Norbin B.

Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS

EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
NOTE: FOR IMPAIRMENT VALUATION PURPOSES APPLY PAS 36 RECOVERABLE AMOUNT W/C IS THE HIGHER BETWEEN FAIR VALUE – COST TO DISPOSED &
VALUE IN USE.

INITIAL & SUBSEQUENT MEASUREMENT:

PROBLEM: Assumed the following information for each investments:

JANUARY 1, 2016 (COST @ DATE OF ACQUISITION)
INVESTMENT IN MCJOBEE CORP., P1,000,000
INVESTMENT IN BUBBLE GANG CORP., P4,000,000
JANUARY 31, 2016 (FAIR VALUATION @ DATE OF ACQUISITION)
INVESTMENT IN MCJOBEE CORP., P2,000,000
INVESTMENT IN BUBBLE GANG CORP., P2,000,000

QUESTIONS::
What is the initial & subsequent cost of INVESTMENT IN MCJOBEE CORP., if it is identified as qouted securities, irrevocably designated through
1.)
P/L, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN MCJOBEE CORP., if it is identified as qouted securities, irrevocably elected through OCI,
2.)
and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN MCJOBEE CORP., if it is identified as unqouted securities and the investor acquires NO
3.)
significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN MCJOBEE CORP., if it is identified as qouted securities and the investor acquires
4.)
significant influence.
What is the initial & subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably designated
5.)
through P/L, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably designated
6.)
through OCI, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as unqouted securities and the investor acquires
7.)
NO significant influence. (FOR PAS 39 & PFRS 9)
What is the initial & subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities and the investor acquires
8.)
significant influence.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

ABSOLUTE RULE: If problem states that the investor is to used FAIR VALUE METHOD but failed to indicate the purpose, use FVTPL/TRADING SECURITIES.

REMINDER: UNDER SME’s PFRS the investor is NOT allowed to use fair value method that Irrevocably elected its investment through OCI.

LIST OF DIRECT TRANSACTION COST:

1.) Commission to brokers and dealers of securities
2.) Levies/colllection by regulatory agencies & commodity exchange
3.) Transfer taxes and duties

LIST OF SHARE ISSUANCE COST:

1.) Legal fees NOTE: IF NOT MENTIONED IN LIST OF D.T.C. & S.I.C. THEN IT IS CLASSIFIED AS INDIRECT COST, (EXP. OUTRIGHT)
2.) CPA fees
3.) Underwriting fees
4.) Commissions
5.) Printing
6.) Documentary stamps
7.) Filling fees to sec.
8.) Cost of promotion.

DIFFERENT TREATMENT OF DIRECT TRANSACTION COST :

Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
PROBLEM:
Commission to brokers and dealers of securities P50,000
Levies by regulatory agencies & commodity exchange 10,000
Levies by private custom's facilitator 15,000
Transfer taxes and duties 5,000
Income taxes 3,000

QUESTIONS:
1.) Prepare the journal entry in the books of investor to affect the direct cost incurred by the investor if:
a.) The investment is irrevocably designated through P/L. (FOR PAS 39 & PFRS 9)
b.) The Investment is irrevocably election through OCI (FOR PAS 39 & PFRS 9)
C.) The investment is considered unqouted securities.
d.) The investment is considered qouted securities and the investor acquires SIGNIFICANT INFLUENCE.

Prepare the journal entry in the books of investee ASSUMING THAT THE INVESTEE INCURRED DIRECT COST/SHARE ISSUANCE COST amounting to 100,000
2.)
& INDIRECT COST amounting to 50,000:

a.) The investment is irrevocably designated through P/L. (FOR PAS 39 & PFRS 9)
b.) The Investment is irrevocably election through OCI (FOR PAS 39 & PFRS 9)
C.) The investment is considered unqouted securities.
d.) The investment is considered qouted securities and the investor acquires SIGNIFICANT INFLUENCE.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

VARIOUS ACQUISITION OF INVESTMENTS:

1.) BY PURCHASE USING CASH CONSIDERATION:

PROBLEM: Aldrin acquired 10,000 shares, (par value is P10 per share) of mcjobee's 100,000 issued & subscribed shares. Aldrin purchased the
shares using his cash amounting to 150,000.
REQUIREMENTS:
a.) If Aldrin opt the FAIRVALUE METHOD and to irrevocably designate the investment through P/L AND the transaction , prepare the
journal entries in the books of investor and investee for PAS 39 & PFRS 9
b.) If Aldrin opt the FAIR VALUE METHOD to irrevocably elected the investment through OCI, prepare the journal entries in the books
of investor and investee for PAS 39 & PFRS 9
c.) Supposed that the investment is an unqouted equity securities and aldrin opt the COST METHOD, prepare the journal entries in the
books of investor and investee for PAS 39 & PFRS 9
d.) Assuming that Aldrin can exercise signifcant influence, despite of its current interest of ownership, prepare the journal entry in the
books of investor and investee for PAS 28.

2.) BY PURCHASE USING NON-CASH CONSIDERATION WITH COMMERCIAL SUBSTANCE:

PROBLEM: Aldrin acquired 10,000 shares, (par value is P10 per share) of mcjobee's 100,000 issued & subscribed shares. Aldrin purchased the
shares using his PPE (NON-CASH ASSET) with carrying amount of 200,000.
REQUIREMENTS:
SATISFY THE REQUIREMENT BY ASSUMING THAT THE TRANSACTION IS WITH COMMERCIAL SUBSTANCE
a.) List down the ORDER OF PRIORITY

b.) If Aldrin opt the FAIRVALUE METHOD, prepare the journal entries in the books of investor and investee for PAS 39 & PFRS 9
c.) If Aldrin opt the FAIR VALUE METHOD to irrevocably elected the investment through OCI, prepare the journal entries in the books of
investor and investee for PAS 39 & PFRS 9.
d.) Supposed that the investment is an unqouted equity securities and aldrin opt the COST METHOD, prepare the journal entries in the
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
books of investor and investee for PAS 39 & PFRS 9
e.) Assuming that Aldrin can exercise signifcant influence, despite of its current interest of ownership, prepare the journal entry in the
books of investor and investee for PAS 28.

