PARTNERSHI

P AND
CORPORATIO
N
ACCOUNTIN
Share Capital
G
MODULE VI
TIMOLEON S. LIANZA
 Share Capital

LEARNING OUTCOMES:
Learn and understand the
components of Share
Capital;

Account for the

issuance of shares;

Journalize transactions
relative to treasury

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shares.
 Forms of Business
Organizations
Capital Section

Sole Proprietorship Owner’s Equity

Partnership Partners’ Equity

Shareholders’
Corporation Equity

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 Capital raised by a
Share Capital corporation through the
issuance of shares

The portion of the contributed

Legal capital or the minimum amount of
paid –in capital, which must remain
Capital in the corporation for the protection
of corporate creditors

Share The portion of the paid –in capital

Premium representing amounts paid by

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shareholders in excess of par.

 Legal Capital Share Premium

 In case of par value shares, legal

capital is the aggregate par  Aside from the excess of
value of all issued and par, it can also include
subscribed transactions from treasury
 In case of no-par value, legal shares, retirement of shares,
capital is the total consideration
received by the corporation
donated capital, share
including the excess of issue dividends and any other gain
price over the stated value. on the corporation’s own

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(Issued & Subscribed) transactions.

 Two Basic Types of Shares

The share represents the basic

Ordinary ownership class of the corporation.
01 Shares

The share gives its owners certain

advantages over ordinary
Preference shareholders (dividends and
02 Shares priority claims on assets in the

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event of liquidation)
 Preference shares types

Cumulative
Non-
Dividends Convertible
Cumulative
accumulate Participating Can be
Dividends Redeemable
if not paid Can get converted to
not paid are Company can
because of additional ordinary shares
lost buy them back
lack of dividends once in future based
profits at an agreed
ordinary on agreed terms
price
dividends are
distributed

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 Terms related to Share
Capital
Maximum number of shares the
Authorized share Capital corporation can issue.
Shares that have been sold and
Issued Share Capital fully paid
It is the portion of the authorized
Subscribed Share capital share capital that has been
subscribed but not fully paid
These are issued shares, which are
Outstanding Share Capital
in the hands of the shareholders.

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Treasury Stock These are issued shares acquired

but not retired.
 Shareholders’ Equity
Share Capital
Preference Shares- P70 par, 1,000 shares,
authorized issued and outstanding P 70,000
Ordinary shares – P 5 par, 30,000 shares
authorized, 20,000 shares issued and
19,000 outstanding P 100,000
Share Premium –Ordinary 50,000 P150,000
Total Share Capital 220,000

Retained Earnings 80,000

Total P 300,000
Less: treasury (1,000x 10) 10,000

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Total SHE 290,000
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=======
 Two methods of
Accounting for Share
Capital
• Journal Entry method
• Memorandum Entry Method

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 Valuation of issuance of
Issuance of Shares
Shares
Shares
At face amount
issuance for
cash

Shares Based on the following in order

issuance for of priority:
1. Fair values of assets received
non-cash 2. Fair value of shares issued
assets 3. Par value of shares issued

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 Issuance of Shares at a
basket price (lump-sum)
When more than 1 type
of shares are issued with
a single (basket) price,
valuation shall be either:
• Fair value approach
or
• Residual approach (if
only one fair value is
available)

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 Share Issuance Costs Share Issuance Costs

Transactions costs that are directly

Share issuance costs are direct related to issuance of shares shall be
costs to sell share capital which deduced from equity, net of any
normally include legal fees, related income tax
CPA fees, underwriting fees,
commissions, cost of printing In other words, they shall be debited
certificates, documentary to share premium arising from the
share issuance. If insufficient debit
stamps, filing fees with SEC “share issuance cost” account and
and cost of advertising deducted from (in order of priority):
1. SP from previous share issuance
2. Retained Earnings

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 Subscription of Shares Illustrative Example

A subscriber becomes a
shareholder upon subscription but
the stock certificates are not Solve Problem
issued until the full collection of Self-Assessment Exercise 6-9
the subscription.

Solve Problem Self-Assessment

Exercise 6-5

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 Treasury Shares

These are shares which have been

issued and fully paid for, but
subsequently reacquired by the
issuing corporation by purchase,
redemption, donation or through
other lawful means.

