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CHAPTER 29
SHAREHOLDERS’ EQUITY
SHAREHOLDERS’ EQUITY
Shareholders’ equity is the residual interest of owners in the net assets of a corporation measured by the excess of assets over
liabilities. The components of shareholders’ equity are:
Components of shareholders’ equity:

Share capital issued XX
Subscribed share capital XX
Less: Subscriptions receivable XX XX
Share premium:
Share premium excess over par XX
Share premium – Treasury shares XX
Share premium conversion option – convertible bonds payable XX
Donated capital XX
Share premium warrants outstanding XX
Share premium options outstanding XX XX_
Total paid in capital XX
Retained earnings - unappropriated XX
Retained earnings – appropriated XX_ XX
Other comprehensive income (cumulative balance)
Revaluation surplus XX
Unrealized gain or (loss) on FVTOCI XX
Remeasurement gain or (loss) under PAS 19 XX
Translation gain or (loss) XX
Effective portion of cash flow hedge XX
Change in fair value due to credit risk of designated FL@TPL XX XX_
Total XX
Less: Treasury shares XX_
Total shareholders’ equity _XX_
Terms used by the

Corporation Code of the Philippines IAS and IFRS Terms
Capital stock Share capital
Subscribed capital stock Subscribed share capital
Common share Ordinary share
Preferred share Preference share
Additional paid in capital Share premium
Retained earnings Accumulated profits
Revaluation surplus Revaluation surplus
Treasury stock Treasury share
SHARE CAPITAL
Share capital refers to the paid in capital representing the amount of the total par or stated value of the shares issued. It
represents the portion of the authorized capital stock that has been fully paid. Classes of share capital include the following:
a. Ordinary Share Capital. An ordinary share is an equity instrument that is subordinate to all other classes of equity
instruments.
b. Preference Share Capital. A preference share is an equity instruments that give the holder certain preferences over
ordinary shareholders. Such preferences may include preference over dividends and preference over assets.
Two methods of accounting for share capital

a. Memorandum Method - Under the memorandum method, memorandum entry is to be made when the corporation is
authorized to issue shares of stocks. The company credits the share capital when shares are issued.
b. Journal Entry Method – Under the journal entry method, a journal entry debiting Unissued Share capital and
crediting Authorized Share capital is made when the corporation is authorized to issue shares of stocks. When shares
are issued, the Unissued Share capital account is then credited.
The summarized differences of the two methods is as follows”
Memorandum Method Journal Entry Method
Authorization of Shares
Memo entry Unissued share capital xxx
(In the general Ledger) Authorized share xxx
Capital
Subscriptions
Subscriptions Receivable xxx Subscriptions receivable xxx
Subscribed share capital xxx Subscribed share xxx
Capital
Issuance of Certificate
Subscribed share capital xxx Subscribed share capital xxx
Share capital xxx Unissued share capital xxx
Reacquisition
Treasury share xxx Treasury share xxx
Cash/Appropriate account xxx Cash/ Appropriate xxx
Account
Retirement of Treasury Stock*
Share capital xxx Unissued share capital xxx
Treasury share xxx Treasury share xxx
Shareholders; Equity Accounts

1. Subscribed Share Capital. This is the portion of the share capital that an investor agreed to purchase. This portion of
capital stock is not yet issued because it may only be partially paid. This item is added to the Share capital.
2. Subscription Receivable. This refers to the unpaid portion of the subscription price. Under the Securities and Exchange
Commission of the Unites States of America (USA) and IFRS for SME, subscriptions receivable must be netted against the
Subscribed Share Capital. However, under the old Statement of Financial Standards of the Philippines (SFAS) it is
presented as current assets if collectible currently, otherwise it is deducted from subscribed share capital
The authors still believe the latter treatment under SFAS will be used until the Financial Reporting Standards Council
addresses this matter.
3. Reserves. The caption “Reserves” generally includes stockholders’ equity items other than the total par stated value of
the capital stock and the unrestricted retained earnings. Specifically, it includes the following shareholders’ equity items:
a. Share Premium Reserve. It is otherwise known as “Additional Paid-in Capital” representing the paid-in capital in
excess of the par value or stated value, excess of the sales proceeds of treasury stock over cost, donated capital and
other premiums in relation to the retirement of stocks.
b. Revaluation Reserve. Also called “Surplus”, or “Asset Revaluation Reserve.” This increase of the recorded amount in
the value of plant assets is the result of their appraisal in relation to their current replacement cost.
c. Retained Earnings Reserve. It is the restricted portion of retained earnings which is commonly called “appropriated
retained earnings”. Except when reverted back to unrestricted retained earnings, the appropriated retained earnings
cannot be declared as dividends. Examples are retained earnings appropriated for plant expansion, retirement of
bond, for contingencies or preference share redemption.
d. Net changes Reserve. This item includes those items treated as either additions or deductions from the stockholders’
equity. Examples of this reserve are:
1. Foreign currency translation reserve. It refers to the net changes in translating foreign operation financial
statements from one foreign currency to another.
2. Equity adjunct or contra reserve. It includes the temporary increases or decreases in the value of noncurrent
securities as a result of market fluctuation. An example of this reserve is the “unrealized gains or losses on fair
value through other comprehensive income investments”
The creation of reserves is sometimes required by statute or other law in order to give the enterprise and its creditors
an added measure of protection from the effects of losses.
4. Retained Earnings or Accumulated Profits. This account is used to record the accumulated corporate periodic earnings
from the inception of the enterprise. It is decreased by any earnings distributed to stockholders in the form of dividends, and
adjusted by any prior year’s income adjustments or fundamental errors and changes in accounting policies.
Unless stated otherwise, retained earnings as presented in the equity section of the statement of financial
position refer to the ”free”, “unrestricted” or “unappropriated” retained earnings. This kind of retained
earnings is basically available for distribution as dividends to the stockholders.
5. Contributed Capital (also known as Paid-in Capital). This represents the amount invested or
contributed by owners. This is composed of share capital and share premium.
ILLUSTRATION: Shareholders’ Equity composition

The accounts below appear in the December 31 trial balance of Prescett Company:
Authorized ordinary share P 3,500,000

Unissued ordinary share 1,000,000
Subscribed ordinary share 500,000
Subscription receivable 600,000
Premium on ordinary share 200,000
Retained earnings - unappropriated 500,000
Retained earnings - appropriated 220,000
Revaluation surplus 400,000
Treasury shares, at cost 220,000
Required: Compute the amount of total shareholder’s equity that Prescett should report in its December
31 statement of financial position.
SOLUTION:
Authorized ordinary share P 3,500,000
Unissued ordinary share _(1,000,000)_
Issued ordinary share 2,500,000
Subscriptions receivable _(600,000)_ (100,000)
Premium on ordinary share 200,000__
Total contributed capital 2,600,000
Retained earnings unappropriated 500,000
Retained earnings appropriated 220,000
Revaluation surplus _ 400,000__
Total 3,720,000
Treasury shares at cost (220,000)_
Total shareholders’ equity P3,500,000_
LEGAL CAPITAL
Legal capital is the portion of paid-in capital which cannot be returned to stockholders in any form (cash,
property or stock dividends) during the lifetime of the corporation.
The legal capital of a capital stock with par value is the aggregate amount at par value of the shares issued
and subscribed. “The premium or excess over par is not to be considered as part of the legal capital.”
Although the additional paid-in capital is not considered part of the legal capital, “sound accounting
principles dictate that dividends may be declared only out of actual earnings or profits of the corporation.”
The legal capital of a capital stock without par value is the entire consideration received. Accordingly, both the stated value
and the additional paid-in capital in excess of stated value shall not be distributed as dividends to the stockholders during the
lifetime of the corporation.
Formula for the Computation of Legal Capital:

1. With par value Share capital XX
Subscribed share capital __XX__
Legal Capital __XX__
2. No par value Share capital XX

Subscribed share capital XX
Paid in capital in excess of stated value __XX__
Legal Capital __XX__
ILLUSTRATION: Legal Capital

The shareholders equity section of Alyssa Anne Company revealed the following information on December 31, 2018:
Preference share – P100 par P 1,500,000

Share premium – preference shares 402,500
Ordinary share, P15 par 2,625,000
Share premium – ordinary shares 1,375,000
Retained earnings 950,000
Note payable 2,000,000
Subscriptions receivable – ordinary shares 200,000
Required:
1) How much is the legal capital?
2) Assume instead the ordinary shares have no par value but with stated value of P15, how much is the legal capital?
SOLUTION:
Requirement 1- With par value
Preference share, P100 par value 1,150,000
Ordinary share, P15 par value 2,625,000
Subscribed ordinary share ____250,000__
Legal capital __4,025,000__
Requirement 2 – No par value

Preference share, P100 par value 1,150,000
Ordinary share, P 15 stated value 2,625,000
Share premium – ordinary shares __1,375,000__
Legal capital __5,400,000__
Note: Under the corporation code, preference shares should always be issued with par value.
ORGANIZATION COST AND EXPENSES RELATED TO SHARE CAPITAL

Organization cost represents costs incurred in forming or organizing a corporation. These costs include:
1. Legal fees in connection with the incorporation – includes drafting of articles of incorporation and by-laws and
corporation registration.
2. Incorporation fees
3. Share issuance cost – direct costs to sell share capital which normally include the following:
a. Legal fees
b. CPA fees
c. Underwriting fees and commissions
d. Cost of printing certificates
e. Documentary stamps
f. Filing fees with SEC
g. Cost of advertising and promoting the issue
Accounting for organization costs
Organization costs, except for share issuance costs, shall be recognized as expense in the first year of operations.
Accounting for share issuance costs

In accordance with paragraph 35 of PAS 32, “transaction costs of an equity transaction shall be accounted for as a deduction
from equity, net of any related income tax benefit.” Therefore, stock issuance cost shall be debited in the following order:
a. Share premium from issuance
b. Retained earnings if there is no share premium from issuance or if the share premium from issuance is not sufficient
Accounting for Indirect Costs

Management salaries and other indirect costs related to the sale of share capital should be expensed outright. Recurring cost of
maintaining shareholders records and handling ownership transfers such as registrar agent fees shall be charged as expense
in the period incurred.
ISSUANCE OF SHARE CAPITAL: Cash Consideration

Cash xxx
Discount on share capital (if any) xxx
Share capital (at par or stated value) xxx
Share premium (if any) xxx
Watered share
Watered share is a share issued at a discount or issued for inadequate or insufficient consideration or consideration received
less than par value or stated value, but share capital is issued as fully paid. This is done by overstating asset and capital.
The related discount on share capital shall be presented as deduction to total shareholder’s equity.
Secret reserve
Secret is the reverse of watered share. It arises when asset is understated or liability is overstated with a consequent
understatement of capital. Secret reserve usually arises from the following:
 Excessive provision of for depreciation, depletion, amortization and doubtful accounts;
 Excessive write-down of receivables, inventories and securities;
 Capital expenditures are recorded as outright expense;
 Fictitious liabilities are recorded
ILLUSTRATION: Issuance of Share Capital

Assume the following issuances of a P100 par value share of stock:
1. Issuance of 3,000 shares at par for cash.
2. Issuance of 5,000 shares at P110 per share of cash. Stock issue costs that were paid by the corporation amounted to
P60,000.
3. Issuance of 4,000 shares at P90 per share for cash.
Required: Prepare the necessary journal entries using the memorandum method.
SOLUTION:
1. Cash (3,000 x P100) 300,000
Share capital 300,000
To record share issuance at a premium
2. Cash (5,000 x P110) 550,000

Share capital (5,000 x P100) 500,000
Share Premium 50,000
To record share issuance at a premium

Retained Earnings 10,000
Cash 60,000
To record payment of share issue cost
3. Cash (4,000 x P90) 360,000

Discount on share capital 40,000
Share capital (4,000 x P100) 400,000
To record share issuance at a discount
ISSUANCE OF SHARE CAPITAL: Noncash Consideration

Based on the provision of the Corporation Code and in the conformity with PFRS 2, the following rules shall be observed when
share capital is issued for noncash consideration.
Consideration Received Valuation
Non-cash asset or service Share capital shall be recorded at an amount equal to the following (in the
order of priority):
1. Fair value of noncash consideration received.
2. Fair value of share capital issued.
3. Par value of share capital issued.
Liability extinguished Items classified as debt for equity swap under IFRIC 19 (in order of
priority):
1. Fair value of share capital issued
2. Fair value of liability extinguished
3. Carrying amount of liability extinguished
Items not covered by “debt for equity swap”:

Carrying amount of the liability extinguished. No gain or loss is
recognized.
Any difference between the carrying amount of the financial liability (or
part) extinguished and the measurement of the equity instruments
issued shall be recognized in profit or loss.
Formulas related to issuance of shares to extinguish liability

Fair value of equity instruments issued (or if not reliably determinable, use the fair value of liability)
XX
Less: Carrying amount of liability __XX__
Loss (or gain) on extinguishment of liability __XX__
Fair value for equity instruments issued (or if not reliably determinable, use the fair value of liability)
XX
Less: Total par or stated value of equity issued __XX__
Share premium (or discount) __XX__
ILLUSTRATION: Issuance of Share Capital for Noncash Consideration

Assume the following issuances of a P100 par value share of stock:
1. Issued 2,500 shares of stock for machinery. The machinery has a fair value of P280,000 while the
stock is selling at P105 per share.
2. Issued 1,000 shares of stock for patent (an intangible asset): The stock is selling at P105 per share.
3. Issued 500 shares of stock in full payment of organization services rendered from the legal counsel:
The fair value of such services is P60,000
Required: Prepare the necessary journal entries using the memorandum method.
SOLUTION:
1. Machinery 280,000
Share capital (2,500 x P100) 250,000
Share premium 30,000
To record issuance of share for machinery
2. Patent (1,000 x P105) 105,000

Share capital (1,000 x P100) 100,000
Share premium 5,000
To record issuance of share for patent
3. Organization expense 60,000

Share capital (500 x P100) 50,000
To record issuance of share for organization services
ILLUSTRATION: Issuance of Share Capital for Existing Liability

The company issued 2,000, P100 par ordinary shares for an outstanding bank loan of P250,000. On this
date, shares are quoted at P140 per share.
Required: Prepare the necessary journal entry to record the transaction using the memorandum
method.
SOLUTION:
Loans payable – bank 250,000
Loss on extinguishment of liability* 30,000
Ordinary share (2,000 x P100) 200,000
Share Premium** 80,000
To record issuance of shares for liability
*Computation of loss on extinguishment of liability

Fair value of equity instruments issued (2,000 x P140) 280,000
Less: Carrying amount of liability __250,000__
Loss on extinguishment of liability 30,000__
**Computation of increase in share premium

Fair value of equity instruments issued (2,000 x P140) 280,000
Less: Total par value of equity issued (2,000 x P100) __200,000__
Share premium ___80,000__
ISSUANCE OF SHARE CAPITAL: Two or more classes of shares

A. Issued separately. When two or more classes of shares are issued separately, the issuances shall be
accounted separately.
Illustration: Issuance Two or More Classes of Shares

The company issued the following shares of stock:
1. Issued 5,000, P200 par value preference share, for P220 per share for cash
2. Issued 1,000, P100 par value ordinary share, for P120 per share for cash
method.
SOLUTION:
1. Cash (5,000 x P220) 1,100,000
Preference Shares (5,000 x P200) 1,000,000
Share premium – preference share 100,000
To record issuance of preference shares
2. Cash (1,000 x P120) 120,000

Ordinary shares (1,000 x P100) 100,000
Share premium – ordinary share 20,000
To record issuance of ordinary shares
B. Issued simultaneously at a basket or lump-sum price. When two or more classes of shares are
issued a basket or lump-sum price, accounting for the issuance will be dependent on the availability of
fair values and will be accounted as follows:
1. If both shares have fair value, use the relative fair value or proportional method
Under the relative fair value or proportional method, the lump-sum price shall be allocated as
follows:
Total FV Fraction Allocated Cost
Preference shares (No. of pref.
shares x Fair value) AA AA/CC DD
Ordinary shares (No. of Ordinary
shares x Fair value) __BB__ __BB/CC__ __EE__
Total __CC__ __FF__
(Total proceeds)
DD = AA divide by CC X FF EE = BB divide by CC X FF
2. If only one of the shares has an available fair value, use the incremental method.
Under the incremental method, the lump-sum price shall be allocated as follows:
Total Proceeds XX
Less: Total fair value (securities with available fair value) _XX_
Amount allocated to the other securities _XX_
Pro-forma journal entry:

Cash xxx
Preference shares xxx
Share premium – preference shares xxx
Ordinary Shares xxx
Share premium – ordinary shares xxx
Illustration: Issuance Two or More Classes of Shares (Relative Fair Value or Proportional Method)
The company issued for P1,000,000 cash, 1,000 shares of P200 par value Preference share and 2,000
shares of P100 ordinary share. The preference and ordinary shares have fair values of P240 and P180 per
share, respectively on the date of sale.
method.
SOLUTION:
Allocation of the lump-sum price:
Total Fair value Fraction Allocated cost
Preference shares (1,000 x P240) 240,000 24/60 400,000
Ordinary shares (2,000 x P180) __360,000__ 36/60 __600,000__
Total __600,000__ _1,000,000_
The transaction will then be recorded as follows:

Cash 1,000,000
Preference shares (1,000 x P200) 200,000
Share premium – P/S (P400,000 – P200,000) 200,000
Share premium – O/S (P600,000 – P200,000) 400,000
Illustration: Issuance Two or More Classes of Shares (Incremental Method)

The company issued for P1,000,000 cash, 1,000 shares of P200 par value Preference share and 2,000
shares of P100 ordinary share. The preference share has a fair value of P240 on the date of sale. No fair
value is available for the ordinary share.
method.
SOLUTION:
Allocation of the lump-sum price:
Total proceeds 1,000,000
Less: Total fair value of preference shares (1,000 x P240) 240,000
Amount allocated to ordinary shares 760,000
The transaction will then be recorded as follows

Cash 1,000,000
Share premium – O/S (P760,000 – P200,000) 560,000
To record issuance of preference and ordinary shares
Important note:
When the shares issued have no fair values, use the proportional method and allocate the lump-sum price
based on the par value of shares issued.
SUBSCRIPTIONS
A subscription is a written contract by which one engages to take and pay for the capital stock of a
corporation in some future date. However, a corporation cannot issue its capital stock if not fully paid.
Hence, it should record its subscriptions receivable and the total subscribed capital stock in the books of
accounts. The reason for this is that once a subscription contract is perfected, the subscriber becomes
bound to buy the corporate stocks.
According to the law, the approval of incorporation requires that at least 25% of the authorized capital
stock should have been subscribed and 25% of which should have been paid.
Illustration: Subscription of Share Capital

Anna Loren Corporation was authorized to issue share capital of P1,000,000 divided into P100 par value
per share on January 1.
The incorporators of Anna Loren Corporation subscribed to the 25% of the total authorized share capital
and paid the 25% of the subscribed capital
Required: Prepare the necessary journal entry to record the above transactions.
SOLUTION:
To record subscriptions of share capital:
Subscription receivable P 250,000
Subscribed share capital P 250,000
To record cash collection:

Cash P 62,500
Subscription receivable P 62,500
Important notes:
1. The subscribed share capital and the cash received are computed as follows:
Total authorized share capital P 1,000,000
Multiply by: Required percentage of subscription 25%
Subscribed share capital 250,000
Multiply by: Required percentage of cash payment 25%
Cash received P 62,000
Number of shares subscribed (P250,000/P100) 2,500
2. The journal entries resented in the previous page are single entries. Alternatively, the entries can be presented in a
compound entry as follows:
Cash P 62,500
Subscribed share capital P 250,000
DELINQUENT SUBSCRIPTION
If a stock subscriber does not pay in full his unpaid stock subscription on the date fixed by the board of directors, he may be
declared a delinquent subscriber.
Forfeited Downpayment
The downpayment of the subscriber may be forfeited. If the downpayment is forfeited, the corporation will have to make this
journal entry:
Subscribed share capital XXX
Premium on share capital XXX
Subscription receivable XXX
Share premium- forfeited downpayment XXX
Note that the share premium – forfeited downpayment is equal to the amount paid by the delinquent subscriber.
Auctioned Subscription
When the downpayment is not forfeited, the delinquent subscription will then be sold at public auction to the person who will
pay the “offer price” of the delinquent stock and is willing to receive the smallest number of shares. Such person is called as the
“highest bidder”.
The offer price usually includes the following items:

a. Unpaid balance due on subscription
b. Cost of money such as accrued interest on the subscription due
c. Related expenses in public auction, such as advertising and other cost in selling
Pro-forma journal entries

To record expenses incurred related to the auction
Receivable from highest bidder xxx
Cash xxx
Note: The “advances on stock delinquency sale” account shall be treated as part of the current asset if the statement of
financial position is prepared before the payment of the highest bidder.
When sold to the highest bidder

a. To record collection from highest bidder
Cash xxx
Subscription receivable xxx
Interest income xxx
b. To record issuance of share certificates

Subscribed share capital xxx
Share capital xxx
Illustration: Delinquent subscription (Forfeited subscription)

The following transactions pertain to one of the subscribers of Edward Co.
1. Dammay subscribed for 10,000, P100 par ordinary shares of Edward Co. at P110 per share.
2. Dammay paid 40% of the subscriptions price.
3. Subsequently, Dammay was declared delingquent subscriber. In accordance with the subscriptions contract, Dammay’s
downpayment was forfeited.
Required: Prepare the necessary journal entry to record these transactions using the memorandum method.
SOLUTION:
1. Subscriptions receivable (10,000 x P110) 1,100,000
Subscribed ordinary shares (10,000 x P100) 1,000,000
Share premium- ordinary share 100,000
To record subscriptions of 10,000 shares at P110
2. Cash (1,100,000 x 40%) 440,000

To record receipt of cash for subscriptions
3. Subscribed ordinary shares (10,000 x P100) 1,000,000

Subscriptions receivable (1,100,000 x 60%) 660,000
Share Premium forfeited down-payment 440,000
Illustration: Delinquent Subscriptions (With Highest Bidder)

Mikee Cloudette Corporation declared Rex stock subscriptions delinquent. The record of subscribed capital stock pertinent to
Rex shows a 5,000 shares at P100 par of which the remaining unpaid subscription balance is P280,000. The delinquent stocks
are subsequently offered for public auction incurring a cost of P20,000. The offer price is P300,000.
There are three bidders during the auction who are willing to pay the offer price corresponding to shares of stocks, as follows:
Bidders # of shares willing to be received

Zeus 3,000 shares
Andriz 3,500 shares
Rhad Vic 4,000 shares
Required: Provide the following:

1) Highest bidder
2) Number of shares Rex should receive
3) Necessary journal entries to record the transaction
SOLUTION:
1) Highest bidder
Based from the given data, Zeus is considered the highest bidder.
2) Number of shares Rex should receive

Since there is a highest bidder, the 5,000 shares will be issued to Rex and Zeus, as follows:
Total number of shares subscribed 5,000 shares

Less: Number of shares to Zeus 3,000 shares
Remaining shares to Rex 2,000 shares
The distribution of the number of shares is based on the following provision of the law:
“The stock so purchased shall be transferred to such purchaser (highest bidder) in the books of the corporation and a certificate
for such stock shall be issued in his favour. The remaining shares, if any, shall be credited in favour of the delinquent stockholder
who shall likewise be entitled to the issuance of a certificate of stock covering such shares.”
3) Journal entries to record the transactions would be:

a. To record the expenses incurred related to the auction
Receivable from highest bidder P 20,000
Cash P 20,000
b. To record the collection from highest bidder
Cash 300,000
Receivable from highest bidder 20,000
c. To record the issuance of share capital
Delinquent Subscription without a Highest Bidder

When there are no bidders for the auction sale of the delinquent shares, the corporation may purchase for itself its delinquent
shares resulting to a treasury share transaction.
Accordingly, the delinquent subscriber is released from liability of his unpaid subscription, but he shall not be entitled for any
number of shares in his subscription as provided by the law, to wit:
“Should there be no bidder at the public auction …, the corporation may bid for the same, and the total amount due shall be
credited as paid-in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in
the corporation as treasury stock…”

1. When no highest bidder and the corporation acquire the shares
Treasury shares xxx
Note: Resistance of shares will be accounted for as treasury shares.
2. When no highest bidder and the corporation is prohibited to acquire the shares
Subscribed share capital xxx
Share premium – original subscription xxx
Share premium – delinquent subscription xxx
Illustration: Delinquent Subscription (Without Bidders)

Using the same data in the previous illustration, except that there are no bidders and the corporation
purchased its own delinquent shares, provided the necessary journal entries to be made.
SOLUTION:
1. To record the expenses incurred related to the auction
Cash 20,000
2. To record the acquisition of entity’s own shares

Treasury shares 300,000
3. To record the issuance of share capital
Summary of recipient of shares related to delinquent subscription

