SHAREHOLDER EQUITY
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A ________- is an entity which is owned by its shareholders. Corporation
Artificial being created by operation of law . Corporation Code of the Philippines
Shareholders elect the members of the ___. BOD
Each ____ represents a fractional interest in the issuing company. share of stock
_____ expect to receive dividends or to earn capital gains on their investment. Stockholders
Dividends are distributions of corporate assets, usually ____, to shareholders. Cash
Is the residual interest of owners in the net assets of a corporation measured by the excess
of assets over liabilities. Shareholders’ Equity
SHE It can be simply stated formula as _____A – L = SHE
Ph Term - Capital stock
IAS Term - ______ Share capital
Ph Term - Subscribed CS IAS Term - ______ Subscribed SC
Ph Term - Common stock IAS Term - ______ Ordinary share capital
Ph Term - Preferred stock IAS Term - ______ Preference share capital
Ph Term – APIC
IAS Term - ______ Share premium
Ph Term - RE appropriated IAS Term - ______ Appropriation reserve
Ph Term - Revaluation reserve IAS Term - ______ Revaluation reserve
Ph Term - Treasury stock IAS Term - ______ Treasury share
Ph Term - Retained Earnings (deficit)
IAS Term - ______ Accumulated profits (losses)
Which is separate and distinct from owners. Corporation Code of the Philippines
Revaluation Surplus Other Comprehensive Income
Which raises equity capital by selling shares of stock to investors. Corporation
Articles of incorporation and by-laws . Corporation
Retained Earnings Shareholders’ Equity
Convertible 5 features of Preference Share
Unrealized gains / losses on financial assets at fair value through OCI Other Comprehensive
Income
Other Comprehensive Income Shareholders’ Equity
Share capital subscriptions receivable Contra SHE accounts
Amount invested or contributed by owners Contributed Capital (Paid-in Capital)
Treasury shares Contra SHE accounts
contribution equal to par or stated value SC
contribution in excess of par or stated value of SC APIC
Can share capital be issued at a discount? No Corporation code provides that share capital
cannot be issued less that par or stated value. However, treasury shares may be issued at
less that par or stated value w/o violating the legal provision
Share capital If issued at stated value (Legal Capital)
Composed of share capital and APIC Contributed Capital (Paid-in Capital)
Paid in capital in excess of stated value If issued at stated value (Legal Capital)
Share dividends declared is also part of the _____ legal capital
Fixed per share amount printed on stock certificate Par value share capital
Resale of treasury shares APIC may not arise
Par value establishes nominal value per share Par value share capital
One with no amount printed on stock cert. No-par value share capital
Stock recapitalization APIC may arise
It has a juridical personality. Corporation Code of the Philippines
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Quasi reorganization APIC may arise
Minimum amount that must be paid in by the shareholder Par value share capital
Issuance of detachable share warrants APIC may arise
Retirement of treasury shares APIC may not arise
Redeemable 5 features of Preference Share
Bonus issue APIC may arise
Quasi-reorganization APIC may not arise
Share capital issued for ___ cash
proceeds are credited to share capital account equal to par w/ excess being credited to the
premium If issued at par (share Capital)
___________all proceeds shall be credited to share capital account When no-par and no
stated value (share Capital)
same as callable but this, w/ the option of the shareholder Redeemable
Represents residual ownership interest in the corporation Ordinary Share (Common Stock)
Bears ultimate risk of loss and receive the benefits of the success of the corporation
Ordinary Share (Common Stock)
Share in earnings of corp. O/S holders’ basic rights
Issuance of shares at no-par, no-stated value APIC may not arise
___________ excess proceeds over stated value is credited to share premium When no-par
has stated value (share Capital)
Vote in election of BOD and determination of certain policies O/S holders’ basic rights
Cumulative 5 features of Preference Share
Share capital If issued at par (Legal Capital)
Actuarial gains and losses on defined benefit plan Other Comprehensive Income
Pre-emptive right O/S holders’ basic rights
Callable 5 features of Preference Share
Contributed (Paid-in) Capital Shareholders’ Equity
Foreign currency translation adjustment gains and losses Other Comprehensive Income
dividends in arrears must be satisfied first before dividends O/S holders Cumulative
Participating 5 features of Preference Share
Subscribed share capital If issued at par (Legal Capital)
Share in net assets upon liquidation O/S holders’ basic rights
Does not have a voting right Preference Share (Preferred Stock)
fractional share in residual income after distributing dividends to O/S holders Participating
option to convert P/S to O/S Convertible
Subscribed share capital If issued at stated value (Legal Capital)
corporation can reacquire or retire share Callable
Certificates of share capital are not issued until subscriber has completely paid the
___subscription price
A deduction from SHE, or may be shown as current asset if expected to be collected within