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 Illustrative Problem: Treasury Shares
Share Capital

Ordinary shares – P 4 par, 200,000 shares

authorized, 150,000 shares issued & outstanding 600,000
Share Premium –Ordinary 375,000
Total Share Capital 975,000
Retained Earnings 365,000
Total SHE 1,340,000
========
Required: Prepare the journal entries based on the following transactions:
Jan 4 Purchased 24,000 shares ;of its own shares for P 168,000
10Sold 4,000 shares of the treasury stock for P 9 per share
29Sold 14,000 shares of the treasury stock for P 6 per share
30Sold the remaining 6,000 shares of treasury stock for P 7.

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 Treasury Stock/Shares Treasury Stock/Shares
2nd assumption (issue price P 6)
Jan 4 Treasury Stock 168,000
Jan 31 Cash 36,000
Cash 168,000
RE 6,000
T/S (6k x 7) 42,000
10 Cash 36,000
T/S (4K x P 7) 28,000
3rd assumption:
SP – treasury 8,000
On January 31, the corp retired the
remaining treasury.
29 Cash 84,000
SP-treasury 8,000
Jan 31 Ordinary shares 24,000
RE 6,000
SP-ordinary 15,000
T/S (14kx7) 98,000
RE 3,000
T/S 42,000
31 Cash 42,000
T/S (6k x 7) 42,000
Gain: Credit to SP
Loss: Debit:
1. SP-ordinary

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2. SP-treasury
3. RE
 Donated shares

Donated shares refers to shares Donated shares are secured

received by the entity from the without cost and consequently,
shareholders by way of donation. the entity’s assets, liabilities and
Donated shares are actually treasury shareholders’s equity are not
shares and may therefore be reissued at affected but the number of
any price without any discount liability.
outstanding shares is reduced.

However, the reissue or resale of

donated shares increases assets
and donated capital or share
premium.

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 Share split Reduction of par or stated
value (Split up)
Share split may be in the form
For example, an entity has
of:
10,000 shares issued and
outstanding, with P100 par
a. Split up or share split
value. If the shares are split
proper
up to 5 to 1, the new
b. Split down or reverse share
capitalization would be
split
50,000 shares with P20 par
value.
Split up Note that before and after
Split up is a transaction the share split, the share
whereby the original shares are capital remains the same.
called in for cancelation and In order to be properly
replaced by a larger number called the share split, there
accompanied by a reduction in must not be any change in
the par value or stated value. the amount of share capital
This action is prompted mainly of the entity.
by a desire to increase the There is only a change in
number of outstanding shares the number of shares and
for the purpose of effecting a
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the par value or stated

reduction in unit market price.

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value.
 Memorandum entry Split down
Split down is the reverse of
split up. It is a transaction
whereby the original shares
No formal entry is are canceled and replaced by
necessary to record share a small number
split. accompanied by an increase
in the par value.
It is sufficient that a For example, an entity has
10,000 shares issued and
memorandum is made for
outstanding, with P100 par
the number of new shares value. If the shares are split
issued in exchange for the down 5 to 1, the new
old shares plus an capitalization would be 2,000
indication of the new par shares with P500 par value.
value or stated value, as The share capital is
follows: P1,000,000 before the split
(10,000 x P100), and also
P1,000,000 after the split
“Issued 50,000 new shares (2,000 x P500).
with par value of P20, as a The number of shares has
results of 5-for-1 split of decreased to 2,000
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10,000 old shares with par (10,000/5) and the par value

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value of P100.” has increased to P500 (100 x
5).
 Shareholders’ Equity
Share capital issued XX
Subscribe share capital XX
Less: Subscription receivable (XX) XX
Share Premium:
Share Premium excess over par value XX
Share Premium- Treasury shares XX
Share Premium conversion privilege/option- related to convertible XX
bonds payable

Share warrants outstanding XX

Share options outstanding XX
Donated Capital XX XX

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Total Paid in Capital XX

 Shareholders’ Equity
Retained Earnings- unappropriated XX
Retained Earnings- appropriated XX XX
Other Comprehensive Income -Cumulative balance
Revaluation surplus XX
Unrealized gain or (loss) of FVOCI XX
Remeasurement gain or (loss) XX
Translation gain or (loss) XX
Effective portion of cash flow hedge XX
Changes in fair value due to credit risk of designated financial XX XX
liability @FVPL

Total XX

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Less: Treasury Shares XX
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Total Shareholders’ Equity XX

THANK YOU