Condition Recipient of shares
1. Forfeited downpayment No issuance will be made
2. With highest bidder a. To the highest bidder – number of shares he/she
is willing to receive when the bid was made
b. To the delinquent subscriber – any remaining
shares
3. With no highest bidder and the corporation All shares will be acquired by the corporation and
acquires the shares included as part of treasury shares.
4. With no highest bidder and the corporation is No issuance of shares will be made; hence, the shares
prohibited to acquire the shares will be cancelled.
TREASURY SHARES
Treasury shares are company’s own stock previously issued, reacquired but not cancelled.
Accounting for treasury shares

Treasury shares may be accounted as follows:
1. Cost Method – Under this method, treasury shares are debited or recognized at its acquisition cost. Also, any subsequent
reissuance and/or retirement of the treasury shares is credited at cost.
Cost shall mean the carrying amount of the consideration given to reacquire the shares.
2. Par Value Method – Under this method, the amount debited to treasury shares is equal to the total par value of the
treasury shares. In addition, share premium from the original issuance is also debited. Any subsequent reissuance and
retirement of the treasury shares is also credited at par.
Note: In the Philippines, the standards require treasury shares to be accounted under the cost method.
COST METHOD
A. Acquisition
To record acquisition of entity’s own shares
Treasury shares (at cost) xxx
Cash or carrying value of non-cash asset xxx
B. Reissuance
To record reissuance of treasury shares at cost
Cash xxx
To record reissuance of treasury shares at above cots

Cash xxx
Share premium – treasury shares xxx
Note: Any difference between the consideration received and the cost of treasury shares shall be credited to share
premium – treasury shares.
To record reissuance of treasury shares at below cost

Cash xxx
Retained earnings xxx
Note: Any difference between the consideration received and the cost treasury
shares shall be debited to the following:
a. Share premium- treasury shares
b. Any excess to retained earnings
Summary of balancing figures:
For debit: For credit:
a. Share Premium – TS; then to a. Share premium – TS
b. Retained earnings
C. Retirement
To record retirement at a perceived gain
Share capital xxx
Share premium – original issuance xxx
To record retirement at a perceived loss

Share capital xxx
Summary of balancing figures:

a. Share Premium – TS; then to a. Share premium - TS
Important notes:
 Regardless whether there is a perceived gain or loss, share premium arising from original issuance is derecognized.
 There is perceived gain when the original issue price is greater than the reacquisition price or cost of treasury share.
 There is a perceived loss when the original issue price is lesser than the reacquisition price or cost of treasury share.
PAR VALUE METHOD

A. Acquisition
To record acquisition of entity’s own shares
Treasury shares (at par value) xxx
Retained earnings (if any) xxx
Cash or carrying value of non-cash asset xxx
Note: Upon acquisition, the treasury share is treated as if it is being retired (i.e. par value was debited with the
corresponding debit to share premium from original issuance and the balancing figure for debit amount is retained
earnings account and share premium treasury shares for credit).
B. Reissuance
To record reissuance of treasury shares at par
Cash xxx
Treasury shares (at par) xxx
To record reissuance of treasury shares at above par

Cash xxx
To record reissuance of treasury shares at below par

Cash xxx
Summary of balancing figures

a. Share premium – TS; then to a. Share premium - TS
C. Reissuance
To record retirement of treasury shares
Share capital xxx
DONATED CAPITAL
Shares issued by the corporation but subsequently received from shareholders as donation is credited to share premium –
donated capital. Donations received from parties other than shareholders are credited to appropriate income account.
Asset Entity’s own shares

Upon receipt of Asset (at fair value) XX
Donation Donated capital XX
Upon sale Cash XX Cash XX

Loss (if any) XX Donated capital XX
Asset XX
Gain (if any) XX
Note: Receipts of entity’s own share, though recorded only through a memo, will decrease the number of outstanding shares.
Illustration: Accounting for Treasury Shares Using Cost Method and Donated Capital
The shareholders’ equity of Rhenz Co. appears as follows:
Ordinary share, 50,000 shares, P100 par P5,000,000

Share premium – O/S 200,000
Retained earnings 2,000,000
Subsequently, the following transactions, among others occurred:

a. Treasury shares 5,000 were acquired at P160 per share
b. Reissued 2,000 treasury shares at P180 per share
c. Reissued 1,000 treasury shares at P150 per share
d. Retired the remaining treasury shares
e. Stock holder donated 5,000 shares when the market price is P150 per share. Subsequently, the
company sold 2,000 shares at P180 per share.
Required: Prepare the necessary journal entry to record these transactions.
SOLUTION:
a. Treasury shares (5,000 x P160) 800,000
Cash (5,000 x P160) 800,000
b. Cash (2,000 x P180) 360,000

Treasury shares (2,000 x P160) 320,000
Share premium – treasury shares 40,000
c. Cash (1,000 x P150) 150,000

Share premium –treasury shares 10,000
d. Ordinary shares (2,000 x P100) 200,000

Share premium (P200,000/50,000) x 2,000 8,000
Share premium – T/S (P40,000 - P10,000) 30,000
e. Memo entry: Received 5,000 shares from a stockholder as a donation
Cash (2,000 x P180) 360,000
Donated capital 360,000
Illustration: Accounting for Treasury Shares – Par Value Method

The shareholders’ equity of Krizelle Arah Co appears as follows:
Ordinary share, 50,000 shares, P100 par P5,000,000

Subsequently, the following transactions, among the others occurred:

1) Treasury shares 5,000 were acquired at P160 per share.
2) Reissued 2,000 treasury shares at P180 per share.
Required: Prepare the necessary journal entry to record the above transactions using the memorandum method.
SOLUTION:
1) Treasury shares (5,000 x P100) 500,000
Share premium (P200,000/50,000) x 5,000 20,000
Retained earnings (balancing figure) 280,000
Cash 800,000
2) Cash (2,000 x P180) 360,000

Treasury Shares (2,000 x P100) 200,000
Share Premium – treasury shares 160,000
RETIREMENT OF SHARE CAPITAL

If shares of stocks are reacquired and immediately retired, the following accounting procedures should be observed:
Step 1 Derecognize the share capital and its related share premium when it was originally issued record the consideration
given.
The share premium from original issuance may be computed as follows:

Total issue price when it was originally issued xxx
Less: Par value __xxx__
Share premium per share xxx
Multiplied by: Number of shares retired __xxx__
Share premium – retirement __xxx__
OR
Total share premium in excess of par or stated value of

shares retired before retirement xxx
Divided by: Total shares issued __xxx__
Share premium per share xxx
Multiplied by: Number of shares retired __xxx__
Share premium – retirement __xxx__
Step 2 If retirement resulted to “gain” (i.e. total purchase price is lesser than the combined total par value of the share retired
and the share premium from original issuance), the difference should be credited to share premium – retirement.
Step 3 If retirement resulted to “loss” (i.e. total purchase price is greater than the combined total par value of the share retired
and the share premium from original issuance), the difference should be debited to retained earnings account.

A. At a gain
Share capital xxx
Cash xxx
Share premium – retirement (balancing figure) xxx
B. At a loss
Share capital xxx
Retained earnings (balancing figure) xxx
Cash xxx
Illustration: Retirement of Share Capital

The shareholders’ equity section of Laurileen Co. on December 31 is as follows:
Preference share P100 par, 40,000 shares outstanding P4,000,000

Share premium – P/S 400,000
Ordinary share P50 par, 100,000 shares outstanding 5,000,000
Share premium – O/S 1,000,000
Accumulated profits 20,000,000
Required: Provide the journal entry to be made on the corporation books assuming 4,000 shares of preferred are redeemed
at:
a. P130 b. P90
SOLUTION:
a. Preference shares (4,000 x P100) 400,000
Share premium – preference shares
[(P400,000/40,000) x 4,000] 40,000
Accumulated profits (balancing figure) 80,000
Cash (130 x 4,000) 520,000
b. Preference shares (4,000 x P100) 400,000

Share premium – preference shares
(400,000/40,000) x 4,000 40,000
Cash (P90 x 4,000) 360,000
Share premium – retirement 80,000
PREFERENCE SHARE
Item Description Treatment
1. Convertible Preference share that gives the shareholder the right to Equity
preference shares exchange the shares to ordinary share.
2. Callable Preference share that gives the issuing corporation the right, but Equity
preference shares not the obligation, to reacquire and retire the share at a fixed or
determinable call price.
3. Mandatorily or Preference share that must be retired or reacquired by the Financial liability
compulsorily issuing corporation at a fixed or determinable date.
redeemable preference
(or redeemable at the
option of the holder)
Accounting for preference shares as part of financial liability is discussed in Chapter 26: Financial Liabilities and Debt
Restruction.
CONVERSION OF CONVERTIBLE PREFERENCE SHARE

A. At a gain
Share premium – P/S (original issuance) xxx
Ordinary shares xxx
B. At a loss
Share premium – P/S original issuance xxx
Ordinary shares xxx
Note: Just like in any retirement, there is always debit to Share Premium original issuance of the shares retired or converted.
Illustration: Conversion of Convertible Preference Share

The Shareholders’ equity section of Alberto Co. on December 31 is as follows:
Preference share P100par, 40,000 shares outstanding P4,000,000

Share premium – P/S 400,000
Ordinary share P50 par, 100,000 shares outstanding 5,000,000
Required: Provide the journal entry to be made on the corporation books assuming 4,000 shares of preference are converted
under each assumption listed:
1) Preference share are convertible into ordinary on a share-for-share basis.
2) Each preference share is convertible into 3 shares of ordinary.
SOLUTION:
1) Preference shares (4,000 x P100) 400,000
Share premium – P/S [(P400.000/40,000) x 4,000] 40,000
Ordinary shares (4,000 x 1/1 x P50) 200,000
2) Preference shares (4,000 x P100) 400,000

Share premium – P/S [(P400,000/40,000) x 4,000] 40,000
Accumulated profits 160,000
Ordinary shares (4,000 x 3/1 x P50) 600,000
RECAPITALIZATION
Recapitalization occurs when there is a change in the capital structure of the company. The old shares are cancelled and new
shares are issued. Examples include
a. Change from par to no-par
b. Change from no-par to par
c. Reduction of par value or stated value
d. Split up or split down

A. Change from par to no-par
Ordinary share capital XX
Share premium XX
Retained earnings (balancing figure) XX
Share premium – recapitalization (balancing figure) XX
B. Change from no-par to par

Share premium XX
Retained earnings (balancing figure) XX
Share premium – recapitalization (balancing figure) XX
C. Reduction of par value or stated value

Share premium – recapitalization XX
D. Split up
Split up is a transaction whereby the original shares are called in for cancellation and replaced by a larger number
accompanied by a reduction in the par value or stated value.
Memo entry: Issued number of shares as a result of a XX for XX hare split (e.g. 4 for 1 share split), reducing the par value
to Pxx.
The new number of shares after split would be:

Before Multiplied by (e.g. 4/1) After
Share capital issued XX 4/1 XX
Subscribed share capital XX 4/1 XX
Total XX 4/1 XX
Less: Treasury shares XX 4/1 XX
Donated shares XX 4/1 XX
Outstanding shares XX 4/1 XX
The new par value of shares after split would be:

Before Multiplied by After
Par value per share XX 1/4 XX
E. Split down
It is a transaction whereby the original shares are cancelled and replaced by a smaller number accompanied by an
increase in the par value or stated value.
Memo entry: Issued number of shares as a result of a XX for XX (e.g. 1 for 4) share split, increasing the par value to Pxx
The new number of shares after split would be:

Before Multiply by (e.g. 1/4) After
Share capital issued XX 1/4 XX
Subscribed share capital __XX__ __1/4__ __XX__
Total XX 1/4 XX
Less: Treasury shares XX 1/4 XX
Donated shares __XX__ __1/4__ __XX__
Outstanding shares __XX__ __1/4__ __XX__
The new par value of shares after split would be:

Before Multiply by After
Par value per share XX 1/4 XX
Summary of effect of share splits

Split up Split down
Number of shares issued Increase Decrease
Treasury shares Increase Decrease
Donated shares Increase Decrease
Number of shares outstanding Increase Decrease
Par value per share Decrease Increase
Total shareholders’ equity Same Same
Illustration: Recapitalization of Share Capital

The Shareholders’ equity section of Steven Co. on December 31 is as follows:
Ordinary share P50 par, 100,000 shares issued P 5,000,000

Treasury shares at cost (2,500 shares) 250,000
Required: Provide the journal entry to be made on the corporation books under the following independent scenarios:
1) All the 100,000 ordinary shares are called in for cancellation. Instead, the company issued 100,000 no-par ordinary shares
with the following stated value:
a. P50 b. P150
2) A recapitalization is effected whereby the par value of the ordinary shares is reduced to P40 per share.
3) The company effected a 5 for 1 stock split on the ordinary shares.
SOLUTION:
1a. Ordinary shares (100,000 x P50) 5,000,000
Ordinary shares (100,000 x P50) 5,000,000
Share premium – recapitalization 1,000,000
1b. Ordinary shares (100,000 x P50) 5,000,000

Ordinary shares (100,000 x P1500) 15,000,000
2. Ordinary shares (P50 – P40) x 100,000 1,000,000

Share premium – recapitalization 1,000,000
3. Share split
Ordinary share capital issued 100,000 5/1 500,000
Subscribed share capital - 5/1 -
Total 100,000 5/1 500,000
Less: Treasury shares 2,500 5/1 12,500
Outstanding shares _ 97,500 5/1 487,500
Par value per share P50 1/5 P10
Memo entry: Issued 500,000 ordinary shares as a result of a 5 for 1 share split, reducing the par value to P10
SHARE WARRANTS
These are certificates that entitle the holder thereof to acquire shares at a certain price within a specified
period. Share warrants may be issued for the following reasons:
1. As additional compensation (e.g., share options)
2. To make the securities more attractive (e.g., warrants or bonds payable)
3. As a right of pre-emption to existing shareholders of the corporation
Non-Detachable Warrants
Stock warrants that cannot be traded separately from the security with which they were originally
issued.
Detachable Warrants
Stock warrants that can be traded separately from the security with which they were originally issued.
Right Issue / Stock Right / Right of Preemption
It is granted to existing shareholders to enable them to acquire new shares at a specified price during a
specified period.

