QUIZ 1
1. Share capital:
a. relates to one class of shares, with the remaining equity recorded as reserves or retained profits.
b. represents the amount shareholders are guaranteed to receive if the company is wound up.
c. may relate to one or several classes of shares.
d. may be calculated by subtracting liabilities from assets.
2. Accounts that make up owners' equity may include:
a. preference shares c. general reserves
b. debentures
d. preference shares and general reserves
3. A company may elect to issues its shares at any price, which will depend on:
a. the last sales price for the company's shares before the new issue.
b. the market demand.
c. the minimum price that has been paid for the shares over the last reporting period
d. the amount specified in legislation at which all Australian companies were required to issue shares.
4. A public issue of shares involves:
a. compiling and then issuing a prospectus that outlines the details of the share issue so those interested can
make an informed decision.
b. making the general public aware that shares are available for sale at a set price.
c. only issuing a limited number of shares to ensure there is sufficient demand for a full subscription.
d. issuing ordinary shares to all members of the public who are interested.
5. The process for issuing shares is that:
a. They are offered for sale, allotments are received and an assignment made. Monies received on allotment
must be held in trust until the assignment is made.
b. They are offered for sale, applications are received and an allotment made. Monies received on application
must be held in trust until the allotment is made.
c. Applications are received for the issue of shares and an offer of shares is made. Applicants contribute capital
that is returned to them if their application is unsuccessful when the shares are assigned.
d. A notice of intention to purchase shares is registered with the stock exchange, which the company receives.
The company then offers shares. The applicant may then be allotted shares and at that point must make the
cash contribution.
6. In the case of a share issue being oversubscribed, the common approaches include:
a. Issue additional shares to meet the excess demand.
b. Allocate the shares on a pro rata basis.
c. Increase the issue price of the shares.
d. Issue additional shares to meet the excess demand and increase the issue price of the shares.
7. In the case of a share issue being oversubscribed, excess application monies:
a. will always be refunded to applicants
b. may be used to reduce future amounts owing on allotment if the shares are issued on a pro rata basis
c. must be recorded as revenue in the current financial period
d. must be placed in a trust account until a refund is requested by applicants
8. When shares are allotted, or a call made on them, allotment and call accounts are created respectively. What is the
nature of these accounts and how are they to be disclosed in the financial statements?
a. The accounts are similar in nature to an account receivable and are to be disclosed in the statement of
financial position as a current asset.
b. The accounts are similar to a future income benefit and are to be separately disclosed as assets in the
statement of financial position
c. The accounts are similar to an account receivable and are disclosed in the statement of financial position as a
reduction against share capital.
d. The accounts are in the nature of a deferred income and are disclosed as a provision for future cash inflows
in the statement of financial position.
9. Normal features of ordinary shares include:
a. They entitle the holder to receive his/her proportion of any ordinary dividends declared
b. They ensure the holder has priority over unsecured creditors in the case of the company going into liquidation
c. They confer voting rights
d. They entitle the holder to receive his/her proportion of any ordinary dividends declared and they confer voting
rights
10. Holders of ordinary shares:
a. are assured of dividends each year.
b. may not receive a cash dividend each year but the dividend will accrue and eventually be paid.
c. will always receive a dividend if the company has made a profit in that financial year.
d. receive dividends at the discretion of the board.
11. The 'participating' in participating preference shares means that the shareholders may:
a. vote at annual meetings.
b. vote at annual meetings if preference dividends have not been paid.
c. participate in a conversion of preference shares into ordinary shares.
d. receive a share of any further profits that are to be distributed to ordinary shareholders after the payment of
the preference dividend.
12. A redeemable preference share is one that may be:
a. converted into debt at the option of the shareholder
b. converted into cash at the option of either the company or the shareholder.
c. forgiven any future calls where the company has profits in excess of specified levels.
d. have any dividends converted into further preference shares rather than receiving them in cash.
13. Preference shares are often considered to be closer to debt as they:
a. may be issued with the condition that they are redeemable by the company in the future.
b. may guarantee a regular or cumulative payment, similar to interest.
c. may be able to be converted into ordinary shares at a specific date in the future, indicating they are a liability
until that time.