3.) BY PURCHASE USING NON-CASH CONSIDERATION WITHOUT COMMERCIAL SUBSTANCE:

PROBLEM: Aldrin acquired 10,000 shares, (par value is P10 per share) of mcjobee's 100,000 issued & subscribed shares. Aldrin purchased the
shares using his PPE (NON-CASH ASSET) with carrying amount of 200,000.
REQUIREMENTS:
SATISFY THE REQUIREMENT BY ASSUMING THAT THE TRANSACTION IS WITHOUT COMMERCIAL SUBSTANCE
a.) List down the ORDER OF PRIORITY

b.) If Aldrin opt the FAIRVALUE METHOD, prepare the journal entries in the books of investor and investee for PAS 39 & PFRS 9
c.) If Aldrin opt the FAIR VALUE METHOD to irrevocably elected the investment through OCI, prepare the journal entries in the books
of investor and investee for PAS 39 & PFRS 9
d.) Supposed that the investment is an unqouted equity securities and aldrin opt the COST METHOD, prepare the journal entries in the
books of investor and investee for PAS 39 & PFRS 9
e.) Assuming that Aldrin can exercise signifcant influence, despite of its current interest of ownership, prepare the journal entry in the
books of investor and investee for PAS 28.

BY RENDERING OF SERVICE

PROBLEM: MCJOBEE Corp. issued its 10,000 shares (PAR VALUE IS P!0 PER SHARE) to Kimberly in consideration to the latter's services. The
services fair valuation @ the date of share issuance is P200,000. MCJOBEE has 100,000 shares issued & subscribed.

REQUIREMENTS:
a.) If Aldrin opt the FAIRVALUE METHOD and to irrevocably designate the investment through P/L AND the transaction , prepare the
journal entries in the books of investor and investee for PAS 39 & PFRS 9
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
b.) If Aldrin opt the FAIR VALUE METHOD to irrevocably elected the investment through OCI, prepare the journal entries in the books
of investor and investee for PAS 39 & PFRS 9
c.) Supposed that the investment is an unqouted equity securities and aldrin opt the COST METHOD, prepare the journal entries in the
books of investor and investee for PAS 39 & PFRS 9
d.) Assuming that Aldrin can exercise signifcant influence, despite of its current interest of ownership, prepare the journal entry in the
books of investor and investee for PAS 28.

BY ISSUING FINANCIAL LIABILITY

PROBLEM: MCJOBEE Corp. issued its 10,000 shares (PAR VALUE IS P10 PER SHARE) to Kimberly. Kimberly issued a Bonds payable in exchange of
MCJOBEE's shares.
The following below are the information pertaining to the issuance of financial liability:
FACE AMOUNT OF BONDS = P3,000,000
NOMINAL RATE = 10%
YIELD RATE = 12%
BOND's TERM = 3 years (THE BONDS WERE NOT ISSUED BETWEEN INTEREST DATES)
REQUIREMENTS:
a.) If Aldrin opt the FAIRVALUE METHOD and to irrevocably designate the investment through P/L AND the transaction , prepare the
journal entries in the books of investor and investee for PAS 39 & PFRS 9
b.) If Aldrin opt the FAIR VALUE METHODto irrevocably elected the investment through OCI, prepare the journal entries in the books
of investor and investee for PAS 39 & PFRS 9
c.) Supposed that the investment is an unqouted equity securities and aldrin opt the COST METHOD, prepare the journal entries in the
books of investor and investee for PAS 39 & PFRS 9
d.) Assuming that Aldrin can exercise signifcant influence, despite of its current interest of ownership, prepare the journal entry in the
books of investor and investee for PAS 28.

RULES FOR REMEASUREMENTS OF ASSETS:

1.) GENERAL RULE: Remeasurements should NOT be made at the date of:
a.) Sale
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
b.) Donation
c.) Barter
d.) Any other transfer of ownership transaction.
2.) GENERAL RULE: Remeasure the asset prior to reclassification, EXCEPT for the following scenarios:
a.) PAS 28 (STEP ACQUISITION) with respect to approach 1, 2 & 3.
b.) PFRS 5 (NON-CURRENT ASSET HELD FOR DISPOSAL) with respect to reclassification from cost method, cost model, equity method, FULL consolidation to non-current
asset held for disposal.
c.) PAS 39 (TAINTING) “Sale of investment in bonds MORE THAN an INSIGNIFICANT amount.”

RULES FOR OTHER COMPREHENSIVE INCOME (OCI) RECYCLING:

ABSOLUTE RULE: Recycle the OCI from the same asset subject to:

a.) Reclassification
b.) Dillution
c.) Impairment
d.) Sale
e.) Donation
f.) Barter
g.) Any other transfer of asset ownership transaction.

NOTE: The OCI presented in COMPREHENSIVE INCOME STATEMENTS is for CURRENT PERIOD ONLY. While

The OCI presented in BS, and changes in equity is for CURRENT & PREVIOUS period.

IMPAIRMENT WITH OBJECTIVE EVIDENCE

PROBLEM: Assumed the following information for each investments:
JANUARY 1, 2016 (COST @ DATE OF ACQUISITION)
INVESTMENT IN BUBBLE GANG CORP., P4,000,000
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
DECEMBER 31, 2016 (FAIR VALUE)
INVESTMENT IN BUBBLE GANG CORP., P2,000,000
ASSUMED THAT ANY DECLINE IN COST OF INVESTMENT IS CORROBORATED BY OBJECTIVE PIECES OF EVIDENCE
1. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably designated
) through P/L, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
2. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably elected
) through OCI, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
3. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as unqouted securities and the investor
) acquires NO significant influence. (FOR PAS 39 & PFRS 9)
4. What is the SUBSEQUENT cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities and the investor
) acquires significant influence.

IMPAIRMENT WITHOUT OBJECTIVE EVIDENCE

PROBLEM: Assumed the following information for each investments:
JANUARY 1, 2016 (COST @ DATE OF ACQUISITION)
INVESTMENT IN BUBBLE GANG CORP., P4,000,000
DECEMBER 31, 2016 (FAIR VALUE)
INVESTMENT IN BUBBLE GANG CORP., P2,000,000
1. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably designated
) through P/L, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
2. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably elected
) through OCI, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
3. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as unqouted securities and the investor
) acquires NO significant influence. (FOR PAS 39 & PFRS 9)
4. What is the subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities and the investor
) acquires significant influence.

