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    Retained Earnings Appropriation and Quasi-Reorganization Retained Earnings Appropriation and Quasi-Reorganization

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    Jamie Ramos
    The document discusses retained earnings and appropriated retained earnings. It defines different types of appropriated retained earnings including legal, contractual, and voluntary appropriations. It provides examples of recording appropriations in the accounting records and reversing appropriations when no longer needed. The document also discusses items that directly affect retained earnings, treasury share transactions, and quasi-reorganizations.

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    Retained Earnings Appropriation and Quasi-Reorganization Retained Earnings Appropriation and Quasi-Reorganization

    Uploaded by

    Jamie Ramos
    54 views10 pages
    The document discusses retained earnings and appropriated retained earnings. It defines different types of appropriated retained earnings including legal, contractual, and voluntary appropriations. It provides examples of recording appropriations in the accounting records and reversing appropriations when no longer needed. The document also discusses items that directly affect retained earnings, treasury share transactions, and quasi-reorganizations.

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    The document discusses retained earnings and appropriated retained earnings. It defines different types of appropriated retained earnings including legal, contractual, and voluntary appropriations. It provides examples of recording appropriations in the accounting records and reversing appropriations when no longer needed. The document also discusses items that directly affect retained earnings, treasury share transactions, and quasi-reorganizations.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    54 views10 pages

    Retained Earnings Appropriation and Quasi-Reorganization Retained Earnings Appropriation and Quasi-Reorganization

    Uploaded by

    Jamie Ramos
    The document discusses retained earnings and appropriated retained earnings. It defines different types of appropriated retained earnings including legal, contractual, and voluntary appropriations. It provides examples of recording appropriations in the accounting records and reversing appropriations when no longer needed. The document also discusses items that directly affect retained earnings, treasury share transactions, and quasi-reorganizations.

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    RETAINED EARNINGS

    Appropriation and
    quasi-reorganization
    APPROPRIATION OF RE

    Retained earnings can be classified into unappropriated


    retained earnings and appropriated retained earnings.
    In the absence of evidence to the contrary, the retained
    earnings can be declared as dividends.
    The appropriation of retained earnings maybe described as:
    A. Legal appropriation
    B. Contractual appropriation
    C. Voluntary or Discretionary appropriation
    REMINDER!
    Legal Contractual Voluntary
    appropriation appropriation appropriation
    Arises from the fact Arises from the A matter of discretion on
    the part of management.
    that the legal fact that the terms
    capital cannot be of the bond issue
    returned to the and preference
    Whether legal,
    shareholders until share issue may
    contractual or voluntary,
    the entity is impose restriction the intent of the
    dissolved and on the payment of appropriation is simply to
    liquidated. dividends. limit the declaration of
    dividend.
    Accounting for appropriation

    The establishment of appropriation is recorded as:


    Retained earnings xx
    Retained earnings appropriated xx

    When the appropriation is no longer necessary because the conditions for


    which it is established no longer exist, the appropriation is simply
    reversed.
    Retained earnings appropriated xx
    Retained earnings xx
    An entity purchased treasury shares at a
    cost of P500,000. Legally, if the treasury
    shares are not yet reissued at year-end,
    this would require legally an appropriation
    of retained earnings.

    Retained earnings 500,000

    Retained earnings appropriated for treasury shares 500,000

    If the treasury shares are subsequently reissued, the appropriated balance


    is canceled.

    Retained earnings appropriated for treasury shares 500,000

    Retained earnings 500,000


    Items affecting directly RE
    A. Net income or loss for the period
    B. Prior period errors
    C. Dividends to shareholders
    D. Effect of change in accounting policy
    E. Appropriation of retained earnings
    F. Components of OCI reclassified subsequently to RE
    G. Retirement of treasury shares
    H. Recognition of share issue cost
    I. Call of preference shares
    J. Conversion of preference shares into ordinary
    shares
    Did you know?
    QUASI-REORGANIZATION Circumstances that may justify
    quasi-reorganization

    It is a permissive but not a a. When a large deficit exists.


    mandatory procedure under which a b. When approved by shareholders
    financially troubled entity restates and creditors.
    its accounts and establishes a “fresh c. When the cost basis of
    start” in accounting sense. accounting for PPE becomes
    unrealistic.
    d. When a “fresh start” appears to
    be desirable for advantageous
    to all parties concerned.
    Illustration-thru recapitalization
    An entity provided the following statement of financial position at year-end prior to
    quasi-reorganization:
    Current assets 1,000,000
    PPE 7.5 M
    Accumulated depreciation (1M) 6,500,000
    7,500,000

    Liabilities 4,500,000
    Share capital, P100 par, 50,000 shares 5,000,000
    RE (deficit) (2,000,000)
    7,500,000
    Illustration-thru revaluation
    An entity has sustained heavy losses over a period of time and conditions warrant
    that the entity should undergo a quasi-reorganization at year end. The statement of
    financial position at year-end prior to reorganization:
    Current assets 1,000,000
    PPE 5M
    Accumulated depreciation (1.5M) 3,500,000
    Goodwill 100,000
    4,600,000

    Liabilities 1,100,000
    Share capital, P100 par 5,000,000
    Share premium 500,000
    RE (deficit) (2,000,000)
    4,600,000

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