14.
15.
16.
17.
18.
19.
20.
d. may guarantee a regular or cumulative payment, similar to interest and may be able to be converted into
ordinary shares at a specific date in the future, indicating they are a liability until that time.
When a company redeems preference shares:
a. It must ensure it has sufficient cash reserves to do so.
b. It must do so out of profits other than those available for the issuing of dividends.
c. It must issue fresh shares to fund the redemption.
d. None of the given answers are correct.
If a company is listed on the Philippine Stock Exchange and a shareholder fails to pay amounts owing on shares, the
company will:
a. transfer the unpaid amount to a forfeited share reserve that remains part of equity after the cost to reissue the
shares has been deducted.
b. transfer the unpaid amount to a forfeited share reserve and refund the amount remaining after the cost of
reissuing the shares has been deducted.
c. take action to collect the unpaid amount through the courts.
d. transfer the unpaid amount to a forfeited share account and refund the amount remaining after the cost of
reissuing the shares has been deducted.
If a company has created a forfeited shares reserve, this means that:
a. The company is not a member of the Australian Stock Exchange and its constitution does not require it to
refund amounts already paid by defaulting investors.
b. The company is expecting that the amounts unpaid will be collected in the next period.
c. The company is a member of the Australian Stock Exchange and is required to refund amounts already paid
by defaulting investors
d. The company is holding the amounts already paid by defaulting investors in trust in order to repay them on
the request of the investor
When a share split occurs:
a. Current shareholders receive more shares thus increasing their stake in the company.
b. Accounting entries are required to record the increase in the number of shares on hand.
c. It must be done so that any uncalled amounts are divided equally when the shares are issued.
d. More shares are available to be purchased by the general public, allowing the company to raise more funds
Share splits are conducted because it is believed that:
a. Excess capital leads to reduced return ratios, which the market does not view favourably.
b. Increasing the number of shares issued makes the company appear larger and more stable.
c. Decreasing the price per share makes them more marketable.
d. Investors view this as a bonus because they now have more shares than they previously held.
An effect of a bonus issue to all shareholders is to:
a. increase the total amount of shareholders' funds.
b. make the amount that was previously recorded as retained earnings no longer available for the payment of
cash dividends.
c. alter the current shareholders' proportionate share of the company's net assets.
d. increase the total assets of the company.
The effect of a bonus issue to all shareholders on (a) net asset backing per share, (b) each shareholder's share of net
assets and (c) market capitalisation is:
a. (a) The net asset backing per share will decrease; (b) each shareholder's share of net assets will remain the
same; (c) evidence suggests that on average the market capitalisation will increase.
b. (a) The net asset backing per share will increase; (b) each shareholder's share of net assets will increase; (c)
evidence suggests that on average the market capitalisation will remain the same.
c. (a) The net asset backing per share will decrease; (b) each shareholder's share of net assets will decrease;
(c) evidence suggests that on average the market capitalisation will remain the same.
d. (a) The net asset backing per share will remain the same; (b) each shareholder's share of net assets will
decrease; (c) evidence suggests that on average the market capitalisation will decrease.
QUIZ 2
21. In 2013, Inna Corporation acquired 6,000 shares of its P10 par value ordinary share capital at P36 per share. During
2013, Inna issued 3,000 of these shares at P50 per share. Inna uses the cost method to account for its treasury share
transactions. What accounts and amounts should Inna credit in 2013 to record the issuance of the 3,000 shares?
Treasury Shares
Additional Paid-in Capital
Retained Earnings
Ordinary Shares
a. P102,000
P42,000
P6,000
b. 144,000
6,000
c. P108,000
42,000
d. P108,000
42,000
22. A holder of a redeemable preference share can
a. Purchase treasury shares any time at the shareholder’s option.
b. Purchase additional shares offered in order to maintain the same fraction interest in the corporation.
c. Turn in the preference shares for a specified cash price at a specified date or during a specified period.
d. Convert the preference shares for ordinary shares.