IMPAIRMENT RECOVERY
PROBLEM: Assumed the following information for each investments:
JANUARY 1, 2016 (COST @ DATE OF ACQUISITION)
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
INVESTMENT IN BUBBLE GANG CORP., P4,000,000
DECEMBER 31, 2016 (FAIR VALUE) ASSUMED THAT THERE IS AN INDICAITON OF IMPAIRMENT
INVESTMENT IN BUBBLE GANG CORP., P2,000,000
JANUARY 1, 2017 (FAIR VALUE)
INVESTMENT IN BUBBLE GANG CORP., P5,000,000
1. What is the initial and subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably
) designated through P/L, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
2. What is the initial and subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities, irrevocably
) elected through OCI, and the investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
3. What is the initial and subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as unqouted securities and the
) investor acquires NO significant influence. (FOR PAS 39 & PFRS 9)
4. What is the initial and subsequent cost of INVESTMENT IN BUBBLE GANG CORP., if it is identified as qouted securities and the
) investor acquires significant influence.

NOTE: SA SALE OF INVESTMENT ACCOUNTED USING FVTPL/TRADING SEC. OR FVTOCI/A.F.S. FOLLOW THE JOURNAL ENTRY BELOW:

Journalized the sale of investment.

DR. Cash <- (Cash proceed)

DR. OCI <- (IF ANY) <- Therefore If the investment is accounted for using FVTOCI/A.F.S. then there is an existing OCI.) <- HOW? (OCI x sold shares/ total shares owned)

CR. Investment account using FVTPL/TRADING SEC. or FVTOCI/A.F.S. <- (Carrying amount of investment SOLD).

CR. Gain <- (Balancing) <- This includes the Recycled OCI DIRECTLY Reported through Profit or Loss. TAKE NOTE FOR FVTOCI ito po ay RETAINED EARNINGS na not anymore GOS.

CR. Retained earnings <- (If the OCI to be recycled cannot be DIRECTLY reported through profit or loss.) <- HOW? (OCI x sold shares/ total shares owned)

REMINDERS:

1.) FOR SALE OF INVESTMENT IN ASSOCIATES Follow the steps in DEASSOCIATION or DILLUTION.
2.) To know the CURRENT ownership % use the formula below:
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

3.) Pag OLD standard stick to the ownership % to identify the PROPER ACCOUNTING TREATMENT, BUT for NEW standard AFTER taking into
consideration the ownership % CHECK if the problem states the contrary. EXAMPLE 20-50% but the problem states that the investor CANNOT
exercise significant influence despite of its current ownership %.
QUESTION: Sir ano po yung EQUIVALENT of POTENTIAL shares acquired?
ANSWER: SHARES EQUIVALENT of Stock rights, Conversion privilege, Warrants. PROVIDED na itong mga potential shares na ito dapat CURRENTLY
EXERCISABLE meaning walang CONDITION at walang EXERCISE PERIOD, ibig sabihin the inventor can EXERCISE the potential shares ANYTIME.

PRESENCE OF NET INCOME, OCI, & DIVIDEND INCOME.

PROBLEM: Gemaica acquired 10,000 shares (PAR VALUE IS P10 PER SHARE) of CAYABA CORP amounting to P1,000,000
CAYABA CORP. has 50,000 shares issued & subscribed.
The following accumulated information were derived in the books of investee AT AND SUBSEQUENT to the date of ACQUISITION.
NET INCOME = P500,000,GROSS OF CALLABLE PREFERRED DIVIDEND AMOUNTING TO P100,000
OTHER COMPREHENSIVE INCOME:
Remeasurement gains/losses P300,000
UG/UL in derivatives contract designated as cash flow hedge. 200,000
G/L from foreign currency translation 10,000
UG/UL in investments classified as FVTOCI/AFS 500,000
OUTSTANDING REVALUATION SURPLUS 400,000
DIVIDEND PAID BY INVESTEE/ASSOCIATE TO INVESTOR = P300,000 (FIRST PAYMENT)
DIVIDENDS PAID BY INVESTEE/ASSOCIATES = 500,000 (SECOND PAYMENT)

REMINDER: YUNG DEC. 31 OF PREV. YEAR IS THE SAME WITH JAN. 1 OF CURRENT YEAR W/RESPECT TO IDENTIFYING THE O% TO BE USED.
QUESTIONS:
1.) Balance of investment in cayaba corp. if the investment is classified as FVTPL
2.) Balance of investment in cayaba corp. if the investment is classified as FVTOCI
3.) Balance of investment in cayaba corp. if the investment is classified as TRADING SECURITIES
4.) Balance of investment in cayaba corp. if the investment is classified as AVAILABLE FOR SALE
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
5.) Balance of investment in cayaba corp. if the investment is classified as UNQOUTED EQUITY SECURITIES
6.) Balance of investment in cayaba corp. if the investment is classified as INVESTMENT IN ASSOCIATES
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
REMINDERS:

1.) Accounting for investment in associates (EQUITY METHOD) under PFRS for SMEs’ states that the investor may at his option use the following method to account its investment w/
significant influence:
a.) Equity method. <- If problem is silent this is the general rule.
b.) Cost method.
c.) Fair value method.
2.) If preference shares ang naacquired ni investor he is not allowed to use PAS 28 & IFRS 3 & IAS 27 (THIS IS BOTH FOR FULL & SMEs PFRS).

INVESTEE WITH HEAVY LOSSES

On january 1, 2016 an investor acquired 28% of the ordinary shares of an associate for P5,000,000 (GROSS OF DIRECT TRANSACTION COST), on this date
the identifiable assets & liabilities of the associate/investee were measured @ fair value. There is no goodwill arising from the acquisition.
The profit and (losses) made by the associate/investee over the first 5 years of operations were:
2016 ended losses = P1,000,000
2017 ended losses = P10,000,000
2018 ended losses = P12,000,000
2019 ended profit = P 2,000,000
2020 ended profit = P2,500,000
REQUIREMENTS:
1.) prepare the journal entry in the books of investor.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

PRESENCE OF INTERCOMPANY TRANSACTION (UPSTREAM)

On january 1, 2016 ALISA acquired 20% interest in an investee enabling the investor to exercise significant influence over the investee. On this date the
identifiable assets & liabilities of the investee are recorded @ fair value.
During the year, the investee reported net income of P2,000,000 & paid a dividend of P300,000.