_____ one year or less.
Sue the subscriber When subscriber defaults in payment of subscriptions
Sell delinquent shares at public auction to highest bidder. When subscriber defaults in
payment of subscriptions
If there is no bidder, the delinquent shares will be issued in the name of the _______ and
will be placed in treasury corporation
80. When two classes of equity securities are issued for single payment_____ price is allocated
among classes of securities issued based on their ______ , lump sum , relative market
values
81. If only one share has an available fair market value, use _____ bifurcation
82. Transaction costs of an equity transaction are accounted for as a deduction from equity by a
charge to _______ pertaining to that issue. APIC ( Share premium ) Share Issue Costs and
Stock Assessments
83. If there is no APIC pertaining to that issue, share issue costs are recorded as _____ expenses
84. Transaction costs that relate to an issue of a compound financial instrument ( e.g. bonds w/
warrants ) are allocated to the ____ and ______ components of instrument in proportion to
the allocation of proceeds liability and equity
85. Transaction costs accounted for as a deduction from equity in the period is _______ in the
statement of changes in equity under IAS 1 Presentation of Financial Instruments disclosed
separately
86. Documentary stamp tax and other percentage tax imposed in public offerings of shares
Costs recognized as deductions from equity:
87. Controls the management of the corporation O/S holders’ basic rights
88. Stock exchange listing fees Cost recognized in P/L
89. Audit and other professional advice Costs allocated between equity and expense (related to
offering of shares)
90. Prospectus* design and printing Costs allocated between equity and expense (related to
offering of shares)
91. _____ usually represent additional contribution from shareholders. Share assessments are
credited to share premium (APIC). Share assessments
92. However, if the share assessment is levied on the shareholder because share capital was
originally issued at a ____ the assessment will be recorded by debiting cash and crediting
discount on share capital discount
93. SEC registration fees for new share Costs recognized as deductions from equity:
94. Improve EPS Reasons why a company reacquires its own shares:
95. Opinion of counsel and tax opinion Costs allocated between equity and expense (related to
offering of shares)
96. Increase ratio of debt to equity Reasons why a company reacquires its own shares:
97. Underwriting costs Costs recognized as deductions from equity:
98. to exercise pre-emptive right holder treasury share does not have a right
99. To obtain shares for share option plans and conversion of other securities Reasons why a
company reacquires its own shares:
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Is treasury share an asset? No
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A _______ is a corporation's own share that has been reacquired after having been
issued and fully paid but not retired treasury share
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Public relations consultant’s fees Cost recognized in P/L
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to vote holder treasury share does not have a right
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Road show presentation Cost recognized in P/L
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Treasury shares sold at a price ______ will result to an APIC from treasury shares
higher than cost
106.
Treasury shares sold at a price lower than cost will result to a ___________ if the
APIC from treasury shares wasn’t able to absorb the deficiency. debit in retained earnings
107.
Provided that the corporation has unrestricted retained earnings in its books to
cover the shares to be purchased or acquired company can only reacquire or repurchase
treasury shares:
108.
A retirement price lower than price of original issuance(share capital + APIC) will
result to a credit to a ________ Paid in Capital from Retirement
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A retirement price higher than the price of original issuance will result to a debit in
retained earnings if the APIC wasn’t able to cover the _______ on retirement deficiency
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Fairness opinion and valuation report Costs allocated between equity and expense
(related to offering of shares)
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Treasury shares are occasionally acquired by donation from______ shareholders.
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The T/S donated will enable the company to raise capital by _______ reselling
shares.
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Since donated shares are acquired without any cost, the transaction does not affect
the corporation’s ___________ assets/ liabilities, and shareholders’ equity
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Receipt of donated shares does not affect the total issued shares but it ______ the
outstanding shares decreases
115.
Transaction is recorded by a memorandum entry. However, if market price of the
share capital is known at the time of donation, receipt may be recorded by: ______ and
______or APIC for an amount equal to the market value of donated shares Debiting treasury
shares and crediting donated capital
116.
Newspaper publication fees relating to issue Costs recognized as deductions from
equity:
117.