23. The Powerpoint Corporation has two classes of share capital outstanding: 9%, P20 par Preference and P70 par
Ordinary. During the fiscal year ending December 31, 2013, the company had the following equity transactions in
chronological order:
No. of shares
Price per share
Issue of preference share
10,000
P28
Issue of ordinary share
35,000
70
Reacquisition and retirement of preference
2,000
30
Purchase of treasury ordinary share
5,000
80
Share split
2-for-1
Reissue of treasury ordinary share
5,000
52
Balances of the accounts in the shareholders’ equity section of the December 31, 2012 statement of
financial position were:
Preference Share Capital, 50,000 shares
P 1,000,000
Ordinary Share Capital, 100,000 shares
7,000,000
Share Premium – Preference
400,000
Share Premium – Ordinary
1,200,000
Retained Earnings
550,000
Dividends were paid at the end of the fiscal year on the ordinary share at P1.20 per share and on the preference at the
preference rate. Profit for the year was P 850,000. How much should be the amount of Preference Share Capital to be
shown on the December 31, 2013 statement of financial position?
a. P1,220,000 b. P1,160,000 c. P1,140,000 d. P1,116,000
MC31
B
1,000,000 + (10,000 x 20) – (2,000 x 20) = 1,160,000
24. Use the same information given in MC31. How much should be the amount of Ordinary Share Capital to be shown on
the December 31, 2013 statement of financial position?
a. P9,450,000
b. P9,310,000 c. P9,130,000 d. P4,725,000
MC32
A
7,000,000 + (35,000 x 70) = 9,450,000
25. Use the same information given in MC31. The retirement of the 2,000 preference shares would decrease Share
Premium – Preference by
a. P0
b. P16,000
c. P20,000
d. P60,000
MC33
B
2,000 x 8 = 16,000
26. Use the same information given in MC31. After the split, the par value per share of the ordinary share capital
a. Remained at P70. b. was increased by P70 c. was reduced by P35 d. was reduced by P14
MC34
C
70 – (70/2) = 35
27. Use the same information given in MC31. What is the total cost of the remaining treasury shares?
a. P0
b. P200,000
c. P260,000
d. P400,000
MC35
B
(5,000 x 80) – (5,000 x 40) = 200,000
28. The Mike Corporation’s statement of financial position shows total shareholders’ equity of P3, 150,000 as of
December 31, 2013. What is the book value per share, assuming that the company has only one class of share
capital outstanding consisting of 50,000, P10 par ordinary shares?
a. P10.00
b. P63.00
c. 70.20
d. 73.00
MC56
B
3,150,000/ 50,000 = 63
29. Use the same information given in MC56. What is the book value per ordinary share assuming that the company has
two classes of share capital outstanding consisting the following: 5,000, P100 par value preference shares with a
liquidation value of P120 per share and 50,000, P10 par value ordinary shares?
a. P10.00
b. P51.00
c. P53.00
d. P63.00
MC57
B
3,150,000 – (5,000 x 120) = 2,550,000; 2,550,000/50,000 = 51
30. The Meg Company began operations in January 2011 and reported the following results for each of its three years of
operations. 2011- P520, 000 loss; 2012- P80, 000 loss; 2013- P1, 600,000 profit; At December 31, 2013, Meg
Company’s capital accounts were as follows:
8% Cumulative Preference Share Capital,
P100 par; 50, 000 shares authorized,
issued and outstanding
P5,000,000
Ordinary Share Capital, P10 par;
1,000,000 shares authorized;
750,000 shares and outstanding
P7,500,000
Meg Company has never paid a cash or bonus issue and there has been no change in its capital accounts since it
began operations in 2011. The corporation law permits dividends only from retained earnings. What is the book value
of the ordinary share at December 31, 2013?
a. P9.73
b. P10.00
c. P10.80
d. P11.33
MC58
B
RE = 1,000,000; cumulative dividends in arrears = 5,000,000 x 8% x 3
years = 1,200,000, but dividends are limited to the extent of RE balance
of
P1,000,000; Thus, equity of ordinary share is 13,500,000 – 5,000,000 –
1,000,000 = 7,500,000; 7,500,000/ 750,000 shares = P10
31. Use the same information given in MC58. What is the book value of the ordinary share at December 31, 2013
assuming that the preference share has a liquidating value of P106 per share?
