Shareholder's Equity-Share Capital - 0
Shareholder's Equity-Share Capital - 0
Shareholder's Equity-Share Capital - 0
Components Accumulated
of SHE Comprehensive
Income
Deductions from
SHE (Contra-
Equity Accounts)
Definition & Components of SHE
Share Capital (Ordinary &
Preferred)
Capital Liquidated
Capital Stock/Share Capital
-the amount fixed in the articles of incorporation
to be subscribed and paid in or secured to be paid
in by shareholders (authorized share capital)
Example:
An entity issued 10,000 shares of P100 par value in exchange for land
with a fair value of P1,500,000. The fair value of the shares issued is
P180 per share or a total of P1,800,000.
Issuance of Share Capital for Services
-services should already rendered
-share capital is recorded at the fair value of the services or fair value of
the shares whichever is reliably determinable.
Example:
An entity issued 1,000 shares of P100 par value to lawyers for their
legal services in getting the corporation organized. The fair value of such
services is reliably determined to be P120,000.
Share Issuance Costs
-direct costs to sell share capital
-examples: legal fees, CPA fees, underwriting fees, commission, cost of
printing certificates, documentary stamps , filing with SEC, cost of
advertising and promotion, newspaper publication fee
- shall be allocated between newly issued and listed shares and newly
listed old shares.
Example: land with fair value of P800,000 is received for 10,000 shares at P100 par
value.
To create a water in the share capital, it is recorded as fully paid:
Land 1M
Share Capital 1M
But, this needs to be corrected:
-The highest bidder is the person who is willing to pay the offer price of the
delinquent shares for the smallest number of shares.
Illustration:
An entity issued 10,000 preference shares with par value of P100. The preference shares have a
mandatory redemption by issuer for P1.2M. The journal entry on issuance is:
Cash 1M
Redeemable Preference shares capital 1M
If a dividend of P100,000 is paid to the redeemable preference shareholders, the journal entry is:
Interest expense 100k
Cash 100k
If the preference shares are redeemed by the issuer for P1.2M. The journal entry is:
Redeemable preference shares 1M
Loss on redemption 200k
Cash 1.2M
Convertible Preference Share
-shares that give the holder the right to exchange the holdings for other securities of the issuing corporation.
Illustration:
Preference share capital, 10,000 shares, P100 par P1,000,000
Ordinary share capital, 200,000 shares authorized,
100,000 shares issued, P30 par 3,000,000
Share premium – PS 200,000
Share premium – Ordinary 1,000,000
Retained Earnings 2,000,000
Case 1: Preference shares are converted into ordinary share in the ratio of one preference share for three
ordinary shares.
Preference share capital 1,000,000
Share premium-PS 200,000
Ordinary share capital (10kx3=30k x P30) 900,000
Share premium – ordinary 300,000
Convertible Preference Share
Illustration:
Preference share capital, 10,000 shares, P100 par P1,000,000
Ordinary share capital, 200,000 shares authorized,
100,000 shares issued, P30 par 3,000,000
Share premium – PS 200,000
Share premium – Ordinary 1,000,000
Retained Earnings 2,000,000
Case 2: Preference shares are converted into ordinary share in the ratio of one preference share for five ordinary
shares.
Preference share capital 1,000,000
Share premium-PS 200,000
Retained earnings 300,000
Ordinary share capital (10kx5=50k x P30) 1,500,000
THE END