Junior Philippine Institute of Accountants and Auditors – United
PARCOAC Corporation Accounting (Share Capital Transactions
Subsequent to Formation)
OVERVIEW
1. Definition of Terms
2. Components of Shareholder’s Equity w/
Proformas
3. Accounting for Share Capital
4. Delinquent Subscription
5. Accounting for Treasury Shares
6. Retirement of Shared Capital
1. Definition of Terms
• Shareholder’s Equity
o the total amount of
investments that the
owners
(investors/shareholders) of
a company/corporation
possessed by buying of
shares.
o replaces the individual’s
equity in the Accounting
Equation
• Ordinary Share
o a type of shares issued by
the company
o owners of this shares are
entitled to the residual
value/income if the
company decides to go
bankrupt or wind up after
paying the preference
shares owner
o they have the voting
power/rights in the
company
• Preference Share
o a type of shares issued by
the company
o they are entitled to first
receive payments from the
company when they earned
income.
o the do not have voting
powers/rights in the
company
• Share Premium
o a type of premium given on
the issuance of shares once
the company issued shares
above par value
• Share Discount
o a type of discount given on
the issuance of shares once
the company issued shares
below par value
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•
•
•
•
•
•
•
Share Capital
o a type of capital that is
raised through the issuance
of shares and may be
decreased
once
the
company decides to buy its
issued stocks
o it can contain both ordinary
and preference share issued
or it can be ordinary
(Ordinary – Share Capital)
or preference (Preference –
Share Capital).
Retained Earnings
o considered as a type of
equity
o the residual amount of
profit that a company has
after paying the direct &
indirect costs, income taxes
and its dividends to the its
shareholders
o may be used in purchasing
of equipment, inventory,
and etc.
Delinquent Subscription
o a type of subscribers unable
to pay their subscription on
the date specified of the
shares owned by them.
Treasury Shares
o a type of share that is
identified once the company
decides to buy back its
previously issued shares
(either ordinary [most
commonly] or preference or
both).
o This type of shares may be
reissued or may go the
highest bidder.
Share Outstanding
o are the no. of shares that are
currently being held by all of
its shareholders.
Donated Capital
o an asset given to the
company as a form of gift
Book Value Per Share (BVPS)
o a type of ratio of equity
available to shareholders
divided by the number of
shares outstanding.
Junior Philippine Institute of Accountants and Auditors – United
PARCOAC Corporation Accounting (Share Capital Transactions
Subsequent to Formation)
o it shows the minimum value
of a company’s equity since
it measures the book value
of firm on a per-share basis
• Earnings Per Share (EPS)
o is the amount attributable to
every
ordinary
share
outstanding during the
period.
o Publicly
accountable
entities are required to
present EPS information in
their Financial Statements.
o Non-publicly accountable
are only encouraged but not
required
to
present
earnings
per
share
information.
2. Components of Shareholder’s Equity/
Proformas
• The following are the components
of Shareholder’s Equity
Ordinary Share Capital
Ordinary Share Capital Issued
Subscribed Ordinary Share Capital
Less Ordinary Share Subscription Receivable
Ordinary Share Capital
Preference Share Capital
Preference Share Capital Issued
Subscribed Preference Share Capital
Less Preference Share Subscription Receivable
Preference Share Capital
Par Value Share
Share Capital Issued
Share Capital Subscribe
Total Legal Capital
XXX
XXX
X,XXX
No Par Value Share
Share Capital Issued
Share Capital Subscribe
Paid-in Capital in excess of stated value
Total Legal Capital
XXX
XXX
XXX
X,XXX
XXX
(XXX)
(XXX)
XXX
(XXX)
X,XXX
•
XXX
XXX
XXX
XXX
XXX
XXX
XXX
X,XXX
X,XXX
X,XXX
X,XXX
XX,XXX
Other Comprehensive Income (cumulative balance)
Revaluation Surplus
XXX
Unrealized gain or (loss) on FVTOCI
XXX or (XXX)
Remeasurement Gain or (Loss) under PAS 19
XXX or (XXX)
Effective portion of cash flow hegde
XXX
Change in Fair Value due to credit risk of designated FL@FVTPL
XXX
Translation Gain or (Loss)
XXX or (XXX)
Other Comprehensive Income (cumulative balance)
X,XXX
Other Comprehensive Income (cumulative balance)
Total Paid-in Capital
Retained Earnings
Total
Less Treasury Shares
Total Shareholders' Equity
•
(XXX)
X,XXX
(XXX)
(XXX)
Share Premium
Ordinary Share Premium - excess over par
Preference Share Premium - excess over par
Share Premium - Treasury Shares
Share Premium - Conversion Option
Donated Capital
Share Premium - Warrants Outstanding
Share Premium - Options Outstanding
Share Premium
(NET TOTAL) Ordinary Share Capital
(NET TOTAL) Preference Share Capital
(NET TOTAL) Share Premium
Total Paid-in Capital
3. Accounting for Share Capital
• Two Methods of Accounting for
Share Capital
o Memorandum Method
o Journal Entry Method
• Legal Capital
o it is a type of capital that
represents the company’s
equity that cannot be
remove/disappear legally
from the business
• Proformas in computing for
Legal Capital:
XX,XXX
XX,XXX
XX,XXX
XX,XXX
(XXX)
XX,XXX
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•
Organization Cost
o refers to the legal fees
related to the formation
(aka incorporation) and
other incorporation fees of
the company.
o should be recorded as a
expense in the first year of
operations.