a. P10.80
b. P10.00
c. P9.60
d. P9.33
MC59
C
13,500,000 – (50,000 x 106) – 1,000,000 = 7,200,000 ; 7,200,000/750,000
shares = 9.60
32. ABC Corporation’s performance during the last three years had not been favorable resulting to a deficit of P950, 000
at December 31, 2013. The company with the approval of the shareholders, decided to eliminate the deficit through a
quasi-reorganization which would be effected as follows: The Company’s 200,000, P20 par ordinary share capital
originally issued at an average price of P22 would be reissued with the par value of P15. Immediately after the quasireorganization, what would be the balance of additional paid in capital?
a. P1,400,000
b. P1,000,000
c. P600,000
d. P450,000
MC60
D
(200,000 x 2) + (200,000 x 5) – 950,000 = 450,000
33. The Shareholders’ equity of May Co. revealed the following on June 30, 2013:
Preference Share, P100 par value
P230,000
Share Premium-Preference
80,000
Ordinary Share, P15 par value
525,000
Share Premium- Ordinary
275,000
Subscribed Ordinary Share
5,000
Retained Earnings
190,000
Notes Payable
400,000
Subscription Receivable-Ordinary
40,000
How much is the legal Capital of the Company?
a. P1.3055 M
b. P1.115 M
c. P0.760 M
d. P0.755 M
MC23
C
230,000 + 525,000 + 5,000 = 760,000
34. March 2, 2013, Nanette Corporation issued 4,000 shares of 6% cumulative P100 par value preference share for
P480,000. Each preference share carried one detachable share warrant which the holder to acquired at P35, one
share of Nanette’s P10 par ordinary share capital. On March 2,2013, the market price of the preference share without
the warrants was P110 per share and the market price of the share warrants was P10 per warrant. What is the
amount credited to Share Premium-Preference Share by Nanette on the issuance of the securities?
a. P0
b. P40,000
c. P50,000
d. P80,000
MC24
B
480,000 x 110/120 = 440,000; 440,000-400,000 = 40,000
35. Following are shown on the statement of financial position of Py Company:
Share Capital, P100 par, 1,000 shares
P100,000
Share Premium
2,000
Paid-in Capital from Treasury Shares
3,000
Retained Earnings
P75,000
Treasury Shares, 200 shares at cost
25,000
All the treasury shares were sold for P20,000. How would the resale of the treasury shares be recorded?
a. Cash
P20,000
Treasury Shares
P20,000
b. Cash
20,000
Share Premium
2,000
Paid-in Capital from Treasury Shares
3,000
Treasury Shares
25,000
c. Cash
20,000
Retained Earnings
5,000
Treasury Shares
25,000
d. Cash
20,000
Paid-in Capital from Treasury Shares
3,000
Retained Earnings
2,000
Treasury Shares
25,000
SHAREHOLDERS EQUITY
Multiple Choice – Theories
(IFRS)
1. Total shareholders’ equity represents
a. A claim against assets.
b. The maximum amount that can be borrowed.
c. A claim against the total assets of an entity.
d. Only the amount of retained earnings.
2. The residual interest in a corporation belongs to the
a. Management
b. Creditors
c. Ordinary shareholders
d. Preference shareholders
3. The term residual owner means that shareholders
a. Are entitled to a dividend every year in which the entity earns an income.
b. Have the rights to specific assets of the entity
c. Bear the ultimate risks and uncertainties and receive the benefits of ownership.
d. Can negotiate individual contracts for the entity.
4. Shares that have a fixed per-share amount printed on the share certificate are called
a. Stated value shares
b. Fixed value shares
c. Uniform value shares
d. Par value shares
5. Treasury shares are
a. Shares held as an investment by the treasurer of the corporation.
b. Shares held as an investment of the corporation.
c. Issued and outstanding shares.
d. Issued but not outstanding shares.
6. Share warrants outstanding account shall be reported as
a. Liability
b. Reduction of share premium
c. Share capital
d. Share premium
7. In accounting for shareholders’ equity, the accountant is primarily concerned with which of the following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings.