1. To record issuance of warrants
Upon issuance of stock warrants, no formal accounting entry is needed. A memorandum entry will
suffice.
2. To record exercise of warrants

Cash xxx
Share capital xxx
Share premium (if any) xxx
3. To record expiration of warrants

Similar with issuance of warrants, only memorandum entry will be made by the entity.
Detachable Share warrants

A. Share warrants issued with preference share
1. Fair value of share ex-warrant and fair value of warrant are known. Use the relative fair value
method.
Total Fair Fraction Allocated
value cost
Preference shares (No. of Pref. AA AA/CC DD
shares x fair value)
Warrants (No. of Warrants X Fair BB BB/CC EE
value)
Total CC FF (Total
Proceeds)
2. Only one class of security has available fair value

Total proceeds xxx
Less: Market value of securities known xxx
Securities with unknown Market value xxx
3. The fair values of the preference shares and warrants are unknown
Market value of ordinary shares xxx
Less: Option price/ Exercise price xxx
Intrinsic value of warrant xxx
Multiply: # of ordinary shares claimable under warrants xxx
Market value of share warrants xxx
Total proceeds XX
Less: Value of share warrants XX
Value assigned to preference Share XX
Pro-forma journal entry
Cash xxx
Preference share xxx
Share premium – P/S (if any) xxx
Ordinary share warrants outstanding xxx
Note: Ordinary share warrants outstanding shall be reported as part of share premium. If the
warrants are not exercised, the ordinary share warrants outstanding account is simply transferred
to the generic share premium account.
B. Share warrants issued with bonds payable

Issued price including warrants xxx
Less: Issue price of bond ex-warrants xxx
Allocated to warrants xxx
Note: Please refer to Chapter 26 for the discussion of share warrants issued with bonds payable.
Illustration: Share Warrants

The Myra Co. issued 4,000 shares of P50 par preference shares with detachable warrants. The package
sells for P150. The warrants enable the holder to purchase 2,000 ordinary shares of P20 par at P45 per
share.
CASE NO. 1: If immediately after the issuance of the share, the warrants are selling at P10 per share and
the market value of the preference without the warrants isP90
Subsequently, 70% of the warrants are exercised.
CASE NO. 2: Assume instead that only the market value of the preference without the warrants
amounting to P90 is available.
CASE NO. 3: Assume instead that the warrants and the preference have no known market value but the
ordinary share is trading at P50 per share.
Required: Prepare the necessary journal entry to record these transactions.
SOLUTION:
CASE NO.1
Total Fair value Fraction Allocated Cost
Preference shares (4,000 x P90) 360,000 36/40 540,000
Warrants (4,000 x P10) _ 40,000 4/40 __60,000_
Total 400,000 600,000*
* (150 x 4,000)
Cash 600,000
Ordinary share warrants outstanding 60,000
When the warrants are exercised:
Cash (2,000 x 70% x P45) 63,000
Ordinary share warrants outstanding (P60,000 x 70%) 42,000
Ordinary share (2,000 x 70% x P20) 28,000
CASE NO. 2
Total proceeds 600,000
Less: Total fair value of the preference shares (4,000 x P90) 360,000
Value of the warrants 240,000
Cash 600,000
CASE NO. 3
Market value of ordinary shares P 50
Less: Option price/exercise price 45
Intrinsic value of warrant 5
Multiply: # of ordinary shares claimable under warrants 2,000
Market value of share warrants P 10,000
Total proceeds 600,000

Less: Value of share warrants 10,000
Value assigned to preference shares 590,000
Cash 600,000
Share premium (P590,000 – P200,000) 390,000
RETAINED EARNINGS/ACCUMULATED PROFITS

Retained earnings represent the cumulative amount of profits and/losses dividends and
other capital adjustment. Retained earnings may be appropriated or unappropriated.
Appropriated retained earnings represent that portion which has been restricted and
therefore is not available for any dividend, whereas, unappropriated retained earnings
represent that portion which is free and can be declared as dividends to stockholders.
Furthermore, when the retained earnings has a debit balance, it is appropriately termed as
“Deficit” or “Accumulated Losses”.
APPROPRIATION OF RETAINED EARNINGS

This refers to the restriction of retained earnings for certain purpose. Appropriated Retained earnings
are amount of retained earnings restriction (i.e., made unavailable for dividend payments) at the
discretion of the board of directors or as mandated for by law or contract. Thus appropriation may be:
1. Legal appropriation – appropriation of retained earnings as mandated for by law because the legal
capital cannot be returned to the shareholders until the corporation is dissolved and liquidated. An
example is appropriation for an amount equal to the cost of the treasury stocks.
2. Contractual appropriation – appropriation of retained earnings as required by the contract so as to

ensure their payment. Such issuances my impose restriction on the payment of dividends. Examples
include:
a. Appropriation for sinking fund or bond redemption
b. Appropriation for redemption of preference shares.
3. Voluntary appropriation – appropriation made by management. Examples include:

a. Appropriation for plant expansion,
b. Appropriation for increase in working capital, and
c. Appropriation for contingencies.
DIVIDENDS
Dividends are resources distributed to entity’s shareholders. Dividends may be in form of cash, non-cash
assets, short-term and long-term liabilities or shares of stocks.
Dividends may be declared as either

a. Dividends out earnings; or
b. Dividends out of capital.
Significant dates relating to dividends

1. Date of declaration. This is the date when the board of directors announces the distribution of
dividends. On this date, the retained earnings account is to be charged and a liability account is to be
set up for cash and property dividend.
2. Date of record. This is the cut-off date that determines who among the stockholders are entitled to
dividends as of the record date. No journal entry is required on this date.
3. Date of payment. This is the date on which the dividend is distributed or paid.
DIVIDENDS OUT OF EARNINGS

Trust Fund Doctrine
The “trust fund doctrine” is a legal principle that prohibits a private corporation to distribute its legal
capital to the stockholders for the protection of corporate creditors.
“This doctrine holds that the asset of the corporation as represented by its capital stock ”trust fund” to be
maintained unimpaired and to be used to pay corporate creditors…”
The corporation, however, is allowed to declare dividends to the stock holders out of its unrestricted
retained earnings.
Shares entitled to dividends

Only shares issued and outstanding are entitled to dividends. Issued and outstanding shares may be
determined as follows:
No. of shares Amount
Number of share capital issued xxx P xxx
Add: Subscribed share capital ______xxx______ _____xxx____
Total xxx xxx
Less: Treasury shares (*at par) ______xxx______ _____xxx____
Total outstanding shares ______xxx______ __**xxx_____
*For the purpose of calculating the amount issued and outstanding shares, the treasury shares shall be
deducted at par instead of its cost.
**Alternatively, this item may be computed by multiplying the number of outstanding shares by the par
value per share.
Dividends on unpaid subscription

Cash dividends for those who have subscribed but have not yet fully paid their accounts shall be paid in
full, provided, they are not yet declared delinquent by the board of directors. Also, stock dividends shall
be issued to them in full
However, “cash dividends due on delinquent stock shall be first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully pad” (Sec. 43 of the Corporation Code of the
Philippines)
FORMS OF DIVIDENDS
A. CASH DIVIDENDS
The payment of cash dividends to shareholders is based on the outstanding shares held. Cash
dividend may be:
a. certain amount of pesos per share
b. certain percent of the par or stated value

Date of declaration
Dividends payable xxx
Date of record
No entry
Date of payment
Cash xxx
Illustration: Cash Dividends

On December 1 of the current, year, Brayden Corp. declared P2 per share dividends on the outstanding
ordinary shares to the shareholders of record on December 15 payable on December 31. Brayden has
10,000 issued ordinary shares with par value of P100. These shares were issued on January 1 of the
current year. On February 1 of the current year, the company acquired 1,000 ordinary shares at cost of
P110 per share which were held in treasury.
Required: Provide the journal entries at the date of

a. Declaration b. Record c. Payment
SOLUTION:
Computation of outstanding shares:
Ordinary shares issued 10,000
Less: Treasury shares __1,000
Outstanding shares __9,000
a. Retained earnings (9,000 x P2) 18,000

Dividends payable 18,000
b. No formal accounting entry
c. Dividends payable 18,000

Cash 18,000
B. PROPERTY DIVIDENDS
A dividend paid in the form of some asset other than cash
Examples of Property dividends

1. Noncurrent assets covered by PFRS 5 (e.g., property, plant and equipment, intangible assets and
investment in associate)
2. Assets other than those covered by PFRS 5 (e.g., current assets just like inventory, noncurrent
assets covered by PAS 39/PFRS 9)
Accounting for property dividends (guidelines from IFRIC 17)

Step 1: At the date of declaration, measure the dividends payable at fair value of the assets to be
distributed.
Step 2: At the end of each reporting and at the date of settlement, review and adjust the carrying amount
of the dividends payable to equity as adjustments to the amount of the distribution.
Step 3: At the date of settlement, get the difference between the carrying amount of dividends payable
and carrying amount of the noncash assets to be distributed using the following formula:
Carrying amount of dividends payable (which is equal to the fair value of the noncash asset at the date of
settlement) XX
Less: Carrying amount of noncash asset to be distributed XX
Gain (or Loss) on distribution of property dividends – P&L statement XX
Additional guidelines:
Noncurrent assets covered by PFRS 5 Assets other than those
covered by PFRS 5
Date of Reclassify the noncash asset to be distributed No need to reclassify the
declaration as “Noncurrent asset held for distribution” property dividends to other
and measure the noncurrent assets at the criteria (e.g inventory shall
lower of the carrying amount and fair value remain as inventory in
less cost to distribute. (An entity shall not accordance with PAS 2)
depreciate (or amortize)a noncurrent asset
while it is classified as held for sale or while it
is part of a disposal group classified as held
for sale.)
Dates of Measure the noncurrent asset held for Measure the property
reporting distribution at the lower of the original dividends in accordance
and carrying amount and fair value less cost to with applicable PFRS (e.g.
settlement distribute on the date of reporting or for inventory at the lower of
settlement. Gain may be recognized but not in cost or net realizable value.)
excess of the amount of cumulative loss that
was previously recognized
Date of Carrying amount of the noncash asset for Carrying amount of the
settlement purposes of computing the gain or loss on noncash asset for purposes
distribution shall be the carrying amount as of computing the gain or loss
adjusted in accordance with PFRS No. 5 on the on distribution shall be the
date of reporting. carrying amount as adjusted
on the date of reporting in
accordance with
applicable PFRS.