Also during the year, the investee sold inventory costing P200,000 for P300,000 to the investor. The inventory is UNSOLD by alisa on Dec. 31, 2016.
On july 1, 2016 the investee sold a PPE with a carrying amount of P50,000 for a consideration of P100,000 to alisa. The said PPE had a remaining life of 5
years.
Further the investee sold a land with a cost of P100,000 for a consideration of P200,000 to alisa.
On january 1, 2017 the following assets were sold in an arms-length transaction:
1.) Inventory previously sold to alisa.
2.) land previously sold to alisa.
REQUIREMENTS:
FOR YEAR 2016
1.) Prepare the journal entry in the books of investor for the year 2016.
2.) How much is the share of investor in the dividend of investee/associate?
3.) How much is the share of investor in the UPSTREAM unrealized gain on sale of inventory?
4.) How much is the share of investor in the UPSTREAM unrealized gain on sale of PPE? (FOR COST & APPRAISAL MODEL)
5.) How much is the share of investor in the UPSTREAM unrealized gain on sale of land ? (FOR COST & APPRAISAL MODEL)
6.) How much is the share of investor in the net income of investee?
7.) How much is the share of investor in the adj. net income of investee?
FOR YEAR 2017
1.) Prepare the journal entry in the books of investor for the year 2017.
2.) How much is the share of investor in the UPSTREAM realized gain on sale of inventory?
3.) How much is the share of investor in the UPSTREAM realized gain on sale of PPE? (FOR COST & APPRAISAL MODEL)
4.) How much is the share of investor in the UPSTREAM realized gain on sale of land ? (FOR COST & APPRAISAL MODEL)
5.) How much is the balance of inventory in the books of investor on january 1, 2016?
6.) How much is the balance of inventory in the consolidated balance sheet?
7.) How much is the balance of PPE in the consolidated balance sheet?
8.) How much is the balance of LAND in the consolidated balance sheet?
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

PRESENCE OF INTERCOMPANY TRANSACTION (DOWNSTREAM)

On january 1, 2016 arthur an investor with 20% interest of ownership in the investee's net assets sold an inventory costing P50,000 for a consideration of
P100,000 to the latter.
On the same day arthur sold to investee a land costing P80,000 for a consideration of P100,000. Further, the former sold to the latter an equipment costing
P100,000 & with accumulated depreciation of P50,000 for a consideration of P100,000. The said equipment has a book value of P50,000 & REMAINING
USEFUL LIFE OF 5 YEARS.
REQUIREMENTS:
1.) How much should the investor recognized as total unrealized gain /loss in inter-company sale on january 1, 2016?
2.) How much should the investor recognize as total realized gain/loss in inter-company sale in december 31, 2016?
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
REMINDERS FOR STOCK DIVIDEND:
1.) Stock dividend should be applied RETROSPECTIVELY for investor’s point of view.
2.) Stock dividends affects the outstanding shares of investee & shares owned by investor BUT do not affect the shareholder’s equity of investee and
investment balance of investor.

STOCK DIVIDEND - SAME CLASS OF SHARES - (DONEE IS A SHAREHOLDER OF DONOR)

Aling inasal previously issued its ordinary shares to kimberly. The former books exhibits the following:
Share capital, P100 par, 20,000 shares authorized, 10,000 shares issued to Kimberly and 40,000 to other investors. = P1,000,000
Share premium = P500,000
Retained earnings = P750,000
REQUIREMENTS:
a.) Prepare the journal entries in the books of donor & donee if a 10% stock dividend in form of ordinary share is declared by aling inasal to kimberly & the market value of the
share is P150 per share.
b.) Prepare the journal entries in the books of donor & donee if a 20% stock dividend in form of ordinary share is declared by aling inasal to kimberly & the market value of the
share is P150 per share.

STOCK DIVIDEND - NOT SAME CLASS OF SHARES – (DONEE IS A SHAREHOLDER OF DONOR)

Aling inasal previously issued its ordinary shares to kimberly. The former books exhibits the following:
Share capital, P100 par, 20,000 shares authorized, 10,000 shares issued to Kimberly and another 40,000 to
other investors. = P1,000,000
Share premium = P500,000
Retained earnings = P750,000
The market value per share for preference share of kimberly is P100
The market value per share for ordinary share of kimberly is P150
The previously issued shares to kimberly is 10,000 shares and costing P800,000
REQUIREMENTS:
a.) Prepare the journal entries in the books of donor & donee if a 10% stock dividend in form of preference share is declared by
aling inasal to kimberly & the market value of the share is P100 per share.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
STOCK DIVIDEND - SAME CLASS OF SHARES – (DONEE IS NOT A SHAREHOLDER OF DONOR)
Gemaica co. previously issued its ordinary shares to PLVIN corp. The former books exhibits the following:
Share capital, P100 par, 20,000 shares authorized, 10,000 shares issued. WITH 50% TO PLVIN CORP. & 50% TO
SUN MIGS CORP. = P1,000,000
Share premium = P500,000
Retained earnings = P750,000

REQUIREMENTS:
a.) Prepare the journal entries in the books of donor & donee if a 10% stock dividend in form of ordinary share is declared by
gemaica co. to kimberly & the market value of the share is P150 per share.
b.) Prepare the journal entries in the books of donor & donee if a 20% stock dividend in form of ordinary share is declared by
gemaica co. to kimberly & the market value of the share is P150 per share.
c.) Prepare the journal entries in the books of donor & donee if a 20% STOCK DONATION based on gemaica co. authorized stock
in form of ordinary share is ISSUED to Kimberly & the market value of the share is P150.

DONATED CAPITAL - SHARES - (DONOR IS A SHAREHOLDER OF DONEE)

Plmar rohas incorporated a shareholder of norbin co. Donated an aggregate of 10,000 ordinary shares of their shareholdings with par of P100 per
share & P150 MVPS to the latter.
REQUIREMENT:
1.) prepare the journal entries in the books of donor & donee.

DONATED CAPITAL - SHARES - (DONOR IS NOT A SHAREHOLDER OF DONEE)

Plmar rohas incorporated a shareholder of norbin co. Donated an aggregate of 10,000 ordinary shares of their shareholdings with par of P100 per
share & P150 MVPS to PLVIN corp.

REQUIREMENT:

1.) prepare the journal entries in the books of donor & donee.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

REMINDERS FOR LIQUIDATING CAPITAL:

1.) The liquidating capital DO NOT affect the outstanding shares by investee & shares owned by investor BUT affects the shareholders’ equity section of investee & investment balance of
investor.

LIQUIDATING CAPITAL

PROBLEM: CAYABA CORP. a MINING-INDUSTRY COMPANY declared a cash dividend amounting to P100,000
for Norbin B. Cayabyab a CPA, RCA, MICB professional and investor of CAYABA CORP. HOWEVER the balance
of retained earnings is insufficient. Retained earnings amounts to P50,000 only.
QUESTIONS:
1.) Assuming that Mr. Cayabyab's investment balance is P80,000 @ the date of declaration. Prepare the
necessary journal entry in the books of INVESTOR and INVESTEE.
2.) Assuming that Mr. Cayabyab's investment balance is P30,000 @ the date of declaration. Prepare the
necessary journal entry in the books of INVESTOR and INVESTEE.

NOTE: This is actually the scenario when RETAINED EARNINGS is insufficient to cover up the dividends declared. Meaning RE<DIV. PAYABLE. Ang gawin mo lang dito gamitin mo yung investment
balance ni investor as a balancing figure. Therefore used investment account in investor’s point of view and then liquidating capital account in investee’s point of view.

TAKE NOTE: ABSOLUTE RULE “No abnormal account” kaya kapag kulang yung investment balance to cover up the declared dividend charge the excess of dividends payabe over retained
earnings and investment account to P/L.

REMINDER: AS A GENERAL RULE NO ONE IS ALLOWED TO DECLARE DIVIDEND WITH INSUFFICIENT RETAINED EARNINGS AS THIS IS A VIOLATION TO TRUST FUND DOCTRINE. UNLESS THE ENTITY
IS ENGAGED IN WASTING ASSET EXTRACTION.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

DIVIDEND-ON VERSUS EX-DIVIDEND

PROBLEM: On jan. 1, 2016 CAYABA
Payment is scheduled to be paid on
On July 1, 2016 CAYABA CORP. sold
is P500,000 @ this date. The cash p
REQUIREMENTS:
1.) Prepare the journal entry in the
2.) Prepare the journal entry in the

REMINDERS FOR SPECIAL ASSESSMENT:

1.) Assessment do not affect the shares outstanding by investee & shares owned by investor BUT affects the shareholders’ equity of investee &
investment balance of investor.

SPECIAL ASSESSMENT
A shareholder owns 10,000 shares costing P600,000. subsequently, the board of directors pass a resolution to the effect that the shareholders shall
contribute P5 for each share held to the corporation.
REQUIREMENTS:
1.) Prepare the journal entry in the books of investor.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
2.) Prepare the journal entry in the books of investee.

NOTE: aLam mo kasi pwede ring mangyare na yung dating watered share na kinorek gamit ang discount on share capital account ay muling mareversed by DEBITING ASSESSMENT RECEIVABLE &
CREDITING DISCOUNT ON SHARE CAPITAL. J

QUESTION: a sir? Pano nangyare yun?

ANSWER: Kasi imbis na INSUFFICIENT or WALANG consideration nagbayad nalang si INVESTOR. Naisip niya kasi na sayang naman kung macacancell yung shares certificate niya, kasi malaking
corporation pala yung nagissue baka kumita sya ng MALAKI in the near future.

QUESTION: EH ANU NAMAN PONG JOURNAL ENTRY SA INVESTOR’S BOOKS?

ANSWER: DR.. INVESTMENT ACCOUNT & CR. CASH.(Or any other consideration allowed by B.P. 68 Sec. 65)
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
PROBLEM: Magnum company held the following securities as trading investments on Dec. 31, 2015
A.) 100,000 shares of company A's nonredeemable preference share capital, par value P75 per share.
-The investment above has P775,000 cost and P825,000 fair value.
B.) 7,000 shares of company B's preference share capital, par value P100 per share, subject to MANDATORY REDEMPTION by the issuer AT PAR on Dec. 31,
2016
-The investment above has P690,000 cost and P625,000 fair value.
REQUIREMENT:
1.) Prepare the journal entry for Dec. 31, 2015 books of investor.
2.) Prepare the journal entry for Dec. 31, 2016 books of investor.

CASH DIVIDEND
The board of directors of an entity at their meeting on Nov. 20, 2016 declared a cash dividend of P20 per share, payable april 30, 2017 to shareholders of
record on Dec. 31, 2016. The entity has 20,000 shares issued & outstanding w/par value of P100
REQUIREMENT:
1.) Prepare the journal entry in the books of investor & investee.

PROPERTY DIVIDEND
An entity owned 50,000 share of another entity accounted for as Non-marketable equity investment. The carrying amount of the investment is P1,000,000.
On Dec. 1, 2012 the entity declared these shares as property dividend to be distributed on jan. 31, 2013.
The investment had the FF. Fair value less cost to sell:
Dec. 1, 2012 = P1,500,000 (NET OF 200,000 COST TO SELL)
Dec. 31, 2012 = P900,000 (NET OF 100,000 COST TO SELL)
Jan. 31, 2013 = P1,900,000 (NET OF 200,000 COST TO SELL)
REQUIREMENTS:
1.) Prepare the journal entry in the books of investor & investee.

SHARES IN LIEU OF CASH DIVIDEND

A shareholder owns 10,000 shares costing P1,000,000. Subsequently the shareholder receives 1,000 shares in lieu of cash dividend P10 per share. The
market value per share is P150.
REQUIREMENTS:
1.) Prepare the journal entry in the books of investor
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
2.) Prepare the journal entry in the books of investor ASSUMING THAT THE MVPS IS NOT GIVEN.

CASH IN LIEU OF SHARE DIVIDEND

A shareholder owns 10,000 sahres costing P1,100,000. Subsequently the shareholder receives P150,000 cash in lieu of 1,000 shares originally declared as10%
stock dividend.
REQUIREMENTS: (assuming par value is P100 and Mvps P150

1.) Prepare the journal entry in the books of investor ASSUMING THAT THE STOCK DIVIDEND DECLARED IS THE SAME CLASS acquired by the latter.
2.) Prepare the journal entry in the books of investor ASSUMING THAT THE STOCK DIVIDEND DECLARED IS NOT THE SAME CLASS acquired by the latter.