8. Contributed capital does not include
a. Share premium on ordinary and preference shares
b. Preference share capital
c. Capital resulting from reissuance of treasury shares
d. Capital accumulated by retention of earnings
9. Discount on share capital
a. May be recorded as either an asset or an expense
b. Should be closed to income summary account
c. May be offset against share premium on the same class of share capital
d. None of the above may be done
10. When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency is called
a. A net loss
b. A dividend
c. A liability
d. A deficit
11. Earnings per shares should be calculated before accounting by which of the following?
a. Preference dividend for the period
b. Ordinary dividend
c. Taxation
d. Minority interest
12. If the bonus issue occurs between the year-end and the date that the financial statements are authorized for issue
a. The EPS for both the current and the previous year are adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made at the EPS
d. Diluted EPS only is adjusted
13. If a new issue of share for cash is made between the year-end and the date that the financial statements are
authorized for issue
a. The EPS for both the current and the previous year are adjusted
b. The EPS for the current year only is adjusted
c. No adjustment is made at the EPS
d. Diluted EPS only is adjusted
14. The weighted average number of shares outstanding during the period for all periods other than the conversion of
potential ordinary shares should be adjusted for
a. Any change in the number of ordinary shares without a change in resources
b. Any prior period adjustment
c. Any new issue of shares for cash
d. Any convertible instruments settled in cash
15. Which figure for earnings does EPS information use?
a. Profit attributable to ordinary equity holders and the preference shareholders of the parent
b. Profit before taxation
c. Profit from operations
d. Profit attributable to ordinary equity holders of the parent
16. Ordinary shares issued as part of a business combination are included in the EPS calculations from
a. The beginning of the accounting period
b. The date of acquisition
c. The end of the accounting period
d. The midpoint of the accounting period
17. Shares which are issued to settle a liability are included in EPS calculation from
a. Date of the contract for service
b. Halfway through the rendering of services
c. The competitor of services
d. The settlement date
18. All of the following must be disclosed in relation to earning per share, except
a. Forecast earnings per share for the following year.
b. Instruments that could potentially dilute basic earnings per share in the future but not included in the diluted EPS
because they are antidilutive in the current period.
c. The weighted average number of ordinary shares used.
d. The earnings figures used in calculating EPS
19. Dilution of EPS is defined as
a. Decrease in earnings per share when any financial instrument is converted to any form of share capital.
b. Decrease in share capital
c. Decrease in earnings per share when convertible instruments are converted to ordinary shares.
d. Decrease in earnings per share when share capital is converted to share capital
20. If a share option is converted at March 31
a. The potential ordinary share are included in diluted EPS up to March 31, and in basic EPS from the date
converted to the year-end, both weighted accordingly.
b. The ordinary shares are not included in diluted EPS.
c. The ordinary share are not included in basic EPS.
d. The effects of the share option are included only in previous year’s EPS calculations
21. In calculating whether potential ordinary shares are dilutive, the profit figure used as the “control number” is
a. Net profit after tax including discontinued operations
b. Net profit from continuing operations
c. Net profit before tax including discontinued operations
d. Retained profit for the year after dividends
22. Which of the following option valuation techniques should not be used as measure of fair value in the first instance?
a. Black-Scholes model
b. Binomial model
c. Monte-Carlo model
d. Intrinsic value
23. How is compensation expense measured for entity settle share-based payments?
a. Use the normal hourly rate of the employees.
b. Measure the intrinsic value of share options as the difference between the market price and the exercise price at
measurement date.
c. Measure the the fair value of share options using an option pricing model.
d. Measure the difference between the market price and fairy he share options.
24. Which statement in relation granted to employees in exchange for services Is true?
a. The services received shall be measured at the fair value of the employees’ services.
b. Fair value shall be measured at the date the options vest.
c. Fair value shall be measured at the date of exercise.
d. All of these statements are not true.