Date of declaration
Retained earnings (at a fair value) xxx
Date of record
No entry
Reporting date (assuming fair-value increases)

Retained earnings (increase in fair value) xxx
Date of payment
Loss on derecognition (if any) xxx
Cash xxx
Gain on derecognition (if any) xxx
Illustration: Property Dividends (Current Assets)

On November 1, 2017, Elizabeth Company declared inventory as property dividend payable on February
15, 2018. The carrying amount of the inventory is P700,000. Data relating to the fair values of the
inventory are as follows:
Date Fair values

November 1, 2017 P 600,000
December 31, 2017 800,000
February 15, 2018 780,000
Assume the fair values are not materially different with the net realizable
Required: Provide the journal entries to record theses transactions.
SOLUTION:
Nov. 1, 2017 Retained earnings 600,000
Dec. 31, 2017 Retained earnings 200,000

Fair value 800,000
Less: Previous Fair Value 600,000
Increase in dividends payable ₱ 200,000
Feb. 15, 2018 Dividends payable 20,000

Retained Earnings 20,000
Fair Value ₱780,000

Less: Previous Fair Value 800,000
Decrease in dividends pay able ₱(20,000)

Inventory 700,000
Gain on distribution – prop. dividends 80,000
Carrying amount of dividends payable=

Fair value date of payment ₱ 780,000
Less: Carrying amount of noncash asset 700,000
Gain on distribution of prop. dividends ₱ 780,000
Illustration: Property Dividends (Property, Plant and Equipment)

On November 1, 2017, Aaron Company declared equipment as property dividend payable on February 15, 2018.
The carrying amount of the equipment is ₱ 700,000. Data relating to the fair value of the equipment are as follows:
Date Fair value (assume that he costs to distribute are immaterial)

November 1, 2017 600,000
December 31, 2017 800,000
February 15, 2018 780,000
Required: Provide the journal entries to record theses transaction.
SOLUTION:
Nov. 1, 2017 Retained earnings 600,000
Equipment –noncurrent asset for distribution* 600,000

Impairment loss (₱700,000-₱600,000) 100,000
Equipment 700,000
Dec. 31, 2017 Retained earnings 200,000

Fair value ₱ 800,000

Less: Previous carrying value 600,000
Increase in dividends payable ₱ 200,000
Equipment – noncurrent asset for distribution** 100,000

Gain on recovery of impairment loss 100,000
Feb. 15, 2018 Dividends payable 20,000


Less: Previous carrying value 800,000
Decrease in dividends payable ₱(20,000)

Equipment –noncurrent asset for distribution 700,000
Gain on distribution of prop. dividends 80,000
Carrying amount of dividend payable =

Less: Carrying amount of noncash asset 700,000
Gain on distribution of prop. dividends ₱ 80,000
Computation of the impairment loss is as follows:

Original carrying amount ₱ 700,000
Less: Lower between these two amounts
FVLCTD 600,000
Original carrying amount 700,000 600,000
Impairment loss ₱ 100,000
Computation of the gain on reversal of the impairment loss is as follows:

Lower between subsequent FVLCTD and original carrying amount
Original carrying amount ₱ 700,000
FVLCTD 800,000 ₱ 700,000
Carrying amount of initial recognition 800,000
Gain on reversal 100,000
Note: FVLCTD - Fair value less cost to distribute.

*(Lower of ₱700,000 and ₱600,000)
**(₱800,000 minus ₱600,000) but the gain shall not exceed the amount f impairment loss of ₱100,000.
C. Noncash or cash alternative

If an entity gives its owners a choice of receiving either a non-cash asset or a cash alternative, the entity shall
estimate the dividend payable by considering both the fair value of each alternative and the associated probability
of owners selecting each alternative. (IFRIC 17 par.12)
Illustration: Non – Cash or Cash Alternative

On January 1, 2018, Drenz Company had five outstanding ordinary shares. On December 31, 2018, Drenz declared
dividends on the ordinary shares. The corporation decided to give the ordinary shareholders a choice between
receiving a cash dividends of ₱10,000 per share or a properly dividend in the form of a non cash asset. Each
noncash asset has a fair value of ₱12,000. The corporation estimated that 60% of the ordinary shares will take the
option of the cash dividend and 40% will elect for the noncash asset. Journalize the transaction on December 31,
2018.
Required: Provide the journal entry on December 31, 2108.

SOLUTION:
Supporting computation:
Cash alternative (5 x 60% x ₱10,000) ₱ 30,000
Non-cash alternative (5 x 40% x ₱ 12,000) 24,000
Total dividends ₱ 54,000
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
Cash (5 x ₱10,0000) 50,000
Retained earnings (balancing figure) 4,000
If the shareholders opted to receive noncash, the journal entry is:

Loss on distribution of dividends (balancing figure) 6,000
Noncash (5 x ₱12,000) 60,000
D. Liability dividends
These items represent deferred cash dividends. This form of dividends may either be scrip (for short-term) or
bond (for long-term).
Pro –forma journal entries

Date of declaration
Scrip dividends payable xxx
Date of record
No entry
Date of redemption
Scrip dividends payable xxx
Interest expense (if any) xxx
Cash xxx
E. Share dividends
It is dividends paid in the form of entity’s own share. However, shares of other entities declared as dividends
qualify as property dividends and not as share dividends.
Share dividends may be classified as either small share dividend or large share dividend.
Accounting for share dividend

Small dividend Large dividend
Percentage declared Less than 20% of outstanding 20% or more of outstanding
shares share
Amount to be charged to Fair value or par value of Par value of shares
retained earnings. shares whichever is higher.
Amount credited to share Excess of fair value over par None
premium value

Small dividend
Date of declaration
Retained earnings (at fair value) xxx
Share dividends payable (at par) xxx
Share premium xxx
Date of record
No entry
Date of redemption
Share dividends payable xxx
Share capital xxx
Large dividend
Date of declaration
Date of record
No entry
Date of redemption
Share capital xxx
FRACTIONAL SHARE DIVIDENDS

Issuance of share dividends might give rise to fractional share dividends for it might not be possible to issue full
shares to all shareholders.
Let’s say, for example, a shareholder owning 82 shares and the company declared 20% dividends. This shareholder
is entitled to receive 16 shares plus a fractional share of 2/5 share. A shareholder receiving the 2/5 share might be
issued warrants or rights and be given time accumulate enough warrants for the acquisition of full new shares.
Accounting for such fractional share warrants or rights follow:

Date of declaration of share dividends
Share premium xxx
Issuance of full share dividends and the fractional share warrants or
rights
Share capital (at par) xxx
Fractional warrants outstanding (part of Share premium) xxx
Issuance of full shares as a result of the exercise of the fractional
share warrants
Fractional warrants outstanding xxx
Share capital (at par) xxx
Share premium xxx
Illustration: Fractional Share Rights or Warrants

The shareholders’ equity section of Apple Pen Co. on December 31, 2017 is as follows:
Ordinary share ₱10 par, 100,000 shares issued outstanding 1,000,000

On December 30, 2017, the company declared 20% share dividends to the shareholders of record January 3, 2018
payable on January 31, 2018. Assume that of the share dividends declared, 18,000 shares relate to full shares
issued while 2,000 relate to the fractional shares issued. Also assume that 1,500 of the fractional shares were
exercised at par while the rests were not exercised.
Required:
Prepare all the necessary journal entries.
SOLUTION:
Date of declaration of share dividends
Retained earnings (100,000 x 20% x ₱10) 200,000
Share dividends payable 200,000
Issuance of full share dividends and the fractional share warrants or
rights
Share dividends payable 200,000
Share capital (18,000 x ₱10) 180,000
Fractional warrants outstanding 20,000
Issuance of full shares as the result of the exercise of the fractional
share warrants
Fractional warrants outstanding 20,000
Share capital (1,500 x 10) 15,000
Share premium-unexercised warrants 5,000
Although in the stock market it might not be possible to have less than multiples of 10 because the unit of trading
is usually in fixed minimum amounts called board lots. The unit of trading usually ranges from 10 to 1,000,000
shares.
The purpose of a board lot is to avoid “odd lots” and to facilitate easier trading. It’s more difficult for a broker to
find a buyer for, say, 17 shares, than if everybody agrees to trade in 100 share lots.
TREASURY SHARE AS SHARE DIVIDEND

Under the corporation code, when the treasury shares are declared as dividends, the cost of the shares should be
charged to retained earnings.

Date of declaration
Share dividends payable – treasury shares xxx
Date of payment
Share dividends payable – treasury shares xxx
Treasury shares xxx
Illustration: Treasury Stock as Share Dividend

The Shareholders’ equity section of Kristine Ericka Co. on December 31 is as follows:
Ordinary share ₱50 par, 105,000 shares issued 5,250,000

Share Premium on Ordinary Shares 1,010,000
Treasury Shares (5,000 shares) 300,000
Accumulated Profits 10,000,000
Required: Provide the journal entries to be made under the ordinary share independent assumptions:
1) The company declared 10% share dividends on the ordinary share when the market value per share is
₱130.
2) The company declared 20% share dividends on the ordinary share when the market value per share is
₱130.
3) The company declared and paid ₱2 per share liquidating dividends.
4) Assume instead that the 5,000 treasury shares were declared as share dividends.
SOLUTION:
[(₱105,000 - ₱5,000) x 10% x ₱130
Share dividends payable [(105,000 – 5,000) x 10% x ₱50] 500,000
Share premium on Ordinary shares 800,000

[(₱105,000 - ₱5,000) x 20% x ₱50]
Share dividends payable [(105,000 – 5,000) x 20% x ₱ 50] 1,000,000
Capital liquidated (₱2 x 100,000 shares) 200,000

Cash 200,000
Accumulated Profits 300,000

Share dividends payable – Treasury shares 300,000
DIVIDENDS OUT OF CAPITAL

Dividends out of capital are popularly known as liquidating dividends. This type of dividends is treated as and
normally declared during liquidation of the entity.

Capital liquidated or share premium xxx
Cash xxx
Note: Capital liquidated is to be deducted from the shareholders’ equity.
STATEMENT OF RETAINED EARNINGS

A statement of retained earnings may be prepared by reporting entity.
Such statement includes the following (DACIP):
1. Dividends declared or paid to stockholders
2. Appropriation of retained earning
3. Effect on Change in accounting policy.
4. Net Income or loss for the period
5. Prior period errors
Illustration: Shareholders’ Equity – Comprehensive

The shareholders’ equity section of Roxas Company on January 1, 2017 showed the following:
Ordinary share, ₱100 par, 200,000 shares
authorized, 60,000 shares issued ₱6,000,000
Share premium 1,200,000
During the year, Roxas had the following transactions:

a. In February, Roxas reacquired 4,000 shares for ₱110 per share.
b. In June, Roxas sold 2,000 shares of its treasury shares for ₱120 per share.
c. In September, each shareholder was issued for each share held one stock right to purchase two additional
shares of ordinary for ₱130 per share. The rights expire on December 31, 2017.
d. In October, 10,000 stock rights were exercised when the market value of the ordinary share was ₱160 per
share.
e. On December 15, 2017, Roxas declared its first cash dividend to shareholders of ₱15 per share, payable on
January 14, 2018, to shareholders of record on December 31, 2017.
f. On December 23, Roxas formally retired 1,000 treasury shares.
g. Net income for the year was ₱ 1,100,000.
h. Appropriated retained earnings equal to the cost of treasury share.
Required: Determine the following:

1) How much is the ordinary share on December 31, 2017 statement of financial position?
2) How much is the share premium on the treasury shares on December 31, 2017 statement of financial
position?
3) How much is the total share premium on December 31, 2017 statement of financial position?
4) How much is the retained earnings inappropriated on December 31, 2017 statement of financial position?
5) How much is the total shareholders’ equity on December 31, 2017 statement of financial position?
SOLUTION: (in ‘000s)

Ordinary Share premium – Treasury Share Retained
shares OS shares premium - TS Earnings
₱ 6,000 ₱ 1,200 ₱- ₱- ₱ 2,500
a. 440
b. (220) 20
c.
d. 2,000 (600)
e. (1,170)
f. (100) (20) (110) 10
g. - - - - 1,100
Total ₱ 7,900 ₱ 1,780 ₱ 110 ₱ 30 ₱ 2,430
Stockholder’s Equity:
Ordinary Shares ₱ 7,900,000
Share premium – ordinary shares 1,780,000
Share premium – treasury shares 30,000
Treasury shares (110,000)
Total ₱ 12,030,000
Summary of answers
1. ₱ 7,900,000 4. (₱2,430,000 - ₱110,000) = ₱2,320,000
2. ₱ 30,000 5. ₱12, 030,000
3. ₱ 1, 780,000
CHAPTER 29: REVIEW QUESTIONS - COMPUTATIONAL
PROBLEM 29-1 Legal Capital, Contributed Capital, Shareholders’ Equity