THE INVESTOR WAS GIVEN A CHANCE TO CHOOSE BETWEEN CASH DIVIDEND & PROPERTY DIVIDEND:
GENERAL RULE: The UNAPPROPRIATED retained earnings will not be affected by the journal entry to be made @ the date of payment/distribution/share
issuance.
EXCEPTION: If with respect to cash dividend & property dividend option scenario, the DIVIDEND PAYABLE is GREATER than the CASH PAYMENT the difference
is fully chargeable to unappropriated retained earnings.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
STEP ACQUISITION:

PROBLEM: On January 1, 2015 Mr. Junel acquired 10,000 shares (PAR VALUE IS P10) of CAYABA CORP. 110,000 issued & subscribed shares. CAYABA CORP. has
10,000 shares in its treasury. It takes the former P200,000 to acquire the said investment in equity securities. The following information pertains to January to
December 31, 2015 calendar period: INVESTEE net income of 100,000, INVESTEE OCI of 150,000. The INVESTEE net assets @ fair value as of this period costs
P1,000,000. On January 1, 2016 Mr. junel acquired another 10,000 shares of CAYABA CORP. for a pecuniary consideration amounting to P300,000. The
following information pertains to January 1, 2016 to December 31, 2016 calendar period: INVESTEE net income of 100,000, INVESTEE OCI of 200,000. The
INVESTEE net assets @ fair value AS OF this period costs P1,000,000. ASSUMING that any excess of consideration over the fair value of investee's net assets is
attributable to as follows: 60% to GOODWILL and 40% to UNDERVALUED ASSETS which will require additional depreciation. Assumed that the undervalued
assets have a remaining useful life of 10 years.

QUESTION:
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
1.)
FVTPL.
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
2.)
FVTOCI
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
3.)
TRADING SECURITIES.
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
4.)
AVAILABLE FOR SALE.
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
5.)
UNQOUTED INVESTMENT @ COST
Prepare the step by step process for IAS 28 and IFRS 3 applicable to STEP ACQUISITION assuming that the original previous investment is classified as
6.)
INVESTMENT IN ASSOCIATES.

7.) How much is the excess amortization using pfrs for sme’s?

REMINDER:
1.) Under pfrs for smes’ PAS 38 states that an intangible asset like GOODWILL is ALWAYS PRESUMMED to be with DEFINITE LIFE, in cases
where the useful life of intangible asset is not available the entity should still amortize the intangible asset using 10 years. Take note that
under FULL PFRS GOODWILL IS NOT AMORTIZED despite of the presence of its useful life.
2.) PAS 38 for smes’ further states that DEVELOPMENT COST is always expenses outright.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
(DEASSOCIATION)

PROBLEM 1 ( SALE RESULTING TO LOSS OF SIGNIFICANT INFLUENCE): On January 1, 2016 Michael acquired 100,000 shares (PAR VALUE
IS P10 PER SHARE) of CAYABA CORP. 200,000 outstanding shares. Michael paid in cash P5,000,000 to acquire the said shares. On
December 31, 2016 the FAIR VALUE of Michael's investment in CAYABA CORP. amounts to P9,000,000. On December 31, 2017 Michael
sold 62% of his shares in CAYABA CORP. The proceeds from sale of investment amounts to P15,000,000 and the fair value of retained
interest is P4,000,000. More over michael's books AS OF Dec. 31, 2017 exhibited that he have acquired his share in the investee's OCI
ATTIRBUTABLE to UG in derivatives contract designated as CASHFLOW HEDGE amounting to P20,000 & UG attributable to changes in
revaluation surplus amounting to P30,000.

QUESTION:
1.) Prepare the journal entry in the books of INVESTOR & INVESTEE for the transactions above.
2.) How much should be the gain/loss from cessation of significant influence?

PROBLEM 2 (FAILURE TO EXERCISE PREEMPTIVE RIGHT RESULTING TO LOSS OF SIGNIFICANT INFLUENCE): On January 1, 2016 Michael
acquired 100,000 shares (PAR VALUE IS P10 PER SHARE) of CAYABA CORP. 200,000 outstanding shares. Michael paid in cash P5,000,000
to acquire the said shares. On December 31, 2016 the FAIR VALUE of Michael's investment in CAYABA CORP. amounts to P9,000,000.
On Dec. 31, 2017 the INVESTEE(CAYABA CORP.) issued 800,000 NEW SHARES @ P50 per share. however the investor did not exercise
his right of pre-emption ( STOCK RIGHT) ., More over michael's books AS OF December 31, 2017 exhibited that he have acquired his
share in the investee's OCI attirbutable to UG in derivatives contract designated as CASHFLOW HEDGE amounting to P20,000 & UG
attributable to changes in revaluation surplus amounting to P30,000.

QUESTION:
1.) Prepare the step by step process in accordance with IAS 28
2.) Prepare the journal entry
3.) How much should be the gain/loss chargeable TO P/L?
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY

(DILLUTION)
PROBLEM 1 (SALE NOT RESULTING TO LOSS OF SIGNIFICANT INFLUENCE): On January 1, 2016 Michael acquired 100,000 shares (PAR
VALUE IS P10 PER SHARE) of CAYABA CORP. 200,000 outstanding shares. Michael paid in cash P5,000,000 to acquire the said shares. On
December 31, 2016 the FAIR VALUE of Michael's investment in CAYABA CORP. amounts to P9,000,000. On December 31, 2017 Michael
sold 60% of his shares in CAYABA CORP. The proceeds from sale of investment amounts to P15,000,000 and the fair value of retained
interest is P4,000,000. More over michael's books AS OF Dec. 31, 2017 exhibited that he have acquired his share in the investee's OCI
attirbutable to UG in derivatives contract designated as CASHFLOW HEDGE amounting to P20,000 & UG attributable to changes in
revaluation surplus amounting to P30,000.

QUESTION:
1.) Prepare the journal entry in the books of INVESTOR & INVESTEE for the transactions above.
2.) How much should be the gain/loss chargeable to share premium?

PROBLEM 2 (FAILURE TO EXERCISE PREEMPTIVE RIGHT NOT RESULTING TO LOSS OF SIGNIFICANT INFLUENCE): On January 1, 2016
Michael acquired 100,000 shares (PAR VALUE IS P10 PER SHARE) of CAYABA CORP. 200,000 outstanding shares. Michael paid in cash
P5,000,000 to acquire the said shares. On December 31, 2016 the FAIR VALUE of Michael's investment in CAYABA CORP. amounts to
P9,000,000. On Dec. 31, 2017 the INVESTEE(CAYABA CORP.) issued 50,000 NEW SHARES @ P50 per share. however the investor did not
exercise his right of pre-emption ( STOCK RIGHT) ., More over michael's books AS OF December 31, 2017 exhibited that he have
acquired his share in the investee's OCI attributable to UG in derivatives contract designated as CASHFLOW HEDGE amounting to
P20,000 & UG attributable to changes in revaluation surplus amounting to P30,000.

QUESTION:
1.) Prepare the step by step process in accordance with IAS 28
2.) Prepare the journal entry
3.) How much should be the gain/loss chargeable to share premium?
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
GENERAL RULE: Diff. of cash proceed from sale & sold asset balance is accounted as GAIN ON SALE

EXCEPTION: In dilution that is accounted as SHAREPREMIUM, while in FVTOCI-EQUITY SEC. that is accounted as RETAINED EARNINGS.

STOCK RIGHTS
A shareholders acquired 10,000 shares, (P50 PAR VALUE) costing P1,800,000. Subsequently, the shareholder received 10,000 stock rights to subscribe for
new shares at P100 per share for every 5 rights held. The market value of the share is P150. On the date of record the warrants evidencing the stock right
are issued to the shareholders.
REQUIREMENTS:
1.) Prepare the journal entry in the books of investor (FOR BIFURCATED & NOT BIFURCATED SCENARIO)
2.) Prepare the journal entry in the books of investee.

EMBEDDED DERIVATIVES: WARRANTS, CONVERSION PRIVILEDGE, STOCK RIGHT:

POINT OF VIEW: HOLDER

BASIS: PFRS 9 AND IFRIC 9

GENERAL RULE: BIFURCATE the embedded derivative from its host.
EXCEPTION: DO NOT BIFURCATE if the host contract is WITHIN the scope of PFRS 9 and being measured initially and subsequently at FAIR VALUE with changes designated through P/L (EX: FVTPL
&TRADING SEC.) Note that the COST in initial measurement is also called FAIR VALUE.
According to PFRS 13 the Fair value on initial measurement is the amount AGREED by the parties in an arm’s length transaction to pay or received. It may also be based on the independent
professional appraiser “REPLACEMENT COST” or Active market “SOUND VALUE”.

INITIAL AND SUBSEQUENT MEASUREMENT OF EMBEDDED DERIVATIVES: FAIR VALUE WITH ANY CHANGES RECOGNIZED TO P/L. PRESENTATION: CURRENT ASSET.

GENERAL RULE: IF PROBLEM IS SILENT AS TO THE ACCOUNTING METHOD USED TO ACCOUNT THE HOST CONTRACT DO NOT BIFURCATE THE EMBEDDED DERIVATIVES FROM ITS HOST.
EXCEPTION: IF THE CONTRARY EXIST.
NOTE: USE EX-RIGHT FORMULA OF THEORETICAL VALUE FOR STOCK RIGHT IF THE LATTER WAS BIFURCATED.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
POINT OF VIEW: ISSUER

ABSOLUTE RULE: Always bifurcate the equity and debt security the entry is called COMPOUND INSTRUMENT.

TREASURY SHARES TRANSACTION: “Investor a shareholder of investee sold his shares to the latter.”

Maraw an investee of Mulan reacquired the latter’s 2,000 ordinary shares with par of P100 at P150 per share. These shares sold were previously bought by the investor at P120 per share
accounted using Fair value method irrevocably designated through P/L. Mulan reported UG (OCI) amounting P50,000.

Additional information:

A.) Investment of Mulan to maraw totaled 20,000 shares prior to sale.

REQUIREMENTS:

1.) Prepare the journal entry in the books of buyer & seller.
2.) Same problem above, supposed that maraw subsequently sold the shares reacquired at P200 per share prepare the journal entry in the books of seller & buyer.
3.) Same problem above, supposed that maraw subsequently sold the shares reacquired at P100 per share prepare the journal entry in the books of seller & buyer assuming further that
there are share premium from original issuance amounting to P500,000, share premium from ordinary shares reacquired & subsequently sold amounting to P100,000 , share premium
from preference shares reacquired & subsequently sold amounting to P500,000 & retained earnings amounting to P10,000,000 in the books of maraw.
4.) Same problem above, supposed that maraw declared the shares reacquired as stock dividend. Prepare the journal entry @ the date of declaration , record & issuance of shares
certificate.
5.) Same problem above, supposed that maraw retired the shares reacquired prepare the journal entry to affect the retirement of treasury shares.

NOTE:

1.) Alam mo kasi kaya binibili ni investee yung previously issued shares niya kay investor , maaaring natuklasan niya na ito palang investor na ito ay padala ng kalaban upang makuha ang control
ng kumpanya ni investee ang tawag doon sa financial management ay “HOSTILE TAKEOVER” OR tinawag sa Libro ni Ginoong valix na UNFRIENDLY TAKE OVER.

2.) Kapag ginamit moa ng treasury share as stock dividend dapat yung value ng stock dividend payable is equal to the COST of your reacquired shares (TREASURY SHARES) to Eliminate the
treasury shares upon reissuance.

3.) GENERAL RULE: Specific identification method.

Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
EXCEPTION TO GR: FIFO, <-Dito idisregard mo yung stock rights, stock split, stock dividend, special assessment, liquidating investment.

EXCEPTION TO EXCEPTION: Moving average or Weighted average

ARMS LENGTH SALE OF INVESTMENT : “INVESTOR A NONSHAREHOLDER OF INVESTEE SOLD HIS SHARES TO THE LATTER.

Maraw an investee of Mulan acquired 2,000 preference shares with par value of P100 at P150 per share. These shares acquired by maraw are from magyo. Magyo is an investor of makulog,
makulog previously issued the 2,000 shares to magyo for P120 per share.

REQUIREMENTS:

1.) Prepare the journal entry in the books of buyer & seller.

SUBSCRIPTION ACQUISITION AND DELIQUENCY:

Andrea subscribed for 10,000 shares at par P100, paying P600,000 as initial payment. The balance of the subscription was called & andrea failed to pay. Consequently the subscription was
declared delinquent.

Assume further that the offer price is P450,000 including the balance due on the subscription , interest & costs of sale. There are 3 bidders who are willing to pay the offer price, namely:

a.) Mr. Norbin Cute. Makisig…………………….4,500 shares

b.) Mr. Jeff Talino. Makalbo…………………5,000 shares
c.) Mr. Denes kaembyernes. Lunes……..6,000 shares

Evidently, Norbin is the highest bidder, thus all the 10,000 shares shall be deemed fully paid. Accordingly Norbin gets 4,5000 shares & andrea, the original subscriber gets 5,500 shares.

REQUIREMENTS:

1.) Prepare the journal entry in the books of investor 1, investor 2, & investee assuming that the investee pays P30,000 for expenses incurred in connection with the auction of the
delinquent shares. & there is an interest income paid by the highest bidder amounting to P20,000.
2.) Same requirement in # 1 EXCEPT that supposed there are no bidders & the investee’s policy is to reacquire the defaulted balance of the subscription.
3.) Same requirement in # 1 EXCEPT that supposed there are no bidders & the investee’s policy is to forfeit the defaulted balance of subscription.

(EMBEDDED DERIVATIVES) SHARE WARRANTS:

Mcjobee corporation issued 20,000 preference shares of P100 par value for P3,250,000 with 20,000 warrants to acquire 10,000, P50 par value ordinary shares at P60 per share. On the date
of the issuance, the market values are:

Preference shares “ex-warrant” P120

Warrants 10
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Additional information: Assumed that the shares acquired is quoted & accounted as FVTPL.

REQUIREMENTS:

1.) Prepare the journal entry in the books of investor & investee.
2.) Prepare the journal entry in the books of investor & investee assuming that the market value of warrant is not given.
3.) Prepare the journal entry in the books of investor & investee assuming that only the market value of ordinary shares is given and amounting to P100 per share.

RECAPITALIZATION TRANSACTIONS:

1.) Change from par to No-par/stated value.

Illustration:
Ordinary share capital, P100 par, 50,000 shares issued & outstanding………………….P5,000,000
Share premium…………………………………………………………………………………………………………..500,000
Retained earnings…………………………………………………………………………………………………….2,500,000

CASE 1: All the 50,000 shares are called in for cancellation . Instead, 50,000 shares no-par shares w/ stated value of P50 are issued.
REQUIREMENT:
a.) Prepare the journal entry in the books of existing investor & investee.
DR. Ordinary share capital 5,000
DR. Share premium- Orig. issuance 500
CR. Ordinary share capital 2,500
CR. Share premium-Recapitalization 3,000
CASE 2: All the 50,000 shares are called in for cancellation. Instead, 50,000 no-par shares w/ stated value of P150 per share are issued.
a.) Prepare the journal entry in the books of existing investor & investee.
2.) Change from no-par/stated value to par value share.

Illustration:

Ordinary share capital, No-par P100 stated value, 50,000 shares………………………………….P5,000,000

Retained earnings……………………………………………………………………………………………………………2,500,000

CASE 1: All the 50,000 shares are called in for cancellation. Instead, 50,000 shares of P50 par value are issued
a.) Prepare the journal entry in the books of existing investor & investee.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
CASE 2: All the 50,000 shares are called for cancellation. Instead 50,000 shares of P150 par value are issed.
a.) Prepare the journal entry in the books of existing investor & investee.
3.) Reduction of par value.
ILLUSTRATION:
Ordinary share capital, 50,000 , P100 par………………………….P5,000,000
Share premium………………………………………………………………………500,000
Retained earnings……………………………………………………………….2,000,000
A recapitalization is effected whereby the par value of P100 is reduced to P80 per share. The entry to record such recapitalization is:
Requirement:
a.) Prepare the journal entry in the books of existing investor & investee.
4.) Reduction of stated value:
ILLUSTRATION:
Ordinary share capital, 5,000 shares, P100 stated value…………P5,000,000
Retained earnings……………………………………………………………………2,000,000
A recapitalization is effected whereby the stated value of P100 is reduced to P80.
Requirement:
a.) Prepare the journal entry in the books of existing investor & investee.
5.) Share split:
Rules:
a.) Stock split will NOT going to affect the shareholder’s equity with respect to investee’s point of view and investment balance with respect to investor’s point of view.
b.) Stock split will affect the Outstanding shares with respect to investee’s point of view & shares owned with respect to investor’s point of view.
c.) Stock split should be applied RETROSPECTIVELY. (As if the stock split happened from the very beginning of the entity’s existence.)
d.) NO JOURNAL ENTRY in the books of INVESTEE & INVESTOR.
6.) Convertible shares:
Steps:
a.) Cancell the shares & its corresponding share premium.
b.) Issue the shares in exchange & charge the gain to Share premium or to the order of priority for losses within equity transaction under PAS 32.

Share based compensation: (PFRS 2)

Recognition: 1.) No vesting/service period = recognized the compensation expense in full & exercise the option IMMEDIATELY.

2.) Vesting/service period = Spread out the compensation expense over the vesting/service period & exercise the option only @ date of exercise.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Measurement: General rule: FAIR VALUE METHOD.

Exception: INTRINSIC VALUE METHOD “Only if the fair value of share option cannot be reliably measured.”

Settlement: 1.) Equity settled (Share option)

2.) Cash settled (Share appreciation rights)

REMINDER: Option shares issued AFTER the vesting period is an ADDITIONAL EXPENSE.
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
THE EMPLOYEE IS GIVEN AN OPTION TO CHOOSE BETWEEN EQUITY OR CASH SETTLEMENT.

FORMULA:
ASSET (SHARES ALTERNATIVE X FV OF SHARES ALTERNATIVE OR SIMPLY THE ASSET GIVEN IN THE PROBLEM)
LIABILITY (PHANTOM SHARES X SELLING PRICE @ GRANT DATE) <- ACTUALLY THIS IS THE CASH SETTLED PORTION/ SHARE APPRECIATION
RIGHTS.
EQUITY (SQUEEZE) <- ACTUALLY THIS THE EQUITY SETTLED PORTION/SHARE OPTION.

JOURNAL ENTRY @ DATE OF SPREADING OVER THE EXPENSE:

1.) For journal entries of the LIABILITY above just use the journal entries for share appreciation rights.
2.) For journal entries of EQUITY above just use the journal entries for share option.

JOURNAL ENTRY @ DATE OF EXERCISE.

1.) If cash settled:

DR. SALARY PAYABLE
DR. SHARE OPTION
DR. INTEREST EXPENSE <- THIS THE DIFFERENCE OF SALARY PAYABLE AND CASH
CR. CASH
CR. SHARE PREMIUM <- SQUEEZE/BALANCING
2.) If equity settled:
DR. SALARY PAYABLE
/
DR. SHARE OPTION
CR. SHARE CAPITAL
CR. SHARE PREMIUM <- SQEEZE/BALANCING
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY
Norbin B. Cayabyab, CPA Contact #: 0926-538-1070 PLMar Instructor HANDOUTS FOR SHAREHOLDERS
EQUITY