25. In accounting for share-based compensation, what interest rate is used to discount both the exercise price of the
option and the future dividend stream?
a. The entity’s known incremental borrowing rate.
b. The current market rate that entities in that particular industry use to discount cash flows.
c. The risk-free interest rate.
d. The rate that entities can justify as being reasonable.
MULTIPLE CHOICE ANSWERS
1. C
2. C
3. C
4. D
5. D
6. D
7. C
8. D
9. D
10. D
23. C
24. D
25. C
11. B
12. A
13. C
14. A
15. D
16. B
17. D
18. A
19. C
20. A24.
D
25. C
Problem 1 IAA
Mara Company provided the following data at year end:
Authorized share capital
Unissued share capital
Subscribed share capital
Subscription receivable
Share premium
Retained earnings unappropriated
Retained earnings appropriated
Revaluation surplus
Treasury shares, at cost
5,000,000
2,000,000
1,000,000
400,000
500,000
600,000
300,000
200,000
100,000
What total amount should be reported as shareholders' equity?
a. 5,100,000
b. 5,500,000
c. 4,900,000
d. 4,800,000
Solution 1
Answer a
Authorized share capital
5,000,000.00
Unissued share capital
(2,000,000.00)
Issued share capital
3,000,000.00
Subscribed share capital
1,000,000.00
Subscription receivable
( 400,000.00)
600,000.00
Share premium
500,000.00
Retained earnings:
Unappropriated
600,000.00
Appropriated
300,000.00
900,000.00
Revaluation surplus
200,000.00
Total
5,200,000.00
Treasury surplus
( 100,000.00)
21. B
22. D
23. C
24. D
25. C. D
25. C
Shareholders' equity
5,100,000.00
The subscription receivable is a deduction from the related subscribed share capital. However, subscription receivable
collectible within one year is shown as current asset.
Problem 2 IAA
Negros Company was incorporated on January 1, 2017 with the following authorized capitalization:
Ordinary share capital, 200,000 shares, no par,
P100 stated value
Preference share capital, 200,000 shares, 10% fixed
rate, P50 par value
20,000,000
10,000,000
During 2017, the entity issued 150,000 ordinary shares for a total of P18,000,000 and 50,000 preference shares at P60
per share.
In addition, on December 15, 2017, subscriptions for 20,000 preference shares were taken at a purchase price of P100,
These subscribed shares were paid for January 15, 2018.
Net income for 2017 was P5,000,000.
What amount should be reported as a total contributed capital on December 31, 2017?
a. 28,000,000
b. 21,000,000
c. 23,000,000
d. 26,000,000
Solution 2
Answer c
Ordinary share capital – 150,000 shares
Preference share capital -50,000 shares x 60
Subscribed preference share capital – 20,000 x 100
Total contributed capital
18,000,000
3,000,000
2,000,000
23,000,000
Observer that the subscribed preference share capital is already included in contributed capital because the subscription
receivable is collected within one year.
Otherwise, the subscription receivable is deducted from subscribed share capital.
Contributed capital includes the aggregate per value and any share premium but does not include retained earnings.
The cost of treasury shares is not deducted in computing contributed capital or paid in capital.
Problem 3 IAA
Marinduque Company reported the following postclosing trial balance at year-end:
Accounts payable
3,000,000
Accounts receivable
6,000,000
Accumulated depreciation
2,500,000
Allowance for doubtful accounts
800,000
Bonds payable
5,000,000
Property, plant and equipment
11,000,000
Cash
2,500,000
Ordinary share capital, P50 par value
6,000,000
Dividends payable
200,000
Inventory
8,000,000
Equity investments at FVOCI
3,500,000
Investment in equity securities at cost 2,000,000
Unrealized loss on derivative contract
500,000
Share premium- ordinary
In excess of par
5,000,000
From sale of treasury
1,000,000
Preference share capital, P25 par value
5,000,000
Retained earnings
6,500,000
Treasury ordinary shares – 20,000
at cost
1,500,000
35,000,000
35,000,000
The dividend on cumulative preference share is 10%. The preference share has a preference in liquidation of P50.