The shareholders’ equity section of Kristal Mae Company revealed the following information on December 31,
2017:
Share premium on preference share 150,000
Premium on bonds payable 100,000
Share premium conversion option-bonds payable 40,000
Authorized ordinary shares at ₱10 stated value 1,200,000
Subscribed preference shares 60,000
Authorized preference shares at ₱50 par value 800,000
Gain on sale of treasury shares 60,000
Unrealized increase in value of FVCTOCI securities 10,000
Ordinary shares warrants outstanding 35,000
Unissued ordinary shares 650,000
Unissued preference shares 150,000
Cash dividends payable – preferences 80,000
Donated capital 40,000
Reserve for bond sinking fund 320,000
Reserve for depreciation 100,000
Revaluation surplus 130,000
Subscription receivable – preference 15,000
Subscription receivable – ordinary shares 20,000
Ordinary shares options outstanding 25,000
Accumulated profits – unappropriated 500,000
Bonds payable 1,000,000
Subscribed ordinary shares 200,000
Long term investments in equity securities 400,000
Share premium on ordinary shares 300,000
Questions:
Based on the above data, compute the following:
1. Ordinary share issued
a. ₱550,000 c. ₱1,200,000
b. ₱650,000 d. ₱1,400,000
2. Preference shares issued
a. ₱150,000 c. ₱800,000
b. ₱650,000 d. ₱860,000
3. Share premium
a. ₱550,000 c. ₱625,000
b. ₱585,000 d. ₱650,000
4. Contributed capital
a. ₱1,135,000 c. ₱ 1,460,000
b. ₱1,200,000 d. ₱2,075,000
5. Total legal capital
a. ₱1,425,000 c. ₱1,760,000
b. ₱1,460,000 d. ₱1,910,000
6. Total shareholders’ equity
a. ₱2,385,000 c. ₱2,870,000
b. ₱2,420,000 d. ₱3,035,000
PROBLEM 29-2 Issuance of Shares for cash Consideration, Share Issue Cost
Assume the following issuances of ₱50 par value shares of stock:
1. Issuance of 2,000 shares at par for cash.
2. Issuance of 5,000 shares at ₱60 per share for cash. Stock issue costs that were paid by the corporation
amounted to ₱70,000.
3. Issuance of 4,000 shares at ₱40 per share for cash.
Required: Record the transaction listed above in journal entry form.
PROBLEM 29-3 issuance of Shares for Noncash Consideration

Assume the following issuances of ₱50 par value shares of stock:
1. Issued 2,500 shares of stock for machinery. The machinery has a fair value of ₱180,000 while the stock is
selling at ₱65 per share.
2. Issued 1,000 shares of stock for patent (an intangible asset). The stock is selling at ₱65 per share.
3. Issued 400 shares of stock in full payment of organization services rendered from the legal counsel. The
fair value of such services is ₱40,000.
Required: Record the transactions listed above in journal entry form.
PROBLEM 29-4 Issuance of Shares for Outstanding Liability

The company issued 2,000, ₱50 par ordinary shares for an outstanding bank loan of ₱150,000. On this date, shares
are quoted at ₱70 per share.
Required: Record the transactions above in journal entry form.
PROBLEM 29-5 Issuance of Two Classes of Shares – Shares are issued Separately
The company issued the following shares of stock:
1. Issued 2,500, ₱200 par value preference share, for ₱216 per share for cash.
2. Issued 500, ₱100 par value ordinary share, for ₱120 per share for cash.
PROBLEM 29-6 Lump Sum Issuance of Two Classes of Shares – Incremental Method – Proportional Method
The company issued for ₱900,000 cash, 2,500 shares of ₱200 par value preference share and 500 shares of ₱100
par ordinary share. The preference and the ordinary shares have fair values of ₱216 and ₱120 per share,
respectively on the date of sale.
PROBLEM 29-7 Lump Sum Issuance of Two Classes of Shares – Incremental Method
The company issued for ₱900,000 cash, 2,500 shares of ₱200 par value preference share and 500 shares of ₱100
par ordinary share. The preference and the ordinary shares have fair values of ₱216 on the date of sale. No fair
value available for the ordinary share.
PROBLEM 29-8 Subscriptions

Assume the following transactions for Blessie Corporation during the current year.
1) Ngeteg subscribed for 4,000, ₱50 par ordinary shares of Blessie Corporation at ₱60 per share.
2) Osang paid 40% of the subscriptions price.
3) Subsequently, Osang was declared delinquent subscriber. In accordance with the subscriptions contract
Osang’s down payment was forfeited.
PROBLEM 29-9 Delinquent Subscriptions, Downpayment is Forfeited

Assume the following transactions for Rosenio Corporation during the current year:
1) Osang subscribed for 5,000, ₱50 par ordinary shares of Rosenio Corporation at ₱60 per share.
2) Osang paid 40% of the subscriptions price.
3) Subsequently, Osang was declared delinquent subscriber. In accordance with the subscriptions contract
Osang’s downpayment was forfeited.
PROBLEM 29-10 Delinquent Subscriptions, Down-payment is Not Forfeited with highest Bidder.
Darell Corporation declared Rex stock subscriptions delinquent. The records of subscribed capital stock pertinent
to Rex shows 7,500 shares at ₱50 par of which the remaining unpaid subscription balance is ₱290,000. The
delinquent stocks are subsequently offered for public auction incurring a cost of ₱10,000. The offer price is
₱300,000.
During the auction, there are three bidders who are willing to pay the offer price corresponding to shares of stocks,
as follows:
# of shares willing to be received
Bidders
Ria 4,000 shares
Josiah 4,500 shares
Luke 5,000 shares
PROBLEM 29-11 Delinquent Subscriptions, Down-payment is not Forfeited without Highest Bidder
Use the same Problem 29-10 above, except that there are no bidders and the corporation purchased its own
delinquent shares.

PROBLEM 29-12 Treasury shares and Donated Capital
The Keep Walking Co. had 100,000 shares of ordinary share capital on December 31, 2016. Its statement of
financial position on that date showed the following shareholders’ equity balances:
Ordinary share capital, ₱20 par ₱2,000,000

The following treasury share transactions took place in 2017:

1) Purchased 15,000 ordinary shares at ₱24 per share.
2) Sold 5,000 of the treasury shares at ₱26 per share.
3) Sold 4,000 of the treasury shares at ₱20 per share.
4) Retired the remaining treasury shares.
5) Stockholder donated 5,000 shares when the market price is ₱25 per share.
Subsequently, the company sold 2,000 shares at ₱28 per share.
PROBLEM 29-13 Retirement of Share Capital

The Shareholders’ equity section of Flordie Co. on December 31 is as follows:
Preference share ₱100 par, 30,000 shares issued and outstanding ₱3,000,000
Share Premium on Preference shares 300,000
Ordinary share ₱50 par, 50,000 shares issued and outstanding 2,500,000
Share Premium on Ordinary Shares 100,000
Required: Prepare the journal entry assuming 3,000 shares of the preference are redeemed at:
a. ₱140 b. ₱95
PROBLEM 29-14 Conversion of Preference Shares

The shareholders’ equity section of Divine Grace Co. on December 31 is as follows:
Preference share ₱100 par, 30,000 shares issued and outstanding ₱3,000,000
Share premium on Preference shares 300,000
Share Premium on Ordinary shares 100,000
Required:
Prepare the journal entry assuming that 4,000 shares of preference are converted under each assumption listed:
1) Preference share are convertible into ordinary on a share-for-share basis.
2) Each preference share is convertible into 5 shares of ordinary.
PROBLEM 29-15 Recapitalization, Change From Par to No-Par, Reduction of Par Value and Share Split
The Shareholders’ equity section of Levana Co. on December 31 is as follows:
Ordinary share ₱50 par, 50,000 shares issued and outstanding ₱2,500,000
Share Premium on Ordinary Shares 100,000
Required: Assume the following independent cases; provide the journal entry that is made on the corporation
books:
1) All the 50,000 ordinary shares are called for cancellation. Instead, the company issued 50,000 no-par
ordinary shares with the following stated value:
a. ₱40 b. ₱140
2) A recapitalization is effected whereby the par value of the ordinary shares is reducted to ₱40 per share.
3) The company effected a 5 for 1 stock split on the ordinary shares.
PROBLEM 29-16 Share warrants – Different Cases

The Patacsil Co. issued 2,000 shares of ₱50 par preference shares with detachable warrants. The package sells for
₱200. The warrants enable the holder to purchase 1,000 ordinary shares of ₱20 par at ₱ 40 per share.
Case No.1: If immediately after the issuance of the share, the warrants are selling at ₱20 per share and the market
value of the preference share without the warrants is ₱80.
Subsequently, 80% of the warrants is exercised
Case No.2: Assume instead that only the market value of the preference without the warrants amounting to ₱80 is
available.
Case No.3: Assume instead that the warrants and the preference share have no known market values but the
ordinary share is trading at ₱50 per share.
PROBLEM 29-17 Cash Dividends

On December 1 of the current year, Brayden Corp. declared ₱5 per share dividends on the outstanding ordinary
shares t the shareholders of record on December 15 payable on December 31. Brayden has 40,000 issued ordinary
shares with the par value of ₱100. These shares were issued on January 1 of the current year. On February 1 of the
current year, the company acquired 2,000 ordinary shares at cost of ₱110 per share which were held in treasury.
Required: Prepare all the necessary entries at the:

1) Date of declaration
2) Date of record
3) Date of payment
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual Payment

On January 1, of the current year, Chinito issued 10,000, 10% preference shares to the public. The preference share
has a par value of ₱100. On April 1 of the same year, Chinito reacquired 1,000 shares of this share. On July 1, the
Chinito paid its semi-annual dividends. On October 1 of the same year, Chinito reissued 600 of, its preference
shares. On December 31of the current year, Chinito again declared the semi-annual dividends of the preference
shares.
Required: Prepare all the necessary entries on the date of declaration of dividends.
PROBLEM 29-19 Current Assets as Property Dividends
On November 1, 2017, Tolding Company declared inventory as property dividend on Febraury 15, 2018. The
carrying amount of the inventory is ₱500,000. Data relating to the fair values of the inventory are as follows:
Fair values (assume these are not materially different with

Date
the net realizable values)
November 1, 2017 ₱450,000
December 31,2017 ₱600,000
February 15, 2018 ₱540,000
PROBLEM 29-20 Property, plant and Equipment as Property Dividends

On November 1, 2107, Rhenz Company declared equipment as property dividend payable on February 15, 2108.
The carrying amount of the equipment is ₱500,000. Data relating to the fair values of the equipment are as follows:
Date Fair value (assume that the costs to distribute are immaterial)
November 1, 2017 ₱450,000
December 31, 2107 ₱600,000
February 15, 2108 ₱540,000
PROBLEM 29-21 Cash and Noncash Alternative

On January 1, 2017, Drenz Company had ten outstanding ordinary shares. On December 31, 2107, Drenz declared
dividends on the ordinary shares. The corporation decided to give the ordinary shareholders a choice between
receiving a cash dividend of ₱8,000 per share or a property dividend in the form of a non cash asset. Each noncash
asset has a fair value of ₱9,000. The corporation estimated that 60% of the ordinary shareholders will take the
option of the cash dividend and 40% will elect for the noncash asset. Journalize the transaction on December 31,
2017.
Required: Prepare all the necessary entries on the:

1) Date of declaration of dividends.
2) Date of payment assuming the shareholders opted to avail of the
a. Cash dividends
b. Noncash dividends
PROBLEM 29-22 Share Dividends: Small, Large and Treasury Shares

The Shareholders’ equity section of Myna Ley Co on December 31 is as follows:
Ordinary share ₱50 par, 53,000 shares issued ₱2,650,000

Share Premium on Ordinary shares 53,000
Treasury shares (3,000 shares) 120,000
Required: Assume the following independent cases, provide the journal entry that is made on the corporation
books:
1) The company declared 10% share dividends on the ordinary share when the market value per share is ₱80.
2) The company declared 20% share dividends on the ordinary share when the market value per share is ₱80.
3) The company declared and paid ₱2 per share liquidating dividends.
4) Assume instead that the 3,000 treasury shares were declared and issued as share dividends.
PROBLEM 29-23 Fractional Share rights

The Shareholders’ equity section of UMBRA Co on December 31, 2016 is as follows:
Share Premium on Ordinary shares 1,000,000
On December 31, 2106, the company declared 30% share dividends to the shareholders of record January 15, 2017
payable on January 31, 2107. Assume that of the share dividends declared, 27,000 shares relate to full shares
issued while 3,000 relate to the fractional shares were exercised at par while the rests were not exercised.
Required: Prepare all the necessary journal entries.
PROBLEM 29-24 Comprehensive Problem

