WESLEYAN UNIVERSITY – PHILIPPINES

Cabanatuan City
College of Business and Accountancy

SHAREHOLDERS’ EQUITY - A

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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: Subscription receivable (more than 1 yr) (XX)
Share premium:
Share premium excess over par XX
Share premium – treasury shares XX
Share premium conversion option – cbp XX
Donated capital XX
Share premium warrants outstanding XX
Share premium option outstanding XX
Total paid in capital XX
Retained earnings – unappropriated XX
Retained earnings – appropriated XX
Other comprehensive income (cumulative)
Revaluation surplus XX
Unrealized gain or loss – FVTOCI XX
Remeasurement gain or loss XX
Translation gain or loss XX
Effective portion of cash flow hedge XX
Change in FV due to credit risk XX
Total XX
Less: Treasury shares (XX)
Total Shareholders’ Equity XX

Illustration 1 : Shareholders Equity composition

The accounts below appear in the December 31 trial balance of Present Company:

Authorized ordinary share P 3,500,000

Unissued ordinary share 1,000,000
Subscribed ordinary share 500,000
Subscription receivable 600,000
Premium of 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 for the amount of total shareholders’ equity that Present should report in its December 31 statement
of financial position.

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.

Formula for the computation of Legal Capital:

1. With par value
2. Without par value

Illustration 2 : Legal Capital

The shareholders’ equity section of Alyssa Anne Company revealed the following information on December 31, 2018

Preference share, P100 par P 1,150,000

Share premium - Preference 402,500
Ordinary share, P15 par 2,626,000
Share premium – ordinary 1,375,000
Subscribed ordinary share 250,000
Retained earnings 950,000
Note payable 2,000,000
Subscription receivable – ordinary 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?

ISSUANCE OF SHARE CAPITAL

1. Cash consideration
2. Non cash consideration

Illustration 3 : Issuance of share capital for cash consideration

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 for 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.
Illustration 4 : 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 the organization services rendered from the legal counsel : The fair
value of such services is P60,000.

Illustration 5 : Issuance of share capital for Existing Liability

The company issued 2,000 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 entries using the memorandum method.

ISSUANCE OF SHARE CAPITAL : Two or more classes of shares

A) Issued seperately
B) Issued simultaneously at a basket or lump-sum price
Illustration 6 : 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.
Illustration 7 : Issuance Two or more classes of Shares (Relative Fair value or Proportional method)
The company issued for P1,000,000 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.

Required: Prepare the necessary journal entry to record the transaction using the memorandum method.

Illustration 8 : Issuance of two or more Classes of shares (incremental method)

The company issued for P1,000,000 cash, P1,000 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.

Required: Prepare the necessary journal entry to record the transaction using the memorandum method.