Delinquent Shares o To obtain shares for executive stock options and other compensation

- All stocks unpaid within 30 days from specified date or call programs
- Subject to sale by public auction, sold to the highest bidder o To improve per share earnings by reducing the number of shares outstanding
- Offer price = Unpaid subscription + interest accrued on subscription, expenses of and to increase debt to equity ratio
ads and other costs of sale o To support the market price of the stock and to invest idle cash temporarily
- When there are no bidders, the corporation purchases its own shares (Treasury o To increase the rate of dividend per share since it is not entitled to dividend
shares) - Requisites:
Callable preference share o Shares must be the entity’s own shares
- Can be called in or retired at a specified price at the option of the corporation o Shares have been issued originally
- An equity instrument o Reacquired but not canceled
- When reacquired for retirement, ALL share capital accounts and premiums - Can be reissued at a discount
relating to specific shares are removed from the accounts. - Shares can be reacquired only to the extent of retained earnings balance
- Loss charged to Retained earnings - Methods: Cost method and Par value or stated value method
- Gains recorded as Share premium - Retirement of Preference shares - Cost method
Redeemable preference share o Treasury shares are always recorded at cost
- Has a mandatory redemption date and redeemed at the option of the holder  Cash = cash paid
- An equity instrument but meets the definition of financial liability, PAS 32  Noncash = CV of asset given / surrendered
provides classifying shares as current or noncurrent liability o Reissuance
- Dividends paid are recorded as interest expense  At more than cost: excess = share premium - TS
- Gain or loss from redemption recognized in the Income Statement  Below cost: loss = 1) share premium - TS 2) Retained earnings
Convertible preference share o Retirement
- Gives the holder the right to exchange the holdings into other securities: bonds  DR Share Capital @par or stated value
or ordinary shares.  CR Treasury shares @cost
- All related capital accounts are removed or closed from the accounts and any loss  Gains: CR Share premium – TS
is charged to Retained earnings, any resulting gain is recorded in the Share  Loss: DR
premium – ordinary (conversion of PS) 1. Share premium from original issuance
Stock Split  Prorated in the absence of specific amount identified with
- A change in the number of shares and the par value or stated value but not in the the treasury shares
amount of the share capital of the entity. 2. Share premium from treasury shares
- Forms: 3. Retained earnings
o Split up or share split proper o Presentation: Deduction from Total Shareholders’ Equity
o Split down or reverse share split Retained Earnings
- Only a memorandum entry is required - Surplus profits of a corporation
Treasury shares - The accumulated yearly net income and losses
- Corporation’s own shares of stock which have been originally issued and paid but - Appropriated and Unappropriated
Deficit
subsequently reacquired by purchase, redemption, donation or some other
- When retained earnings have a debit balance
lawful manner.
- Some reasons for repurchasing a corporation’s own shares
Formula o Essential dates:
Retained earnings, beginning xxx  Date of declaration, recognition date
Add (Deduct):  DR Retained Earnings
Net Income (Loss) for the period xxx
 CR Dividends payable
Prior period errors xxx
Changes in accounting policies xxx
 Date of record, no entry only a list of entitled shareholders
Retained earnings, ending xxx  Date of payment
==========  DR Dividends payable
Pro-forma Journal Entries  CR Cash or Non-cash asset / Share Capital
- To close net income o Forms:
DR Income summary  Cash dividends
CR Retained earnings  Property dividends
- To close net loss  Liability dividends, Bond and Scrip
DR Retained earnings
 Stock dividends or bonus issue
CR Income summary
- To record dividend declaration
- Dividends out of capital
DR Retained earnings o Liquidating dividend, a return of capital
CR Dividends payable o A violation of trust fund doctrine
- To record appropriation o Applicability: Wasting assets corporation
DR Retained earnings o Any declaration in excess of retained earnings recorded as “ capital liquidated”
CR Appropriated retained earnings – (purpose) account, a deduction from shareholders’ equity.
- To close appropriation Cash Dividend
DR Appropriated retained earnings – (purpose) - Most common type of dividend and paid out of cash of the entity
CR Retained earnings - Can be expressed as:
Dividends o A certain amount of peso per share: P5 per share
- Distribution of earnings or capital to the shareholders in proportion to their o A certain percent of the par or stated value: 7% dividend (Par 200 x 7% =
shareholdings. P14/share)
- Classification: Property Dividend
o Dividends out of earnings - Dividends in kind and paid in the form of corporate assets other than cash
o Dividends out of capital - Basis: FMV of the asset to be distributed
- Shares entitled to dividends: - Any difference between the carrying amount of the dividend payable and the
o All issued certificate of stocks carrying amount of the asset distributed shall be recognized in profit or loss upon
o All approved subscribed share capital even when not fully paid distribution.
o Including delinquent shares but should be applied first to the unpaid balance - PFRS 5A, an entity shall measure a noncurrent asset classified for distribution to
- Shares not entitled to receive dividends owners at the lower of carrying amount and fair value less cost to distribute at
o Unissued shares the end of the reporting period, the difference is accounted as impairment loss.
o Subscribed no-par value shares
o Treasury shares
- Dividends out of earnings
o Declared only from retained earnings (legal)
o Stock dividends may be declared from premium on par value share.
Choice of either cash or noncash dividend Treasury shares as stock dividend
- An entity shall estimate the dividend payable by considering both the fair value - Cost of shares shall be charged to retained earnings
of each alternative and the associated probabilities of owners selecting each - Considered as property dividend under the Philippine corporation code but are
alternative. accounted as Stock dividend in view of PAS 32: TS shares are a component of
- The entity shall adjust the dividend payable based on the alternative chosen shareholders’ equity and not a financial asset.
through equity or retained earnings at the end of each reporting period and at Special Cases on Stock Dividend
the date of the settlement. 1. Shareholders’ option to receive cash in lieu of stocks
Scrip dividend and Bond Dividend - Amount charged to Retained earnings = Optional Cash Dividend
- Also called liability dividends 2. Stock dividends on the basis of proposed increase in authorized share capital
- Normally in the form of promissory note (scrip) or bonds with interest issued to - If filed but not yet approved, Disclosure to notes only and not reflected in the
stockholder payable in money when matured. financial position
Stock Dividend - If approved after the end of reporting period and stock dividends
- Paid out of the unissued shares of stock of the corporation subsequently effected before release of statements, new authorized share
- Does not affect the assets and total ownership of a corporation, it is a mere capital should be presented, including stock dividends issued.
transfer from Retained earnings to Share capital and Share premium accounts. 3. In closely held entities
- Kinds: Ordinary and Special stock dividends - Amount charged to retained earnings = par value or stated value
- Small Stock dividend Dividends as expense
o Dividend declared < 20% of outstanding share capital - PAS 32, distributions to holders of an equity instrument classified as financial
o Issued at FMV of the stocks to be distributed on date of declaration, but FMV liability are recognized as Interest Expense and presented in the income
should not be lower than Par or Stated value, in which case the Par or stated statement either Interest on other liabilities or separate line item.
value shall be used
- Large Stock dividend Kinds of Dividends Assets Liabilities Equity
o Dividend declared >/= 20% of outstanding share capital Cash Dividends
o Issued at par value or stated value of the stocks to be distributed - Date of declaration No effect Increase Decrease
- Presentation: when not yet issued, addition to Shareholders’ equity in the Total - Date of payment Decrease Decrease No Effect
Share capital Property Dividends
Fractional stock dividend - Date of declaration No effect Increase Decrease
- Two ways to resolve or account for fractional stock dividend: - Date of payment Decrease Decrease No Effect
o The entity may issue warrants for the fractional shares and give the holders Stock Dividends
enough time to accumulate sufficient warrants for a full share. “Fractional - Date of declaration No effect No effect No effect
warrants outstanding” shall be a part of share premium. OR - Date of payment No effect No effect No effect
o The entity may pay cash in lieu of fractional share. Possible only if the source Scrip and Bond
of stock dividends is retained earnings. If the source is share premium, cash - Date of declaration No effect Increase Decrease
payment is illegal. - Date of payment Decrease Decrease No Effect