form
in the PCD system. A cancellation fee of P20.00 + 12% VAT and transfer fee of P100.00 + 12%
VAT will be charged. In the illustration above, the combined cancellation fee and transfer fee to
be paid by the selling client will amount to P134.40 (P22.40 + P112.00).
2.11 TRANSACTION FEES & TAXES

Transaction Fee
The Exchange collects 1/200 of 1% (0.5 basis points) on gross value for every buy and sell
transaction executed. The fee is exclusive of 12% value-added tax (VAT).
Clearing & Settlement Fee
The Securities Clearing Corporation of the Philippines collects 1 basis point on gross value for
every buy and sell transaction executed. The fee is inclusive of 12% VAT. 
Brokerage Commission
A stockbroker is compensated for his services in executing orders on the Exchange through
commission charges, which are paid by both the buyer and seller to their respective brokers.
For trade transactions covering equity and equity-related products, the maximum commission
rate is 1.5% of the total transaction cost plus 12% VAT. The minimum commission rates depend
on the amount of the transaction. (See Table 2)
Upliftment/Withdrawal Fee
If a buying client opts for a stock certificate to be issued in his name, he must make the request
through his broker who will then issue the upliftment request through the PDTC system. Upon
receipt, PDTC will then submit the request to the transfer agent for the issuance of the
certificate. PDTC will charge the broker an upliftment/withdrawal fee of Php50 per certificate
issuance request. The transfer agent will charge their usual issuance fee per certificate on top
of PDTC’s upliftment/withdrawal fee.
Cancellation Fee
If a selling client has physical certificates, he must have the certificates converted into book-
entry form in the PDTC system by requesting, through his broker, for a direct transfer (DT) with
the transfer agent, which costs Php100 (plus 12% VAT) per certificate for the transfer of
ownership of shares to PDTC Nominee Corporation (PCNC).
In addition to the DT fee, a client must pay cancellation fee of Php20 (plus 12% VAT) to the
transfer agent for cancellation of the certificates to be lodged in PDTC (for lodgment of shares).
This is applicable only to listed equities.
Stock Transaction Tax
Sales of equities listed and traded on the Exchange are subject to a stock transaction tax of 3/5
of 1% (60 basis points) of the value of transaction charged to the seller, in lieu of the capital
gains tax. The sale, barter or exchange of shares of stock listed and traded at the PSE are
exempt from documentary stamp tax.
 
Withholding Tax
Under the National Internal Revenue Code of 1997, and except in cases where tax treaties are
in force, dividends received from domestic corporations are subject to a withholding tax of 10%
if the recipient is a citizen or resident alien, 20% if the recipient is a non-resident individual
engaged in trade or business in the Philippines, 25% if the recipient is a non-resident individual
not engaged in trade or business in the Philippines, and 30% if the recipient is a non-resident
foreign corporation. Dividends received by domestic and resident foreign corporations are not
subject to tax. The rate of income tax withheld on dividends paid to a non-resident foreign
corporation may be reduced to 15% if the country in which the non-resident foreign
corporation is domiciled (a) imposes no taxes on foreign-source dividends or (b) allows a credit
against the tax due from the foreign non-resident corporation for taxes deemed to have been
paid in the Philippines equivalent to 15% of such dividends.
MODULE 3

3.1 INVESTMENT IN EQUITY SECURITIES

Investment in equity securities is the best example of financial assets.

Equity securities represent an ownership interest in an entity such as shares of stock and share
rights. The investor (Buying investor) invests in another entity called the investee (selling
investee). 
Fair Value - It is the price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date. Generally, the fair value of the
securities is the quoted price in PSE.      
Using the data of PSE (https://edge.pse.com.ph/companyPage/stockData.do?
cmpy_id=86&security_id=158 (Links to an external site.)), let us check one of the data of
publicly-listed companies:

Based on the stock data of Jollibee Food Corporation:

1. The entity has been enlisted in the PSE since July 14, 1983.
2. The Board lot is 10 shares. Hence, the minimum number of shares to be acquired or
sold is only 10.
3. The par value is P1. The total number of shares issued is 1.128 Billion, the total
number of shares outstanding is 1.111 Billion, and the total number of shares
enlisted in the PSE is 1.123 Billion. Note that the difference between the issued
shares and the outstanding shares are called treasury shares. Can you compute, how
many the treasury shares?
 4. The last trade price of JFC is P200 per share while the average 52-week high is
P259.80 while the average 52-week low is P182.