You have been asked to audit the Tanya Company. During the course of your audit, you are asked to prepare
comparative data from company’s inception to present. You have determined the following:
A. Tanya charter became effective on January 2, 2012 when 20,000 shares of ₱10 ordinary shares and 10,000
shares of 7% cumulative, nonparticipating preference shares were issued. The ordinary shares were sold at
₱12 per share, and the preference shares were sold at par value of ₱100 per share.
B. Tanya was unable to pay preference dividends at the end of first year. The owners of preference share
agreed to accept 2 ordinary shares for every 50 preference shares owned in discharge of the preference
dividends due on December 31, 2012. The shares were issued on January 2, 2013. The fair market value
was ₱30 for ordinary shares at the date of issue.
C. Tanya acquired all the outstanding shares of Akinka Corporation on May 1, 2014 in exchange for 10,000
ordinary shares of Tanya.
D. Tanya split its ordinary shares 3 for 2 on January 1, 2015, and 2 for 1 on January 1, 2016.
E. Tanya offered to convert 20% of the preference shares to ordinary shares on the basis of 2 ordinary shares
for 1 preference share. The offer was accepted, and the conversion was made on July 1, 2016.
F. No cash dividends were declared on ordinary until December 31, 2014. Cash dividends per share of
ordinary share shares were declared and paid as follows
JUNE 30 DEC.31
2014 - ₱3.20
2015 ₱1.50 ₱2.50
2016 ₱1.25 ₱1.00
Questions:
Based on the preceding information, determine the following:
1. The number of shares outstanding on December 31, 2014
ORDINARY PREFERENCE
a. 30,000 10,000
b. 30,200 9,800
c. 35,000 10,000
d. 30,400 10,000

ORDINARY PREFERENCE
a. 45,300 10,000
b. 45,600 10,000
c. 76,000 10,000
d. 52,500 9,800

ORDINARY PREFERENCE
a. 95,200 8,000
b. 49,600 10,000
c. 93,200 7,840
d. 93,200 8,000
4. The amount of Cash dividend declared and paid to shareholders in 2015

a. ₱182,400 c. ₱159,600
b. ₱83, 600 d. ₱121,600
5. The amount of Cash dividend declared and paid to shareholders in 2016
a. ₱214,200 c. ₱153,200
b. ₱217,200 d. ₱209,200 PhilCPA adapted)

The Shareholders’ equity of Brenalyn Corporation at January 1, 2016 appears below:
12% Preference Shares, ₱200 par, 20,000 shares

Authorized, 7,000 shares issued and outstanding ₱1,400,00
Share Premium – Preference 175,000
Ordinary shares, ₱100 par, 180,000 shares
authorized,
35,000 shares issued and outstanding 3,500,000
Share Premium – Ordinary 1,750,000
During 2016, the following transactions occurred:

Jan 5: Issuance of 6,000 shares at ₱110 per share for cash. Stock issue costs that were paid by
the corporation amounted to ₱80,000
Jan 28: Purchase 5,000 ordinary shares for the treasury at ₱200 per share
Feb 2: Shareholders donated 4,000 entity’s own ordinary shares to the corporation
Feb 14: Sold half of the treasury shares acquired last January 28 for ₱220 per share
Feb 14: Sold the donated shares at ₱220 per share
Jul 15: The company issued for ₱1,100,000 cash, 4,000 preference shares and 1,000 ordinary
shares. The preference and the ordinary shares have fair values of ₱220 and ₱120 per
share, respectively on the date of sale.
Oct 15: Received subscriptions to 15,000 ordinary shares at ₱250 per share
Nov 15: Received cash payment from each subscriber for 40% of the ordinary shares
subscription price.
Nov 27: Received full payment of the 10,000 shares on oct.15 and Nov.15
Dec 31: Closed net income of ₱1,000,000 from the income summary account to retained earnings
Questions:
Based on the above data, answer the following:
1) How much is the Preference share on December 31, 2016 statement of financial position?
a. ₱1,400,000 c. ₱2,800,000
b. ₱2,200,000 d. ₱3,015,000
2) How much is the Ordinary share on December 31, 2016 statement of financial position?
a. ₱3,895,000 c. ₱5,200,000
b. ₱6,500,000 d. ₱6,300,000
3) How much is the Total share Premium on December 31, 2016 statement of financial position?
a. ₱5,200,000 c. ₱5,305,000
b. ₱4,555,000 d. ₱8,025,000
4) How much is the Retained earnings – unappropriated on December 31, 2016 statement of financial
position?
a. ₱5,030,000 c. ₱4,980,000
b. ₱4,900,000 d. ₱5,480,000
5) How much is the total shareholders’ equity on December 31, 2016 statement of financial position?
a. ₱16,275,000 c. ₱18,185,000
b. ₱17,435,000 d. ₱17,685,000

Joy Ashliy Company reported the following amounts in the shareholders’ equity section of its Decmber 31, 2015,
statement of financial position:
10% Preference share, ₱100 par (10,000 shares)

authorized, 4,000 shares issued ₱400,000
Ordinary share, ₱5 par (100,000 shares)
authorized 40,000 shares issued 200,000
Total ₱1,750,000
During 2016, the following transactions transpired concerning shareholders’ equity:

1) Paid the annual ₱10 per share dividend on preference share and a ₱2 per share dividend on ordinary share.
These dividends had been declared on December 31, 2015
2) Purchased 5,000 shares of its own outstanding ordinary shares for ₱40 per share.
3) Reissued 2,000 treasury shares for land valued at ₱100,000
4) Issued 4,000 preference shares with detachable warrants. The package sells for ₱120. The warrants enable
the holder to purchase 2,000 ordinary shares at ₱30 per share. Immediately after the issuance of the share,
the warrants are selling at ₱10 per share and the market value of the preference without the warrants is
₱90.
5) On October 1, 60% of the warrants are exercised. The remaining warrants were not exercised.
6) Declared a 20% shared dividend on the outstanding share when the stock is selling for ₱45 per share.
7) Issued the share dividend.
8) Net income for the year is ₱2,400,000.
9) Declared the annual 2016 ₱10 per share dividend on preference share and the ₱2 per share dividend on the
ordinary share. These dividends are payable in 2017.
Questions:
Based form the above data, answer the following:
1. How much is the balance of the Preference share on December 31, 2016 statement of financial position?
a. ₱400,000 c. ₱800,000
b. ₱600,000 d. ₱452,500
2. How much is the balance of the Ordinary share on December 31, 2016 statement of financial position?
a. ₱206,600 c. ₱247,200
b. ₱219,000 d. ₱244,200
3. How much is the balance of the Retained earnings unappropriated on December 31, 2016 statement of
financial position?
a. ₱3,128,230 c. ₱3,008,320
b. ₱3,090,120 d. ₱2,970,120
4. How much is the balance of the Treasury share on December 31, 2016 statement of financial position?
a. ₱200,000 c. ₱76,000
b. ₱80,000 d. 120,000
5. How much is the total stockholders’ equity as of December 31,2016?
a. ₱4,393,320 c. 4,514,320
b. ₱4,432,520 d. 4,552,520

Marianne Corporation had the following shareholders’ equity section balances at December 31, 2015:
10% Convertible preference shares (₱100 par value, 100,000

shares authorized, 40,000 shares issued and outstanding) ₱4,000,000
Ordinary shares (₱10 par value, 200,000 shares authorized,
84,000 shares issued) 840,000
Subscribed ordinary shares 100.000
Total ₱20,948,000
Less: Treasury ordinary shares (4,000 shares) 44,000
Total Shareholders’ Equity ₱20,904,000
The subscribed ordinary shares account is composed of 10,000 shares subscribed at ₱13 per share. The
subscription contract required a cash downpayment equal to 60% of the subscription price, with the balance due
on February 1, 2016.
Transaction in 2016:
1) On February 1, 2016 the 8,000 ordinary shares were issued according to subscription contract. Because of
default of subscriber, 2,000n shares were not issued. All payments made by the subscriber were forfeited in
favor of the company,
2) On March 1, 206, 2,000 preference shares were converted into ordinary shares. One preference share is
convertible into two ordinary shares. At the time of conversion, the preference shares had a market value
of ₱125 while the ordinary shares had a market value of ₱25 per share.
3) On April 1, 2016, 92,000 share right were issued to the ordinary shareholders permitting the purchase of
two new shares of ordinary share in exchange from one right and ₱15 cash. On April 25, 2016, 67,500 stock
right were exercised when the market price of Marianne’s ordinary shares was ₱20 per share. Marianne
issued new shares to settle the transactions. The remaining 24,500 rights were not exercised and thus
expired.
4) On September 30, 2016, 3,000 treasury shares were reissued at ₱20 per share.
5) On January 15, 2017, before the accounting records were closed for 2016, Marianne became aware that the
rent income for the year ended December 31, 2015 was understated by ₱400,000. The after tax-effect on
the 2015 net income was ₱280,000. The appropriate correcting recorded the same day,
6) After correcting the rent income, net income for 2016 was ₱2,500,000.
7) Cash dividends are declared for preference and ordinary shares on April 30 and October 31. Semi-annual
cash dividends for ordinary shares are ₱1 per share.
Questions:
Based on the above data, determine the following as of December 31, 2016.
1. Preference shares
a. ₱4,000,000 c. ₱3,500,000
b. ₱3,860,000 d. ₱3,800,000
2. Ordinary shares
a. ₱2,530,000 c. ₱2,310,000
b. ₱2,270,000 d. ₱2,520,000
3. Total share premium
a. ₱1,845,600 c. ₱1,839,600
b. ₱1,908,600 d. ₱1,925,100
4. Retained earnings – unappropriated
a. ₱16,932,000 c. ₱16,652,000
b. ₱16,552,000 d. ₱16,355,000
a. ₱24,881,600 c. ₱24,601,600
b. ₱24,501,600 d. ₱24,300,100

Luke Corporation had the following shareholders’ equity section account balances at December 31, 2015:
Ordinary shares (₱10 par value, 200,000 shares authorized,

84,000 shares issued) ₱
840,000
Total ₱16,260,000
Less: Treasury ordinary shares (4,000 shares) 44,000
Transactions in 2016:
a) On January 15, 2016, the company reissued its 1,500 treasury shares at ₱20 per share.
b) On March 1, the company split the ordinary shares 2 for 1 share.
c) On April 1, 2016, Luke Company declared several equipment as property dividends payable on August 15,
2016. The carrying amount of the equipment is ₱648,000. Data relating to the fair values of the equipment
are as follows:
Date Fair values (assume that the costs to distribute are immaterial
April 1, 2016 ₱700,000
August 15, 2016 ₱650,000
d) On September 1, the company issued 4,000 shares of ₱50 per preference shares with detachable warrants.
The package sells for ₱150. The warrants enable the holder to purchase 2,000 ordinary shares at ₱15 per
share. Immediately after the issuance of the share, the warrants are selling at ₱10 per share and the market
value of the preference without the warrants is ₱90.
e) On October 1, 80% of the warrants are exercised. The remaining warrants were not exercised.
f) On November 2, 2,000 ordinary shares were retired at ₱20 per share. These ordinary shares were
originally issued previous year at ₱15 per share.
g) On December 15, the company declared at 4 per share cash dividends on the ordinary shares.
h) Net income for 2016 was ₱2,400,000.
Questions:
Based on the above data, determine the following as of December 31, 2016
a. ₱260,000 c. ₱200,000
b. ₱540,000 d. ₱zero
2. Ordinary shares
a. ₱836,000 c. ₱846,000
b. ₱847,000 d. ₱838,000
3. Total share premium
a. ₱876,000 c. ₱844,500
b. ₱839,500 d. ₱831,500
a. ₱16,047,100 c. ₱16,074,600
b. ₱16,062,100 ` d. ₱16,152,500
a. ₱17,929,600 c. ₱18,010,000
b. ₱17,929,200 d, ₱16,181,000
PROBLEM 29-29 Comprehensive problem

The adjusted balances of the Shareholders’ Equity of Capital Company on December 31, 2015 show the following:
8% Preference shares, ₱100 par ₱1,200,000

Ordinary shares, ₱10 par 1,800,000
Share premium on preference shares 216,000
Share premium on ordinary shares 900,000
Total contributed capital ₱4,116,000
Accumulated other comprehensive income:
Unrealized increase in value of FVTOCI equity securities 61,740
Total ₱6,477,740
Less: Treasury shares (20,000 shares acquired on March 9, 2015) 420,000
The following transactions occurred during 2016:

Jan 4 Issued 30,000 shares of ordinary at ₱25 per share.
Jan 30 Paid the annual 2015 per share dividend on preference share and the ₱2 per share
dividend on ordinary shares.
Mar 2 Issued 4,000 shares of preference at ₱125 per share.
Mar 7 Reissued 6,000 shares of treasury at ₱24 per share.
June Split the ordinary shares two for one.
15
July 2 Declared a 5% share dividend on the outstanding ordinary shares to be issued on August
3. The share is selling for ₱14 per share.
Aug 3 Issued the share dividend.
Oct 1 Declared a property dividend payable to ordinary shareholders on November 1. The
dividend consists of 20,580 shares of an investment in Lamb Company fair value through
other comprehensive income securities, which had been acquired at a cost of ₱12 per
share and which have a carrying value of ₱15 per share. The share is currently selling for
₱16 per share.
Oct 15 The company issued for ₱800,000 cash, 4,000 Preference shares and 1,000 ordinary
shares. The preference share has a fair value of ₱150 on the date of sale. No fair value is
available for the ordinary share.
Nov 1 Issued the property dividend to ordinary shareholders. The share is currently selling for
₱20 per share.
Dec Declared the annual per share dividend on the outstanding preference share and a ₱2 per
31 share dividend on the ordinary share, to be paid on January 30,2017.
The adjusted net income for the year was ₱2,550,000.
Questions:
Based on the above data, compute for the adjusted balance of the following on December 31, 2016.
a. ₱900,000 c. ₱1,600,000
b. ₱800,000 d. ₱2,000,000
2. Ordinary shares
a. ₱2,296,000 c. ₱2.203,000
b. ₱2,100,000 d. ₱2,320,000
3. Total piad-in-capital / contributed capital
a. ₱5,658,400 c. ₱4,114,000
b. ₱6,458,400 d. ₱2,320,000
a. ₱2,920,940 c. ₱2,646,540
b. ₱2,940,540 d. ₱3,195,340
a. ₱9,379,340 c. ₱9,043,200
b. ₱9,104,940 d. ₱9,653,740

Your firm has been engaged to examine the financial statements of the Riel Company for the year ended December
31, 2016, its first year of operations. In connection with this audit, you have been assigned to audit the
stockholders’ equity account. The partial unadjusted trial balance as of December 31, 2016 shows the following
balances:
Debit Credit
Land ₱180,000
Dividends payable ₱352,000
Preference share 3,680,000
Ordinary shares 5,280,000
Subscribed ordinary shares 1,800,000
Subscriptions receivable 800,000
Sales 4,080,000
Cost of sales 2,000,000
Operating expenses (including org. expenses) 800,000
Stocks issue expenses 200,000
Your examination disclosed the following information:

 Authorized 40,000 shares of ₱10 par value Ordinary shares and 80,000 shares of 10% ₱100 par value
convertible Preference Share.
Jan 1 Issued 1,000 shares of Ordinary shares to the corporation promoters in exchange for Land valued at
₱140,000. The property had cost the promoters ₱180,000 3 years before. The company made the following entry
to record the transaction:
Land ₱ 180,000
Organization expense 140,000
Ordinary shares ₱ 320,000
Feb 23 Issued 20,000 shares of convertible Preference Share with a par value of ₱100 per share. Each share can be
converted to 5 shares of Ordinary shares. The stock was issued at a price of v150 per share, and the company paid
₱150,000 to an agent for selling the shares. The company made the following entry to record the transaction:
Cash ₱ 2,850,000
Stock issue expense 150,000
Subscription receivable ₱3,000,000
Mar 10 Sold 6,000 shares of the Ordinary shares for ₱390 per share. Issue costs were ₱50,000. The company made
the following entry to record the transaction:
Cash ₱ 2,290,000
Stock issue expense 50,000
Subscription receivable ₱ 2,340,000
Apr 10 8,000 shares of Ordinary shares were sold under stock subscriptions atv450 per share. No shares are
issued until a subscription contract is paid in full. No cash was received. The company made the following entry to
record the transaction:

Subscribed Ordinary shares ₱ 3,600,000
July 14 Exchanged 1,400 shares of Ordinary shares and 2,800 shares of Preference Share for a building with a fair
market value of ₱1,020,000. The building was originally purchased a ₱760,000 by the investors and has a book
value of ₱440,000. In addition, 1,200 shares of Ordinary shares were sold for ₱480,000 in cash. The company made
the following entry to record the transactions:
Building ₱ 1,020,000
Preference share (1,020,000 x 2,800/4,200) ₱680,000
Ordinary share (1,020,000 x 1,400/4,200) 340,000
Cash 480,000
Ordinary share 480,000
Aug 3 Received payments in full for half of the stock subscriptions and payments on account on the rest of the
subscriptions. Total cash received was ₱2,800,000. Shares of stock were issued for the subscriptions paid in full.
The company made the following entry to record the transactions:
Cash ₱ 2,800,000
Subscribed ordinary shares ₱ 1,800,000

Ordinary shares ₱ 1,800,000
Dec 1 Declared a cash dividend of ₱10 per share on Preference Share, payable on December 31 to stockholders of
record on December 15, and a ₱20 per share cash dividend on Ordinary shares, payable on January 5 of the
following year to stockholders of record on December 15. The company recorded this transaction by debiting
Retained earnings of ₱580,000 and crediting Dividends payable of ₱580,000.
Dec 31 Paid the Preference Share dividend. The company recorded this transaction by debiting Dividends payable
of ₱228,000 and crediting Cash of ₱228,000.
Questions:
Based on the above and the result of your audit, compute for the adjusted balance of the following on December 31,
2016:
1. Preference share
a. ₱2,480,000 c. ₱2,200,000
b. ₱2,280,000 d. ₱2,000,000
2. Paid in capital in excess of par-preferred
a. ₱1.110,000 c. ₱1,030,000
b. ₱1,050,000 d, ₱1,010,000
3. Ordinary shares
a. ₱172,000 c. ₱136,000
b. ₱152,000 d. ₱134,000
4. Paid in capital in excess of par-ordinary shares
a. ₱7,452,000 c. ₱7,234,000
b. ₱7,274,000 d. ₱6,534,000
5. Retained earnings
a. ₱840,000 c. ₱620,000
b. ₱700,000 d. ₱440,000
a. ₱1,300,000 c. ₱10,620,000
b. ₱10,700,00 d. ₱10,540,000

You are engaged in making your second annual examination of Brayden Company. The company reported the
following amounts in the stockholders’ equity section of its December 31, 2015 statement of financial position:
Preference share, ₱10 par (400,000 share authorized, 80,000 shares issued) ₱ 800,000
Ordinary shares, ₱5 par (200,000 shares authorized, 40,000 shares issued) 200,000
Total ₱3,784,000
The amounts above were the adjusted balances that appeared in your December 31, 2015 working paper.
Your examination disclosed the following information:

1) Paid the annual 2015 ₱1 per share dividend on Preference share and ₱0.50 per share dividend on Ordinary
shares. These dividends had been declared on December 31, 2015. The appropriate journal entry was made
on the data of declaration. The entry made on the date of payment was a debit to Other operating expense
₱100,000 and credit to ash ₱100,000.
2) Purchased 8,000 shares of its own outstanding ordinary shares for v20 per share. These stocks are still to
be reissued by the company. The following journal entry was made by the company:
Ordinary share ₱160,000
Cash ₱160,000
3) Reissued 2,800 shares acquired in (2) above for equipment valued at ₱100,000. The entry made was:
Equipment ₱100,000
Ordinary share (2,800 x ₱5) ₱14,000
4) Issued 20,000 shares of Preference Share at ₱15 per share. The entry made was debit to Cash ₱300,000 and
credit Preference Share ₱300,000.
5) Declared 10% stock dividend on the outstanding Ordinary shares when the stock is selling for ₱12 per
share. Only memorandum entry was made by the company.
6) Issued the stock dividend. The entry made was debit to Share Premium ₱17,400 and credit to ordinary
shares ₱17,400.
7) Declared the annual 2016 ₱1 per share dividend on Preference Share and the ₱0.50 per share dividend on
ordinary shares. These dividends are payable in 2017. No entry was made in the books in 2016.
8) Appropriated retained earnings for plant expansion, ₱1,200,000. The entry made was debit to Retained
earnings unappropriated ₱1,200,000 and credit to Retained earnings appropriated for plant expansion,
₱1,200,000.
9) The company reported the following in its 2016 income statement:
Income Statement
For the year ending December 31, 2016
Sales ₱ 5,880,000
Less: Cost of Sales 2,000,000
Gross Income ₱ 3,880,000
Less: Operating Expenses ₱ 2,000,000
Other Operating Expenses 100,000 2,100,000
Net income ₱1,780,000
Questions: Based on the above and the result of your audit, compute for the adjusted balance of the following on
December 31, 2016.
1. Preference Share
a. ₱4,000,000 c. ₱1,000,000
b. ₱1,100,000 d. ₱800,000
2. Ordinary shares
a. ₱217,400 c. ₱214,000
b. ₱216,000 d. ₱200,000
3. Share premium
a. ₱552,360 c. ₱528,000
b. ₱550,400 d. ₱508,360
4. Unappropriated retained earnings, 12/31/2106
a. ₱2,919,100 c. ₱2,839,100
b. ₱2,859,100 d. ₱2,815,100
5. Treasury Shares
a. ₱160,000 c. ₱60,000
b. ₱104,000 d. ₱56,000

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CHAPTER 29

Components of shareholders’ equity:

Terms used by the

Two methods of accounting for share capital

Shareholders; Equity Accounts

ILLUSTRATION: Shareholders’ Equity composition

Authorized ordinary share P 3,500,000

Formula for the Computation of Legal Capital:

2. No par value Share capital XX

ILLUSTRATION: Legal Capital

Preference share – P100 par P 1,500,000

Requirement 2 – No par value

ORGANIZATION COST AND EXPENSES RELATED TO SHARE CAPITAL

Accounting for share issuance costs

Accounting for Indirect Costs

ISSUANCE OF SHARE CAPITAL: Cash Consideration

ILLUSTRATION: Issuance of Share Capital

2. Cash (5,000 x P110) 550,000

Share Premium 50,000

3. Cash (4,000 x P90) 360,000

ISSUANCE OF SHARE CAPITAL: Noncash Consideration

Items not covered by “debt for equity swap”:

Formulas related to issuance of shares to extinguish liability

ILLUSTRATION: Issuance of Share Capital for Noncash Consideration

2. Patent (1,000 x P105) 105,000

3. Organization expense 60,000

ILLUSTRATION: Issuance of Share Capital for Existing Liability

*Computation of loss on extinguishment of liability

**Computation of increase in share premium

ISSUANCE OF SHARE CAPITAL: Two or more classes of shares

Illustration: Issuance Two or More Classes of Shares

2. Cash (1,000 x P120) 120,000

Pro-forma journal entry:

The transaction will then be recorded as follows:

Illustration: Issuance Two or More Classes of Shares (Incremental Method)

The transaction will then be recorded as follows

Illustration: Subscription of Share Capital

To record cash collection:

Number of shares subscribed (P250,000/P100) 2,500

The offer price usually includes the following items:

Pro-forma journal entries

When sold to the highest bidder

b. To record issuance of share certificates

Illustration: Delinquent subscription (Forfeited subscription)

2. Cash (1,100,000 x 40%) 440,000

3. Subscribed ordinary shares (10,000 x P100) 1,000,000

Illustration: Delinquent Subscriptions (With Highest Bidder)

Bidders # of shares willing to be received

Required: Provide the following:

2) Number of shares Rex should receive

Total number of shares subscribed 5,000 shares

3) Journal entries to record the transactions would be:

Delinquent Subscription without a Highest Bidder

Pro-forma journal entries

Illustration: Delinquent Subscription (Without Bidders)

2. To record the acquisition of entity’s own shares

Summary of recipient of shares related to delinquent subscription

Accounting for treasury shares

To record reissuance of treasury shares at above cots

To record reissuance of treasury shares at below cost

To record retirement at a perceived loss

Summary of balancing figures:

PAR VALUE METHOD

To record reissuance of treasury shares at above par

To record reissuance of treasury shares at below par

Summary of balancing figures

Asset Entity’s own shares

Upon sale Cash XX Cash XX

Ordinary share, 50,000 shares, P100 par P5,000,000

Subsequently, the following transactions, among others occurred:

Required: Prepare the necessary journal entry to record these transactions.

b. Cash (2,000 x P180) 360,000

c. Cash (1,000 x P150) 150,000

d. Ordinary shares (2,000 x P100) 200,000

Illustration: Accounting for Treasury Shares – Par Value Method

Ordinary share, 50,000 shares, P100 par P5,000,000