I.
Accounting for Share Capital
a. Memorandum method
Only memorandum is made for the authorized
capitalization.
Issuances of shares are credited to share capital
account.
b. Journal entry method
The authorized capitalization is recorded as:
Unissued Share capital
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Authorized share capital
xx
Issuances of shares are credited to unissued share
capital.
The difference between authorized share capital and
unissued share capital is the issued share capital.
II.
Authorized Capitalization
a. Memorandum method – Memo entry
b. Journal entry method
Unissued Share capital
xx
Authorized share capital
III.
Subscription
a. Memorandum method
Cash
Subscription Receivable
Subscribed share capital
b. Journal entry method
Cash
Subscription Receivable
Subscribed share capital
IV.
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Collection of subscription receivable and issuance of shares
a. Memorandum method
Cash
Subscription Receivable
Subscribed share capital
Share capital
b. Journal entry method
Cash
Subscription Receivable
Subscribed share capital
Unissued share capital
V.
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Cash Subscription
a. Memorandum method
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Cash
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Share capital
b. Journal entry method
Cash
Unissued share capital
VI.
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Share Premium
Cash
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Share capital
Share premium
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xx
Subscription receivable
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Subscribed share capital
Share premium
VII.
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Legal Capital
a. For Par Value shares – PAR value of shares issued + PAR
value of shares subscribed (excluding share premiums on
common and preference share capital)
b. For No-Par Value shares – total consideration received or
receivable from shares issued or subscribed (including
share premiums on ordinary share capital)(excluding share
premiums on preference share capital)
VIII.
Share issuance costs
Share premium/RE
Cash
IX.
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Share issued at a discount
Cash
Discount on Share capital
Share capital
X.
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Watered stocks
Fair value of noncash consideration is less than the par
value of the share capital
Land
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Discount on Share capital
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Share capital
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XI.
Secret reserve
Fair value of noncash consideration is greater than the par
value of the share capital
Land
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Share capital
Share premium
Note: Share capital is always measured at PAR value.
xx
xx
XII.
Treasury Shares
Treasury shares (Treasury stocks) are an entity’s own
shares that are previously issued but are subsequently
reacquired but not retired.
XIII.
Accounting for Treasury Shares
Treasury shares (Treasury stocks) are accounted for using
cost method.
Cost method – the reacquisition and subsequent reissuance
of treasury shares are recorded at cost.
Treasury shares are presented as deduction in the
shareholder’s equity.
Reacquisition
Treasury shares
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Cash
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Retained Earnings – Unrestricted
Retained Earnings – Appropriated
Reissuance at Cost
Cash
xx
Treasury shares
Retained Earnings – Appropriated
Retained Earnings – Unrestricted
Reissuance at more than cost
Cash
xx
Treasury shares
Share Premium – Treasury Shares
Retained Earnings – Appropriated
Retained Earnings – Unrestricted
Reissuance at below cost
Cash
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A)Share Premium – Treasury Shares xx
B)Retained Earnings
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Treasury shares
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Retained Earnings – Appropriated
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Retained Earnings – Unrestricted
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Reacquisition – decreases the shareholder’s equity by the
cost
Reissuance – increases the shareholder’s equity by the
reissuance price
XIV.
Retirement of Shares
Retired shares – shares reacquired and cancelled
a. The total par value and related share premium of the
retired shares > Retirement cost
•
The difference is credited to “share premium –
retirement.”
Share Capital
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Share Premium – OI
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Treasury Shares
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Share Premium – Ret.
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To compute for the share premium per share from original
issuance:
Total share premium/Total issued shares
b. The total par value and related share premium of the
retired shares < Retirement cost
• The difference is debited to 1. Share premium – treasury
shares 2. Retained Earnings
Immediate Retirement after reacquisition
Share Capital
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Share Premium – OI
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A)Share Premium – TS
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B)Retained Earnings
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Cash
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XV.
Delinquent Subscriptions
Delinquent subscription – when a subscriber failed to pay his
subscription on call date
It is offered for sale in a public auction.
• If there is a bidder
Subscription
Subscriptions Receivable
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Subscribed Share Capital
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Partial Collection
Cash
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Subscriptions Receivable
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Cost incurred in connection with delinquency sale
Receivable from the highest bidder
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Cash
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Highest bidder pays
Cash
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Receivable from highest bidder
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Subscriptions receivable
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Interest Income
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Stock certificates are issued
Subscribed Share Capital
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Share Capital
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• If there is no bidder and the company does have sufficient
unrestricted retained earnings to purchase the shares
Cost incurred in connection with delinquency sale
Receivable from the highest bidder
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Cash
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•
Reacquisition of shares
Treasury shares
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Receivable from the highest bidder
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Subscriptions Receivable
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Retained Earnings – Unrestricted
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Retained Earnings – Appropriated
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Issuance of Share
Subscribed Share Capital
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Share Capital
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If there is no bidder and the company does not have sufficient
unrestricted retained earnings to purchase the shares
Cost incurred in connection with delinquency sale
Receivable from the highest bidder
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Cash
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Collection of the due from the highest bidder
Expenditure on Delinquent sale
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Due from the highest bidder
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Reacquisition of shares
Subscribed Share Capital
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Share Premium
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Subscription Receivable
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Share Premium – Delinquent Subscriptions
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