Let us also analyze the market price of JFC for the past one-year:

What have you noticed in the movements of JFC's market or quoted price in the PSE?

3.2 INCREASE/DECREASE IN THE VALUATION OF THE INVESTMENT

Illustrative problem:                                                               
On June 15, 2020, Mariah Company acquires 300 shares of Jollibee's equity securities. The
purpose is for nontrading. The market price per share is P142.50. 
Requirements:                                                           

1. Compute the total investment cost on June 15, 2020.

2. Compute the increase/-decrease in the change in the fair value of the Investment on
June 15, 2021.
3. Compute the increase/-decrease in the change in the fair value of the Investment on
June 15, 2022.

Solution:
After 2 years, let us analyze the fair value of the Investment in Jollibee Food Corporation:

3.3 DIVIDENDS
Dividends - It is an accretion of wealth on the part of the (buying) investor.
 It is also the return on interest given by the investee/selling investor to the buying investors. It
can be:                    

1. Dividends in the form of income such as cash dividends and property

dividends.                         
2. Dividends in the form of a return of invested capital such as share dividends and
liquidating dividends.                                                

 
Three important dates about Dividends in the form of income:                                                    

1. Date of declaration - The date when the Board of Directors approved the
distribution of dividends. On this date, dividends are earned but not yet received by
the buying investor. The selling investor on the other hand will charge a portion of
its retained earnings.                      
2. Date of record - The date when the stock and transfer book of the corporation is
closed. Only those shareholders registered as of this date will are entitled to receive
dividends.                     
3. Date of payment - On this date, dividends are paid by the investee/selling investor
to the buying investor.                                                  

 Types of dividends:

1. Cash dividends
2. Property dividends
3. Share dividends (stock dividends)
4. Liquidating dividends

 Note: The basis for dividends is the outstanding shares of the company.
Notice that on May 2, 2022, JFC's Board of Directors (BOD) declared a P1.07 cash dividend per
share, for common shareholders as of May 5, 2022, and distributed cash dividends on May 19,
2022.
Further notice, that Jollibee issued aside from common/ordinary shares, issued a variety of
preferred shares.
Preferred shares are given priority as to dividends distribution and liquidation of corporate
assets over common/ordinary shareholders. However, the dividends distribution to preference
shareholders can only be fixed; at the same time, they do not have a voting right. Only
common/ordinary shareholders can vote for the corporation's Board of Directors (BOD).

3.3.1 CASH DIVIDENDS

Cash dividends - The dividends received by the investor, through the share in net income and
the form of cash.                                                              
It can be:

1. Dividend-on - Shares are sold after the date of the declaration but before the date
of record. The purchased share has add-on dividends on
it.                                                
2. Ex-dividend - Shares are sold after the date of record but before the date of
payment. The dividends will be received by the original
holder.                                               

To apply the concepts. Let us solve the illustrative problem and make some accounting journal
entries on it:
Illustrative problem 1:
On September 30, 2021, Marian Company receives a P5 cash dividend per share on its
investments to Dingdong Company of 2,000 shares and costing P200,000.              
The date of record is October 30, 2021, and the Date of payment is December 15, 2021, for
dividends respectively.                                                                 
Assuming, Marian sold the investment to Zia Company, on October 15, 2021, for consideration
of P250,000.

1. From the point of view of Dingdong, who is the shareholder?  Zia                                 

2. What kind of dividend is this? Dividend-on               

                     
Assuming, Marian sold the investment to Zia Company, on November 15, 2021, for
consideration of P250,000.