What is the total shareholders’ equity at year-end?
a. 22,000,000
b. 21,500,000
c. 21,700,000
d. 23,500,000
Solution 3
Answer b
Ordinary share capital
Preference share capital
Share premium
Retained earnings
Treasury shares
Unrealized loss on derivative contract
Total Shareholders’ equity
6,000,000
5,000,000
6,000,000
6,500,000
( 1,500,000)
( 500,000)
21,500,000
Problem 4 IAA
At the beginning of the current year, Hanna Company reported the following share
holders’ equity:
Share capital, P10 par, outstanding 220,000 shares
Share premium
Retained earnings
2,250,000
900,000
2,190,000
During the current year, the entity had the following share transactions:



Acquired 6,000 treasury shares for P270,000
Sold 3,600 treasury shares at P50 a share.
Sold the remaining treasury shares at P41 per share.
What is the total amount of share premium at year-end?
a. 891,600
b. 870,000
c. 908,400
d. 927,600
Solution 4
Answer c
Treasury Shares (P45 per share)
Cash
Cash (3,600 x 50)
Treasury shares (3,600 x 45)
Share premium – treasury
Cash (2,400 x 41)
Share premium – treasury
Treasury shares (2,400 x 45)
270,000
270,000
180,000
162,000
18,000
98,400
9,600
108,000
Share premium – issuance January 1
Share premium – treasury ( 18,000 – 9,600)
Total share premium
900,000
8,400
908,400
Problem 5 IAA
At the beginning of current year, Dayron Company had 80,000 ordinary shares outstanding. The entity distributed a 15%
share dividend in March and a 10% share dividend in June.
After acquiring 10,000 shares of treasury in July, the entity split the share 4 for 1 in December.
1. How many shares were issued before the share split?
a. 101,200
b. 100,000
c. 91,200
d. 451.500
2. How many ordinary shares are outstanding on December 31?
a. 364,800
b. 488,000
c. 498,000
d. 451,500
Solution 5
Question 1 Answer a
Original shares
Share dividend in March (15% x 80,000)
Total
Share dividend in June (10% x 92,000)
Total issued shares before split
80,000
12,000
92,000
9,200
101,200
Question 2 Answer a
Total issued shares after split (101,200x4)
Treasury shares after split (10,000 x 4)
404,800
(40,000)
Outstanding shares – December 31
364,800
Problem 6 IFRS
Global Company, a real estate developer, is owned by five founding shareholders.
On December 1, 2017, the entity declared a property dividend of a "one-bedroom flat" for each shareholder. The property
dividend is payable on January 31, 2018.
On December 1, 2017, the carrying amount of one-bedroom flat is P1,000,000 and the fair value is P1,500,000.
However, the fair value is P1,800,000 on December 31, 2017 and P1,900,000 on January 31, 2018.
1. What is the dividend payable on December 1, 2017?
a. 5,000,000
b. 7,500,000
c. 9,000,000
d.
0
2. What is the dividend payable on December 31, 2017?
a. 5,000,000
b. 7,500,000
c. 9,000,000
d.
0
3. What amount of gain is included in profit or loss as a result of the settlement of the property dividend on January 31,
2018?
a. 2,500,000
b. 4,000,000
c. 2,000,000
d. 4,500,000
Solution 6
Question 1 Answer b
Fair value of property (5 x 1,500,000)
To recognize the dividend payable on December 1, 2017:
Retained earnings
7,500,000
7,500,000
Dividend payable
7,500,000
Question 2 Answer c
Fair value - December 31, 2017 (5 x 1,800,000)
9,000,000
Fair value - December 1, 2017
(7,500,000)
Increase in dividend payable
1,500,000
Retained earnings
1,500,000
Dividend payable
1,500,000
Questions 3 Answer d
Fair value - January 31, 2018 (5 x P1,900,000)
9,500,000
Fair value - December 31, 2017
(9,000,000)
Increase in dividend payable
500,000
Retained earnings
500,000
Dividends payable
500,000
Dividend payable - January 31, 2018
9,500,000
Carrying amount of property
500,000
Gain on distribution of property dividend
4,500,000
Dividend payable
9,500,000
Inventory
5,000,000
Gain on distribution of property dividend
4,500,000