This document discusses different methods for accounting for share capital transactions, including authorization, subscription, issuance, and issuance for cash, non-cash assets, and services. It provides examples of recording share capital transactions using both the memorandum entry method and journal entry method. For each transaction type, it gives an illustrative example, showing the memorandum or journal entries to record the transaction under each method.
This document discusses different methods for accounting for share capital transactions, including authorization, subscription, issuance, and issuance for cash, non-cash assets, and services. It provides examples of recording share capital transactions using both the memorandum entry method and journal entry method. For each transaction type, it gives an illustrative example, showing the memorandum or journal entries to record the transaction under each method.
This document discusses different methods for accounting for share capital transactions, including authorization, subscription, issuance, and issuance for cash, non-cash assets, and services. It provides examples of recording share capital transactions using both the memorandum entry method and journal entry method. For each transaction type, it gives an illustrative example, showing the memorandum or journal entries to record the transaction under each method.
This document discusses different methods for accounting for share capital transactions, including authorization, subscription, issuance, and issuance for cash, non-cash assets, and services. It provides examples of recording share capital transactions using both the memorandum entry method and journal entry method. For each transaction type, it gives an illustrative example, showing the memorandum or journal entries to record the transaction under each method.
Illustrative problem for Share capital transactions recorded in the books of account using the two methods, 1)Memorandum entry method and 2) Journal entry method.
Authorization This involves the recording of share capital upon approval of the Securities and Exchange Commission.
Assume that XYZ Corporation was authorized to issue 20,000 shares at par value of P100 per share. MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD Memo entry in the general ledger Unissued Share Capital 2,000,000 Authorized Share Capital 2,000,000
Subscription This involves accounting for share capital assigned to potential shareholders who agreed to purchase specified number of shares on credit with payment due on a specified period.
Assuming the incorporators of XYZ Corp. subscribed to the 25% of the total authorized share capital of P1,000,000 and paid the 25% of the subscribed share capital. To record the subscription: MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD Subscription Receivable 500,000 Subscription Receivable 500,000 Subscribed Share Capital 500,000 Subscribed Share Capital 500,000
Issuance This involves accounting for share capital upon the shareholder’s full payment of his subscribed shares. Equity shares can be issued for cash and non-cash consideration. However, the law provides that share certificates can only be issued upon full payment of share subscription.
To record full payment of 50% of the subscribed share capital:
Based on the above illustration, assume that 50% of the subscribed share capital of P500,000 was paid. Computation: Subscribed Share Capital ( P500,000 x 50%) P250,000 Less: down payment (500,000x 50% x25%) 62,500 Balance of the subscription fully paid P187,500
MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD
Cash 187,500 Cash 187,500 Subscription Receivable 187,500 Subscription Receivable 187,500 Subscribed Share Capital 250,000 Subscribed Share Capital 250,000 Share Capital 250,000 Unissued Share Capital 250,000 Issuance of Share Capital for cash at more than par value Assume that XYZ Corp. issued 500 shares for cash at P120 per share. (Note: share capital is only credited to the extent of the par value) To record the issuance: MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD Cash 60,000 Cash 60,000 Share Capital 50,000 Unissued Share Capital 50,000 Share Premium 10,000 Share Premium 10,000
Issuance of Share Capital for non-cash consideration
When share capital is issued for noncash consideration, the asset is recorded according to the order of priority: a. fair market value of the property received b. fair market value of the share capital issued c. par value of the share capital issued
Assume that XYZ Corp. issued 1,000 shares of its P100 par value shares for a parcel of land. The land has a fair market value of P120,000 as of that date and XYZ Corp.’s share has a fair market value of P110. To record the issuance MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD Land 120,000 Land 120,000 Share Capital 100,000 Unissued Share Capital 100,000 Share Premium 20,000 Share Premium 20,000
Issuance of Share Capital in exchange for services rendered
When share capital is issued in exchange for legal or clerical services rendered during incorporation stage, an expense account is debited for an amount equivalent to the following order of priority: a. fair market value of the services rendered b. fair market value of the shares issued c. Par value of the share capital issued
Assume that XYZ Corp. received a bill from its corporate lawyer for services rendered, for drafting and filing the Articles of incorporation and the corporate by laws. The bill is P75,000 which XYZ Corp. settled by issuing 700 shares of its P100par value shares. The share has a fair market value of P120 as of that date. To record the settlement of the bill and issuance MEMORANDUM ENTRY METHOD JOURNAL ENTRY METHOD Professional Fees P70,000 Professional Fees P70,000 Share Capital 70,000 Unissued Share Capital 70,000 Share Premium 5,000 Share Premium 5,000