1. From the point of view of Dingdong, who is the shareholder?  Marian                           

2. What kind of dividend is this? Ex-Dividend               

Illustrative problem 2:

3.3.2 PROPERTY DIVIDENDS

Property dividends - The dividends received by the investor, through the share in net income
and the form of property.                                            
The property can be an investment in shares (shares of another company) and merchandise
inventory. The property dividends are always measured at Fair value.     
Illustrative problem:                                                            
On September 30, 2021, Marian Company receives property dividends on its investments to
Dingdong Company of 5,000 shares and costing P185,000. Each share of Marian to Dingdong is
equivalent to one share of Zia.                                        
The date of record is October 30, 2021, and the date of payment is January 15, 2022, for
dividends respectively.                                                                  
The property dividends are shares of stocks of Zia Company.           
The related fair value of Zia Company's shares are:                                                           
September 30, 2021,   P40                                                 
October 30, 2021,        P42                                                 
December 31, 2021,    P46
January 15, 2022,         P50                                              
How much are the property dividends on September 30, 2021, December 31, 2021, and January
15, 2022?
How much are the property dividends (net of tax)?

3.3.3 SHARE DIVIDENDS

Share dividends or stock dividends - The dividends received by the investor are in the form of
the investee's shares.
Take note: Investee's shares and not shares of another entity.                                                       
Share dividends may be: a) same as those held and b) different from those held.                      
If share dividends are different from those held (e.g. invested on ordinary shares and share
dividends is preference share), the original investment cost is allocated on the original ordinary
share and preference share based on fair value.                                                                          
Share dividends would result in the following:

1. Increase in the number of shares of the investor          

2. A decrease in cost per share of the investment               
3. No effect on Total Investment. Hence, has the same proportionate equity interest in
the entity.       
4. Only a memorandum entry is needed for share dividends.                     

Let us solve the illustrative problems: 

Illustrative problem:                                                            
Marimar Company owns 20,000 shares of Sergio Company, the cost per share is P240.
On December 15, 2019, Marimar Company received 20% share dividends or 4,000 shares.
                                                                       
Requirement 1: What is the related memorandum entry?                                                            
"Received 4,000 shares representing share dividends of 20% on 20,000 original shares held.
Shares now held 24,000 shares".                                                                               
Required 2: Determine new no. of shares, cost per share, and Total Investment cost of Marimar
Company to Sergio Company.                                                          
             
                                      No. of shares   Cost per share               Total Cost                            
Original shares              20,000               P240                                P4,800,000                    
Share dividends            4,000                  0                                        0                         
                                      24,000                 200                                  P4,800,000                            

What have you noticed?

Illustrative problem (Ordinary shares with preference shares as dividends)
Marimar Company owns 20,000 ordinary shares of Sergio Company.
The cost per ordinary share is P240.
The total Investment cost is P4,800,000.                                     
On December 15, 2021, Marimar Company received 20% preference share dividends.          
On that day, the quoted price at PSE of Sergio Company's share:                                 
The ordinary share is P280 and the preference share is P200.                                        
                                                                       
Requirement 1: What is the related memorandum entry?                                                            
"Received 4,000 preference shares representing share dividends of 20% on 20,000 original
shares held. Original Shares held is 20,000 shares. Preference shares held is
4,000".                                                                                            

3.3.4 LIQUIDATING DIVIDENDS

Liquidating dividends – these are dividends in the form of the return of invested capital and is
not income. Hence, Liquidating dividends are not credited to Dividends income, rather credited
to Investment in equity securities that would decrease the investment account.
Related journal entry:                                                   
                                                                                            Debit     Credit                   
                Cash                                                                      xxxxx                                   
                Investment in equity securities                                       xxxxx                   
                                To record liquidating dividends.                

3.4 SHARE RIGHTS (STOCK RIGHTS)

Share rights (Stock rights) - Also called pre-emptive rights or rights issue.                                 
It is a legal right given to shareholders to subscribe to new shares issued by the investee at a
specified period and amount.                                                              
The evidence of share rights is called share warrants.                                                    
Share rights are measured at Fair value (market value) at the date it was received by the
entity.                                                              
At the exercise of the share rights, the purchase price plus the fair value of shares will be added
to the cost of investment.
Illustrative problem:                                                            
On January 1, 2019, Swiss Company purchased 100,000 ordinary shares at P80 per share to be
classified as nontrading through other comprehensive income.       
On September 30, 2019, the entity received 100,000 share rights to purchase 20,000          
shares at P90 per share. The share rights had an expiration date of February 1,
2020.                                     
On September 30, 2019, each share had a market value of P114 and the share rights had a
market value of P6.      
Requirement 3: How much are the cost of the share rights?