UFR HANDOUTS
SHAREHOLDER'S EQUITY
⁃
In a corporation setting, it is the difference between assets and liabilities
as shown on the Statement of Financial Position.
⁃
Represents the portion of the assets that are fully owned by the owners
of a business.
⁃
Represents the resources that have been provided by the company's
owners in the form of capital contributions (purchases of shares) and earnings
retained from operations.
Assets = Liab. + SHE ----> SHE = Assets - Liab.
Sources of Shareholders' Equity
- Contributed Capital ~ amounts invested by shareholders
- Retained Earnings ~ amounts earned by corporation
- Accumulated Other Comprehensive Income ~ other gains and losses not
included in net income
SHE Formula
Contributed Capital
xx
+ RE
xx
+/- Accumulated OCI
xx/(xx)
- Treasury Shares
(xx)
= SHE
Share Capital @ par value
xx
xx
+ Share Premium
xx
= Contributed Capital
xx
OCI = Other Comprehensive Income
Share Premium - excess amount
Par Value - minimum amount
RE, beg Formula
+/- Correction of Prior Period Errors
xx/(xx)
+/- Effect on Change in Acctg. Policy
xx/(xx)
- Loss from Retirement of SC/TS
(xx)
+/- Net Income/Loss for the year
xx/(xx)
- Dividends declared for the year
(xx)
= RE, end
xx
Accumulated Revaluation Surplus
xx
+/- Accum. Unrealized G/L from EIFVOCI
xx
+/- Accum. Foreign Currency Translation
xx
+/- Accum. G/L from Defined Benefit Plan
xx
= Accum. OCI
xx
EIFVOCI = Equity Investments @ Fair Value Other Comprehensive Income
Shares of Stocks
Types:
1. Ordinary Shares
- equity securities that give the holder VOTING RIGHTS in stockholders' meeting
- are entitled to receive dividends if corporation declares
2. Preference Shares
- equity securities that DO NOT give the holder VOTING RIGHTS in stockholders'
meeting
- have a preference as to dividends over ordinary shares
- have a preference as to assets in liquidation
Note: SHARE CAPITAL AT PAR VALUE, NO PAR VALUE OR AT STATED VALUE
PAR VALUE
- also face amount or nominal amount
- amount that is printed on the shares of stock and in the articles of
incorporation
normally it is the legal capital
NO PAR VALUE
- shares of stocks that were issued without par value
- shares of stocks will be issued at the amount the investors are willing to buy
STATED VALUE
- a no par value shares of stock that is assigned a value at issuance for
accounting purposes
- unrelated to the current market price of a share
LEGAL CAPITAL
- amount of equity that cannot be distributed as dividends or any other means
- creates a reserve that could accessed by a company's creditors in the event
of default
'WITH PAR VALUE'
Issued Shares Capital
xx
Subscribed Shares Capital
xx
Shared Dividends Payable
xx
= Legal Capital
xx
'NO PAR VALUE'
Issued Shares Capital
xx
Subscribed Shares Capital
xx
Share Dividends Payable
xx
Share Premium - excess of SV xx
= Legal Capital
xx
OTHER TERMS:
AUTHORIZED SHARES are the shares that a firm is permitted to issue according
to its corporate charter.
ISSUED AND OUTSTANDING SHARES are those presently held by shareholders.
> ISSUED - shares of stock that have been sold to the shareholders
> OUTSTANDING: shares of stock that are in the hands of shareholders
TREASURY SHARES are shares initially sold to shareholders that is subsequently
bought back by the issuing corporation
> issued but not outstanding
> not entitled to receive dividends
SUBSCRIBED SHARES are shares of stocks that are not yet fully paid by the
shareholder
> entitled to receive dividends
ISSUANCE OF SHARES
- for cash consideration
- in exchange for goods/services received
- payment of existing liability in lieu of cash payment
FOR CASH CONSIDERATION
- For raising capital
> @par value
> in excess of par value
> no par value
> no par but with stated value
@Par Value
ex. Atasha Corporation issued 1,000 ordinary shares to shareholders at its par
value of P5 per share.
JE:
Cash
5,000
Ordinary Share Capital
5,000
@Excess of Par Value
ex. Atasha Corporation issued 1,000 P5 par ordinary shares to shareholders at
P7. per share.
JE:
Cash
7,000
Ordinary Share Capital
5,000
Share Premium
2,000
No Par Value
ex. Atasha Corporation issued 1,000 ordinary shares to shareholders at P7 per
share.
JE:
Cash
7,000
Ordinary Share Capital
7,000
No Par Value But W/ Stated Value
ex. Atasha Corporation issued 1,000, no par ordinary shares with stated value
of P3 to shareholders at P5 per share.
JE:
Cash
5,000
Ordinary Share Capital
3,000
Share Premium
2,000
IN EXCHANGE FOR GOODS/SERVICES
⁃
Common stock can be issued in exchange for non-cash assets such as
land, buildings, or equipment and for services (i.e. legal, accounting, consulting)
⁃
Record the transaction:
1st FV of goods/services received
2nd FV of shares issued
3rd par value or stated value of shares
ex. Atasha Company issued 1,000 ordinary shares to its consultants, which billed
the company for P10,000 for the services provided. The par value of the stock
is P1. However, there is no market prices for the common stock.
JE:
Consultancy Fee
10,000
Ordinary Share Capital (P1*1,000)
Share Premium
1,000
9,000
ex. Atasha Company issued 20,000 P100 par value ordinary shares to acquire a
building. The ordinary shares are currently trading at P150 per share while the
building has a carrying value P2.5M.
JE:
Building (P150*20k)
3,000,000
Ordinary Share Capital
2,000,000
Share Premium
1,000,000
ISSUANCE OF SHARES
PAYMENT OF EXISTING LIABILITY IN LIEU OF CASH PAYMENT
-Issuance of equity securities of debtor to creditor for full payment of obligation
Payment of Liability
FV if Shares issued
-CV of liab. extinguished*
=Gain on Extinguishment (To P/L)
*CV of liab.=principal + unpaid acc. interest if any
Issuance of equity securities
FV of Shares issued**
-Par value of shares issued
=Share Premium (To SHE)
**Measurement of equity sec. issued:
1st FV shares issued
2nd FV Liab
3rd CV Liab
Share Issuance Cost
⁃
Costs related to the issuance of shares
RELATED TO ISSUANCE:
P - ublication fee
U - nderwriting cost
R - egistration fee w/ SEC
O - PT and documentary stamp tax
- If issued ABOVE PAR:
1st: Deduct from related Share Premium from issuance
2nd: Share issuance Cost*
- If issued AT PAR:
1st: Share issuance Cost*
*Share issuance cost, contra shareholders; equity account as a deduction from:
1st: Share Premium from previous share issuance
2nd: Retained Earnings with appropriate disclosure
RELATED TO LISTING:
P - ublic relations fee
L - isting fee in the stock exchange
Road S - how presentation
SHARE CAPITAL SOLD ON SUBSCRIPTION
⁃
on installment basis
⁃
certificate of shares of stock will be issued to the investor once fully paid
⁃
though not yet fully paid, investor is entitled to receive dividends as long
as not delinquent
DELINQUENT SUBSCRIPTION
⁃
If investor defaults
> With highest bidder
~ to pay the unpaid subs. + related cost
~ to receive the smallest number of shares among bidders. remaining shares
issued to the defaulting investor.
>Without highest bidder
~ all shares will be issued to the name of the issuing corporation
ex1. 5,000 P10 par value ordinary shares of Calista Corp. were sold on sub.
basis on Sept 1, 2020 for P12/share to Ericia Comp. Sub.payments of P24,000
and P36,000 are due on Sept 16 and Sept 30 respectively.
JE:
Sept 1
Subs. Rec. (5k*P12)
60,000
Subscribed OS (5k*P10)
50,000
Share Premium
Sept 16
Cash
10,000
24,000
Sub. Rec.
Sept 30
Cash
24,000
36,000
Sub. Rec.
Subscribed OS
36,000
50,000
OS Capital
50,000
ex2. 5,000 P10 par value ordinary shares of Calista Corp. were sold on sub.
basis on Sept 1, 2020 for P12/share to Ericia Comp. Sub.payments of P24,000
and P36,000 are due on Sept 16 and Sept 30 respectively. However, assume
that the subscriber failed to sell the delinquent shares. The offer price is P56,000
including P3,000 accrued interest and P5,000 expense in relation to the auction.
The following are the bidders for the auction:
Cara 4,300 shares
Alexa 4,500 shares
Harvey
4,700 shares
—> Highest Bidder: Cara would receive 4,300 shares
Ericia (og subscriber) would receive 700 shares
(from 5k - 4.3k = 700 shares remaining)
JE:
Sub. Rec
60,000
Subscribed OS
50,000
Share Premium
10,000
Cash
12,000
Sub. Rec.
12,000
12k = 56k - (3k - 5k) - (24k - 36k)
Rec. from Highest bidder
56,000
Sub. Rec.
48,000
Interest Rev.
3,000
Cash
Cash
5,000
56,000
Rec. from Highest bidder
Subscribed OS
56,000
50,000
OSC
50,000
If there are no bidders, the shares will be issued in the name of corporation.
JE:
Treasury shares
56,000
Rec. from Highest bidder
Subscribed OS
56,000
50,000
OSC
50,000
PURCHASE OF OWN SHARES
TREASURY SHARES
⁃
If a company buys back its own shares of stock, the repurchased shares
of stocks are called treasury shares.
⁃
Issued but not outstanding shares. (nasa kamay ng shareholders)
⁃
Not entitled to receive dividends
⁃
Contra shareholder’s equity account
Reasons for Purchasing:
⁃
to have avail. shares for employee stock option plans.
⁃
to take off the market shares which could be purchased by a hostile buyer
⁃
to improve the stock market price by decreasing the supply of shares.
Upon Purchase: recorded at COST
Upon Reissue:
⁃
Reissue price > Cost -> Difference: Credit to Share Premium TS
⁃
Reissue price < Cost -> Difference:
1st Dr. to Share Premium TS
2nd Dr. to RE
DONATION FROM SHAREHOLDER
⁃
shares given back to a corporation by a shareholder without
compensation
WITH FV ON THE DATE OF RECEIPT
Upon Receipt:
TS @ FV
xx
Donated Capital
xx
Upon Reissue:
Cash
xx
TS @ FV
xx
Donated Capital
xx
WITHOUT FV ON THE DATE OF RECEIPT
Upon Receipt: Memorandum Entry Only
Upon Reissue:
Cash
xx
Donated Capital
xx
RETIREMENT OF TREASURY SHARES
Acquisition Cost of TS < Original Issue Price of Related Share
⁃
Difference: Credit to Share Premium from Retirement
JE:
Share Capital
Share Premium from retirement
Share Premium from retirement
xx
xx
xx
Treasury Shares
xx
Acquisition Cost of TS > Original Issue Price of Related Share
⁃
Difference:
Dr. to 1st: Share Premium from Retirement
2nd: RE
JE:
Share Capital
xx
Share Premium from issuance
xx
Share Premium from retirement/RE
xx
Treasury Shares
xx