Share Issuance Cost
o a direct cost to sell share
capital
o considered as deduction to
shareholder’s equity.
o The order of it once debited
❖ Share Premium from
Issuance
❖ Retained Earnings, if
there is no share
premium
from
issuance or if the
share premium from
issuance
is
not
sufficient
Issuance of Share for Non-cash
consideration
o The following are ways to
issue
shares
without
receiving cash or accounts
receivable
with
the
corresponding order of
Junior Philippine Institute of Accountants and Auditors – United
PARCOAC Corporation Accounting (Share Capital Transactions
Subsequent to Formation)
priority in determining their
amount.
Issuance of Share for Non-cash consideration
Consideration Received
Valuation/Measurement (Order or Priority)
Non-cash Asset or Service
1) Fair Value of Non-cash consideration Received
2) Fair Value of Share Capital Issued
3) Par Value of Share Capital Issued
Liability Extinguished
•
JOURNAL ENTRIES
When no highest bidder and the corporation acquires the shares
Treasury Shares
Subscription Receivable
Receivable from Highest Bidder
1) Allocate the lump-sum price using the relative fair value of the shares issued
Type Of Share Capital
Relative FV
Fraction
Proceeds
Ordinary
XXX
XXX/X,XXX
XXX
Preference
XX
XX/X,XXX
XX
X,XXX
X,XXX
2) If only one of the securities has an available fair value
Total Proceeds
Less Total Fair Value of the securities with known FV
Amount allocated to other securities
X,XXX
XXX
XXX
4. Delinquent Subscription
• The following are ways on how to
do Accounting for Delinquent
Subscription/Shares:
• With Highest Bidder – The
HIGHEST BIDDER is the person
who is received the smallest no. of
share but he/she bought the shares
at the highest price/offer that
he/she gave. The excess share will
be issued to the original subscriber.
Without Highest Bidder
o the shares are purchased by
the company thus resulting
to treasury shares.
o the delinquent subscriber
shall be free from his/her
liability but he/she is not
allowed to have any no. of
shares
from
his/her
subscription.
XXX
XXX
XXX
XXX
XXX
5. Accounting for Treasury Shares
• The following are the two methods
in accounting for Treasury Shares:
o Cost Method
o Par Value Method
• Cost Method
o Treasury Shares are debited
or recognized at acquisition
cost and credited at cost for
any subsequent reissuance
or retirement of treasury
share.
JOURNAL ENTRIES
Treasury Shares @cost
Cash
•
XXX
XXX
Par Value Method
o Treasury Shares are debited
par value in addition share
premium original issuance
is also debited and the
retained earnings for the
excess. Any subsequent
reissuance and retirement
of treasury shares is also
credited at par.
JOURNAL ENTRIES
Treasury Shares
Share Premium
Cash
•
•
XXX
XXX
When no highest bidder and the corporation is prohibited to acquire the shares
Subscribed Share Capital
Share Premium
Subscription Receivable
Receivable from Highest Bidder
Share Premium - Delinquent Subscription
1) Fair Value of Share Capital Issued
2) Fair Value of Liability Extinguished
3) Carrying Value of Liability Exinguished
Issuance of Two or More Classes
of Share simultaneously at a
basket or lump-sum (aka onetime payment) price
o There will be times wherein
a company can issue both
ordinary and preferences
shares all for the same
amount. Thus, the following
are ways in order to get the
amount of the shares.
XXX
XXX
XXX
XXX
Reissuance of Treasury Shares
o refers to the reissuance of
treasury shares to the
market/shareholders.
o The following are situations
that can occur at the
reissuance
of treasury
shares along with their
respective journal entries
and other information:
Reissued at above cost
Cash
Treasury Shares
Share Premium - Treasury Shares
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xxx
xxx
XXX
Junior Philippine Institute of Accountants and Auditors – United
PARCOAC Corporation Accounting (Share Capital Transactions
Subsequent to Formation)
Reissued at below cost
Any difference between the consideration received and cost of treasury shares shall be debited as follows:
1) Share Premium - Treasury Shares
2) Retained Earnings, for any excess
Cash
Share Premium - Treasury Shares
Retained Earnings, for any excess
Treasury Shares
•
XXX
XXX
XXX
XXX
Retirement of Treasury Shares
o another option of the
company if they see that
there is no potential buyer
of the stocks.
JOURNAL ENTRIES
Share Capital + Share Premium Original Issuance > Cost of Treasury Shares (perceived gain)
Share Capital
XXX
Share Premium - Original issuance
XXX
Treasury Shares
Share Premium - Treasury Shares
XXX
XXX
Share Capital + Share Premium Original Issuance < Cost of Treasury Shares (perceived loss)
Share Capital
XXX
Share Premium
XXX
Share Premium - Treasury Shares
XXX
Retained Earnings
XXX
Treasury Shares
XXX
6. Retirement of Share Capital
At a gain
Share Capital
Share Premium - Original issuance
Cash
Share Premium - Retirement
At a loss
Share Capital
Share Premium - Original issuance
Retained Earnings
Cash
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
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