If the receipt of donated shares was recorded by a memorandum entry, ________
from the subsequent resale of donated share are credited to donated capital, or PIC from
donated shares. entire proceeds
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f donated shares were recorded at market value at time of receipt, only the excess
of reissue price over the market value is credited to _________ or ______ from donated
shares donated capital, or PIC
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It means to deceit used in order to achieve one's goal. Subterfuge
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The __________ may then be reissued at a discount without any liability on the part
of the shareholder donated shares
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Then, the resale or reissue of the T/S donated won’t be credited entirely to ______
donated capital
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Remedy is to use sales price to correct _________ and capital from the fraudulent
act overstated assets
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Change from par to no-par Recapitalization
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to receive cash dividends and receive assets upon liquidation holder treasury share
does not have a right
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Share split Recapitalization
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Just compare the debit to remove the capital and the credit to replace the old
capital. Change from par to no-par
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The _________occurs when excessive shares are issued for a property with the
understanding that the shareholders shall subsequently donate a portion of their shares T/S
subterfuge
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A share capital issued for inadequate or insufficient consideration watered share
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______ based on number of employees Share Appreciation Rights
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Change from no-par to par Recapitalization
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This is the reverse of watered share secret reserve
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The market value and change in market value of SAR through the years SAR is based
on number of employees
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Reduction of par value Recapitalization
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Re-measurement of liability at each reporting date; carefully consider: Share
Appreciation Rights
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Capital expenditures are recorded as an outright expense Secret reserve arise
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If debit is greater than credit, there is a premium and credit is greater than debit,
debit the Retained earnings account Change from no-par to par
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A desire to increase or decrease number of outstanding shares Stock split
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The right ________ of voting rights w/o the consent of existing shareholders
prevents the dilution
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Also, the re-measurements that was in the last slide SAR is based on number of
employees
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Consideration received < par or stated value, but share capital is fully paid watered
share
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Excessive writedown of receivables, inventories and securities Secret reserve arise
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Purpose of such action is to effect a reduction in market price and thereby obtain a
wider distribution and improved marketability of shares. Stock split
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If share capital is ______, assets are overstated and capital is correspondingly
overstated watered
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Stock rights are rights are rights issued to _________ entitling them to maintain a
proportionate interest in the ownership of the corporation when new shares are to be
issued. existing shareholders
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The market value of SAR @ each end of reporting period SAR is based on number of
employees
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This is accompanied by a reduction in the par value of share capital Stock split
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Share issued is proportionate to the shareholders’ _______ ( pre-emtive right)
previous holdings
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Excessive provision for depreciation, depletion, amortization and doubtful accounts
Secret reserve arise
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And more importantly the amount of the intrinsic value which will be the basis of
the payment to the employees SAR is based on number of employees
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Stock/share rights give the holders the privilege to purchase the shares at a
________ than the prevailing market price of the share lower amount
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are sold by the corp. for cash in conjunction with the issue of another security,
usually preference shares or bonds. Share Warrants
152.
Recall that the purpose of these warrants is to make the issuance of the P/S shares
or bonds more attractive to _______ investors
153.
When P/S or bonds are issued w/ detachable SW, proceeds should be allocated to
both P/S or bonds and the warrants based on the ______ of the two securities @ the time of
issuance. FMV
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Value attached to warrants credited to _________ or any appropriately described
account (e.g., Paid-in capital from Warrants, or Share warrants outstanding) Ordinary Share
Warrants Outstanding
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And the changes in fair value that will be recognized in profit or loss for the period
carefully consider: Share Appreciation Rights
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Fictitious liabilities are recorded Secret reserve arise
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Warrants are reported on statement of F/S as _____ APIC
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Incentives in the form of cash to key employees because of impressive performance
of the company Share Appreciation Rights
159.
In the three kinds of share based payment, this one falls under the _______ share
based payment. The other two are the ____ settled and the ______ and __________settled
share based payment cash-settled , equity settled ,partly cash and partly equity settled
160.
Until liability is settled, entity shall re-measure the fair value of liability at each
reporting date and at the date of settlement with changes recognized in _______ or the
period profit or loss
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Arises when assets are understated or liabilities are overstated with a consequent
understatement of capital. secret reserve
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At date of settlement, carefully consider: Share Appreciation Rights
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is defined as the issuance by an enterprise of its own ordinary shares to its ordinary
shareholders without consideration and under conditions indicating that such action is
prompted mainly by: Stock split
164.
______ based on level of revenue Share Appreciation Rights
165.
Number of employees expected to stay each year until end of vesting period SAR is
based on number of employees
APIC may arise from any of following items except:
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Resale of treasury shares
Retirement of treasury shares
Quasi-reorganization
Issuance of shares at no-par, no-stated value
What are the 5 features of Preference Share?
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Cumulative
Callable
Convertible
Redeemable
Participating
If share capital issued for non-cash consideration to entity other than employee:
Measured at: (order of priority)
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FMV of property or services received
Fair value of share capital issued (if there is no market price of non-cash item received)
If shares are issued for employees for goods or services received, IFRS 2, share based payment
requires that:
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Issuance should be recorded at fair value of equity instruments issued
Any excess of FV over par value is credited to share prem
If shares issued for outstanding liabilities of issuer and settlement is not in accordance w/ original
terms of debt:
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Fair value of equity instrument shall be measured as basis of measurement
Difference between fair value of shares granted and carrying value of liability set off is taken
to profit or loss.
Date of subscription JE :
Delinquent Subscriptions Journal Entries
Cost assigned to TS is the cancelled balance of receivable from highest bidder
Entry For Issuance
Recall that the entry for compensation expense in a SAR is: