Part I:

Shareholder’s Equity or capital of a corporation.

Equity Residual Balance (Assets-Liabilities)

Components of (1) Contributed Capital

SHE (4) (2) Other Comprehensive Earnings
(3) Retained Earnings
(4) Treasury Shares - Contra-Equity Account

(1) Contributed - Contributed by the owners.

Capital
1. Share Capital (Ordinary or Preferred)
- Always at par or stated value (no par)
- Issued shares.

a. Ordinary
- Bears risk, true owner
- Has voting rights.
- Has fixed return (dividend rate)
b. Preferred
- With priority over ordinary, in terms of dividends and
liquidating assets)
- No voting rights

2. Share Premium
- Additional paid-in capital.

Sources:
a. Excess over par value.
b. Resale of treasury @ more than cost.
c. Donated capital (ayaw na ng shares, binabalik na)
d. Issuance of share warrants (chance makabili ng share)
e. Issuance of convertible bonds payable
f. Distribution of small stock dividends (measurement is @ fair value
> par value)
g. Quasi reorganization or recapitalization

3. Subscribed Share Capital

- Unissued shares (with partial payment)
- Illegal to issue shares until those are actually paid.

4. Subscription Receivable
- Remaining balance, unpaid balance of the subscribed share capital
(If silent = Deducted)
- Current Assets: 12 months or less.
- Contra-Equity Account: Beyond 1 year

Contributed Capital = Share Capital + Share Premium + Subscribed

Share Capital - Subscription Receivable (beyond 1 yr) = Also deducted in
 SHE (CC + OCI + RE - TS)

(2) Other - This is a real account.

Comprehensiv - Not closed at every end = Accumulate then present in SFP.
e Income (OCI)
Components: CUAGU
1. Change in Revaluation Surplus (IAS 16)
2. Unrealized G/L on Change in FV of Investment in FA FVOCI (IFRS
9)
3. Actuarial Gain/Loss - Remeasurements (IAS19)
4. Gain/Loss on Translations (IAS 21)
5. Unrealized Gain/Loss on Forward Contracts classified as Cash
Flow Hedge

Note: Unrealized G/L on Debt Inv, Translation, and CF Hedge can be

recycled in P/L. Otherwise, to RE.

(3) Retained - Also known as accumulated profit (unlike sole and partnership)
Earnings
Computation:
RE, beg
Add: Net Income
Less: Dividends
RE, end

Kinds of RE:
1. Appropriated (Reserves)
- Restricted as to dividend distributions (di pwedeng
i-distribute)
- Either for plant expansion or payables.
2. Unappropriated
- Unrestricted. Ito lang pwede i-declare as dividends.

Note: Debit balance of RE (Constant net loss) = Deficit > Deducted in

SHE.

Issuance of - Must be from unissued shares = 1st time issuance.

Share Capital
(1) Share issued @ at discount or below par/stated value
- ILLEGAL = Liability of the shareholder not loss or corp.

Entry:
Cash
Discount on Share Capital (contra-equity)
Share Capital (@ par)

(2) Share issued for cash

Cash (Proceeds)
Share Capital (@ par)
 Share Premium (excess)

(3) Share issued in exchange for non-cash consideration (services)

- Need to know the value of shares.

Hierarchy:
1. Fair Value of Non-Cash Consideration = Measurement of Share
2. Fair Value of Shares
3. Par Value or Stated Value

Issuance of 2 - Account separately = allocate proceeds to equity securities.

or more Equity - Ex: Issue Ordinary and Preferred Shares.
Securities
Approaches:
1. Relative FV Approach
- All FV of securities are given.
- Allocate proceeds based on relative FV.
2. Residual Approach
- Security with FV first, then the residual is to the other
securities.

Accounting for Memorandum Method

Share Capital - Ex. Authorized shares.
- Issued = Dr. Cash, Cr. Share Capital

Journal Entry Method

- Authorized = Dr. Unissued SC, Cr. Authorized SC
- Issued = Dr. Cash, Cr. Unissued SC (para mabawasan USC)

Issued SC = Authorized SC - Unissued SC

Organization Organization Costs

Costs vs Cost - Costs incurred to organize business.
of IPO vs Cost - Expense outright.
of Share
Issuance Cost of IPO
- Cost incurred in initially offering the shares to the public (to raise
funds)
- Expense outright.

Cost of Share Issuance

- NOT expense outright.
- A contra-equity account.

Debited to:
1. Share Premium of Orig Issuance
2. Share Premium of Prev Issuance
3. Retained Earnings
Trust Fund - It is illegal to return legal capital to shareholders during the lifetime
Doctrine of the corporation.
- Corpo has limited liability (hindi pwedeng pilitin SH na magbayad)

Legal Capital = Pera

1. Par value shares = Issued (SC) + Subscribed (SSC)
2. No par value shares = Issued + Subscribed + Share Premium

Quick Check: Shareholder’s Equity:

Legal Capital:
- If may par = disregard always ang SP.

Issued for Non-Cash Consi.

- Hierarchy
Note: Billing price = Not FV since subject to negotiation.
Part II:

Subscription Nagsubscribe but not fully paid.

Until hindi pa fully paid = Hindi pa pwede i-issue.

Example:

Delinquent - Will be offered in Public Auction.

Subscription - Highest bidder = Ibebenta yung shares na sinubscribe in Ivana.

Highest Bidder
- Person who’s willing to pay the offer price for the smallest number
of shares.

-
- If magkano inoffer na bid ng bidder = Yun lang shares niya. The
rest mapupunta sa original subscriber.

Offer Price = Balance due + Interest Accrued + Expenses and

other costs incurred in PA

If no bidder:
- The corporation will purchase delinquent shares = Becomes
treasury shares.

Quick Check:
Preference Features:
Shares 1. Callable PS
- After some time, the corporation will buy back the shares.
- Corp has the right/option to set redemption date.
- Part of SHE.
- If declares dividend = Reduction to RE.
When bought back: Issue Price (Magkano binenta) vs Redemption Price
(Magkano bibilhin)
- IP>RP = Parang may gain lang. Credit to Share Premium - OS
- IP<RP = Debit to Retained Earnings.

2. Redeemable PS
- Corp will buy back also but option is vested to shareholders.
- Share, but in substance = Part of Total Liability.
- Not included in SHE.
- If declares dividend = Treated as Interest Expense.
When bought back: Issue Price (Magkano binenta) vs Redemption Price
(Magkano bibilhin)
- IP>RP = Gain on Redemption
- IP<RP = Loss on Redemption

3. Convertible PS
- Converted into ordinary shares.
- Issuance: Dr. Cash, Cr. Share Cap, Cr. Share Premium.

Conversion:
- Compare Issue Price vs Par Value of Common Stock.
- IP>PV = Credit to Share Premium - OS
- IP<PV = Debit to Retained Earnings.

PS issued with share warrants:

- Know if callable or redeemable.
- If callable: Allocate thru relative FV or residual.
- If redeemable: Treat as compound financial instrument (proceeds
allocated first to liability (FV or PV), residual is share warrant.

4. Cumulative/Participating PS

Quick Check: Par value of common stock = 1:3 (50k x 3) x par value
Part III

Treasury Entity’s own shares that have been issued (previously) and then
Shares reacquired (by same corp, binili pabalik) but not canceled (outstanding or
nag-eexist pa rin)

Treated as a contra-equity account = Deducted from SHE.

To account TS: Cost Method:

- TS are recorded at cost
- Cash = Face Value
- Non-cash = Carrying Amount of Noncurrent Asset

Entry:
Treasury Shares
Cash/NCA na binayad

Retained Earnings
Retained Earnings - Appropriated
(Hindi pwedeng ibalik ang legal capital)

Note: Maximum amount > Balance of RE - Unappropriated. Pag ubos na

to, hindi na pwedeng bumili ng TS.

What to do 1. Reissuance:
with TS? - It is okay to issue shares @ below par (if 1st time, pwede)
- Reissue Price > Costs (Paid previously to reacquire) = Cr.
to Share Premium - TS
- Reissue Price < Costs = Dr. (1) Share Premium - TS (If
walang balance) > (2) Retained Earnings

2. Retirement/Cancellation
- Original Issue Price (Magkano binenta) vs Costs.
- Original Issue Price > Costs = Share Premium - TS
- Original Issue Price < Costs = (1) Share Premium - TS
and (2) Retained Earnings
Quick Check:
 Note: Sometimes @ Retirement = Par value vs Costs = No debit to share
premium.

Donated Shares donated from shareholders.

Shares - Treated as TREASURY SHARES.
- At date of receipt: No journal entry. Memorandum only since no
cost.
- Date of Receipt: Hindi nabawasan/nadagdagan ang Shareholder’s
Equity.

Reissuance:
Cash
Share Premium - TS (Whole reissue price)
(RP>Cost is 0)

Retirement:
 Share Capital
Share Premium
Share Premium -TS (OIP>Costs)

Quick Check:

Stock/Share Rights issued to existing shareholders entitling them to maintain

Rights/ proportionate interest in the ownership of corporations.
Pre-emptive - Maintain percentage in the corporation.
Rights - Before mag-issue ng additional shares sa public, ioffer muna sa
shareholders.

Date of Issuance:
- No entry (no consideration from existing shareholders) > Memo.
- Hindi naman pinabayaran eh.

Date of Exercise:
1. At par = Dr. Cash, Cr. Share Capital
2. At above par = Dr. Cash, Cr. Share Capital and Share Premium

Date of Expiry:
- No entry > Memo only.

Quick Check:
Part IV:

Dividends Distribution of capital/earnings to its shareholders.

Note: Illegal to declare dividends when there’s deficit RE.

Maximum Amount can be declared:

- Retained Earnings - Unappropriated

Three Date of Declaration

Important - BOD declares dividends.
Dates - Automatically, may liability (unless liquidating)
- Reduce RE > SH expects receivable.

Date of Record
- No accounting problem.
- Cut-off date.
- SH as of date of declaration, possible na di makareceive ng
payment if hindi ikaw may-ari.

Date of Payment/Settlement

Classes of 1. Cash Dividend

Dividends 2. Property Dividend
3. Share Dividend
4. Scrip Dividend
5. Liquidating Dividend

Scrip Dividend Parang cash dividend.

Date of Payment: Instead of cash, debt instrument ang ini-issue.
In forms of notes/bonds.

Liquidating A return of capital.

Dividend

Cash Dividend Most common class of dividend.

May be any amount or percentage.

Journal Entry:
1. DOD = Dr. Retained Earnings, Cr. Dividend Payable (Current Liab)
- If to Ordinary and Preferred = Allocate.

Cumulative PS
- Hindi lang sa current year dividends, entitled din sa prior (if walang
declaration before)
- Dividend in arrears.

Noncumulative PS
 - The current year’s dividends.

Participating PS
- Remaining dividends = Allocate to Ordinary and Pref (based on
outstanding capital (Outstanding shares x Par Value)
- Remaining dividend = Total Dividends - Basic Dividend.

Nonparticipating PS
- Allocated to ordinary only.

Entitled to Dividends: Shareholder’s outstanding shares (Issued +

Subscribed - Treasury/Reacquired)

Silent: Noncumulative and Nonparticipating

Quick Check:

Dividend in arrears = 2021 to 2023 (3 years)

Cumulative = 3 years in arrears

OSC = Always 1 year
 Remaining x OSC/Total Capital = 8M + 32M > 40M

Partial participation:
1. Compute full participation rate.
2. Whichever is lower = Yun lang ibibigay.

Full PR = Remaining Dividends/Outstanding Capital

vs.
Remaining Partial = 10% (Basic) Natira na lang is 6% vs 4%
Hindi pwede magbigay ng mas mataas sa Full PR

Property Hindi na cash ang binibigay, kundi Non-Cash Assets.

Dividend
Measurement of Property Div. Payable.
- Always equal to FV of the asset to be distributed.
 - Remeasure: 2 times (Balance Sheet Date, Date of Settlement)
- Any increase/decrease affects Retained Earnings.

Measurement of the NCA to be distributed:

- Carrying Amount or FVLCTS (whichever is lower)
- If FVLCTS is lower = Recognize Impairment Loss.
- Remeasure: Only on Balance Sheet Date.

Settlement of Property Dividend Payable

- Compare Measurement of PDP (Nagmeasure sa SD) vs
Measurement of NCA held for distribution
- If PDP > NCA = Gain
- PDP < NCA = Loss
- Both recognized in P/L

PDP = Magkano binabayad or payable.

NCA = Amount ng utang.

Quick Check:

1st = Declaration
2nd = Balance sheet (PDP and NCA)
3rd = Settlement (PDP only)
Share Dividend No effect on total SHE (?).
(Bonus Issue) Declaration of SD = No effect on SHE
Note: No liabilities exist in Share Dividend. How much inc/dec = 0

Cash Dividend:
Retained Earnings
Cash Dividend Payable (Current Liability)

Share Dividend:
Retained Earnings
Share Dividend Payable/Distributable
- (Increase in RE, an adjunct account)

Classes:
1. Small SD
- Declaration of less than 20%
- FV (date of declaration) or Par Value = whichever is
higher.
- If FV is higher: Dr. Retained Earnings, Cr. SDP and Share
Premium.
- Note: Pwedeng may SP or wala.

2. Large SD
- Declaration of 20% or more of OUTSTANDING SHARES.
- Measurement of shares issued is @ par value.
- Dr. Retained Earnings, Share Dividend Payable.
- Issued: Dr. SDP, Cr. Share Capital
- Note: Walang SP.

Quick Check: 10% ang ini-issue as stock dividend.

P90 = FV while P20 = Par
Issued/Outstanding = Percentage Issued (20%)
Part V:

Recapitalization Change in capital structure of the entity.

Old shares are retired/canceled.
New shares will be issued.

Typical 1. Change from par to no par.

Recapitalization 2. Change from no par to par.
3. Reduction of par or stated value
4. Share split/Split up = SILENT PROBLEM
5. Reverse Share Split down

Note: After recapitalization = Total SHE before and after recap > SAME.

Change from par Compare original issue price to par/stated value (new)
to no par or no - If OIP>Par = Cr. Share Premium Recapitalization
par to par - If OIP<Par = Dr. Retained Earnings

Reduction of Reclassification entry:

par/stated value Dr. Share Capital
Cr. Share Premium Recapitalization

Share Split Number of shares increased, par/stated value decreased.

Memo entry only.

Example:
Par = 50/5

Reverse Share Number of shares decrease, par/stated value increases.

Split
Example:
Shares = 100,000/5

Quick Check: Market value of shares = Irrelevant.

 SHE = Same always.

Quasi Permissive but not mandatory procedure.

Reorganization/ A financially troubled corp restates accounts, and establishes a fresh
Corporate start.
Readjustment
Note: Not all corp can do this. Only those financially troubled.
- Financially Troubled = Deficit/Negative RE

Must be approved by:

1. Shareholders
2. Creditors
3. SEC

Procedures: 1. Restate Assets and Liabilities to conform with Fair Value (Adjust)
2. Reflect adjustment to Retained Earnings.
3. If there’s still a deficit.
- If thru recapitalization: Dr. Share Premium, Cr. Retained
Earnings
- If thru revaluation: Dr. Revaluation Surplus, Cr. Retained
Earnings

Quick Check: Appraisal = Revaluation

1. 5,250,000-3,500,000 = 1,750,000
600,000 + 500,000 = 1,100,000