When a share capital is fully paid, a stock certificate is issued to the shareholder and the stock becomes

outstanding. Subsequent to the original issuance, various share capital transactions may take place. These
transactions may cause a change in total shareholders’ equity of the company or in the number of shares
outstanding. These transactions are going to be discussed this module.

After successful completion of this module, you should be able to:

 Understand and account for different types of share capital transactions, which includes:
 Share Capital Retirement
 Share Capital Reacquisition
 Treasury Share Retirement
 Share Capital Conversion
 Share Split

This is the process of reverting previously issued shares back to being unissued shares. This calls for the
cancellation of the stock certificate, share capital account and the related APIC account. This will reduce
both the number of shares issued and outstanding.
 If the Retirement Price (RP) > original issue price (OIP) → difference is debited to
“Retained Earnings”
 If the Retirement Price (RP) < original issue price (OIP) → difference is credited to “PIC
from retirement of Share Capital”
Transaction Pro-forma Entry
*If retirement price > original price:
Share Capital (at Par) XX
Share Capital Retirement Share Premium (OIP-Par) XX
Retained Earnings (RP-OIP) XX
Cash (at RP) XX
*If retirement price < original price:
Share Capital (at Par) XX
Share Premium (OIP-Par) XX
Cash (at RP) XX
PIC from ret. of SC (RP-OIP) XX
Treasury shares are shares issued in the own name of the issuing corporation. They are shares reacquired
by the corporation due to a variety of reasons which include improvement of EPS and investment of excess
temporary cash. Important points to remember concerning treasury shares are as follows:
 Treasury shares are accounted for using the cost method.
 Any balance in the treasury shares account is reported as deduction from the total
shareholders’ equity.
 Treasury shares are issued but are not outstanding. Therefore, they are not entitled to
dividends.
 The law requires appropriation of retained earnings equal to the amount of Treasury Shares
acquired. This might be done as an adjusting entry at the end of the accounting period.

Reacquisition by Purchase
 Treasury Shares are recorded at cost.
 When the treasury shares are reissued:
o Re-issue Price (RiP) > Cost of Treasury Shares → difference is credited to “Paid-
in Capital from Treasury Shares”
o Re-issue Price (RiP) < Cost of Treasury Shares → difference is debited to [1] “Paid-
in Capital from Treasury Shares” (to the extent of its balance) and [2] “Retained
Earnings”
Transaction Pro-forma Entry
Treasury Shares (at cost) XX
Reacquisition of shares by
Cash (at cost) XX
purchase
*If Re-issue Price > Cost of Treasury Shares:
Cash (at re-issue price) XX
Treasury Shares (at cost) XX
PIC from Treasury Shares (RiP-CTS) XX

Re-issuance of treasury shares *If Re-issue Price < Cost of Treasury Shares:
Cash (at re-issue price) XX
PIC from Treasury Shares XX
Retained Earnings XX
Treasury Shares (at cost) XX

Transaction Pro-forma Entry

Appropriation of Retained Retained Earnings XX
Earnings (Year-end adjustment) RE appropriated for TS XX

Reacquisition by Donation
 Market value of shares not available at the date of donation
o Receipt of shares from shareholders’ is recorded through a memorandum entry.
o Subsequent sale is recorded at the entire proceeds.
 Transaction Pro-forma Entry
Reacquisition of shares by Memo: Received XXX ordinary shares as donation
donation from shareholders.
Cash (at re-issue price) XX
Re-issuance of treasury shares PIC from Treasury Shares XX
 Market value of shares available at the date of donation
o Receipt of shares from shareholders’ is recorded at market value of shares on date
of donation which is deemed the cost of treasury shares
o When the donated treasury shares are re-issued:
 Re-issue Price (RiP) > Cost of Treasury Shares → difference is credited to
“Paid-in Capital from Treasury Shares”
 Re-issue Price (RiP) < Cost of Treasury Shares → difference is debited to
[1] “Paid-in Capital from Treasury Shares” (to the extent of its balance) and
[2] “Retained Earnings”
Transaction Pro-forma Entry
Treasury Shares (at cost) XX
Reacquisition of shares by
PIC from Treasury Shares XX
donation
*If Re-issue Price > Cost of Treasury Shares:
Cash (at re-issue price) XX
Treasury Shares (at cost) XX
PIC from Treasury Shares (RiP-CTS) XX

Re-issuance of treasury shares *If Re-issue Price < Cost of Treasury Shares:
Cash (at re-issue price) XX
PIC from Treasury Shares XX
Retained Earnings XX
Treasury Shares (at cost) XX

In case a corporation acquires treasury shares and eventually retires the same, the following rules must
be observed:
 If the Cost of Treasury Shares (CTS) > original issue price (OIP) → difference is debited
to “Retained Earnings”
 If the Cost of Treasury Shares (CTS) < original issue price (OIP) → difference is credited
to “PIC from retirement of Share Capital”
Transaction Pro-forma Entry
*If cost of treasury shares > original price:
Share Capital (at Par) XX
Treasury Share Retirement Share Premium (OIP-Par) XX
Retained Earnings (CTS-OIP) XX
Treasury Shares (at cost) XX
 *If cost of treasury shares > original price:
Share Capital (at Par) XX
Share Premium (OIP-Par) XX
Treasury Shares (at cost) XX
PIC from ret. of SC (CTS-OIP) XX

Convertible preference shares can be converted into ordinary shares at the option of the stockholder. The
accounting for conversion of preference share capital into ordinary share capital is similar to retirement
of share capital. All accounts related to the preference shares are cancelled and ordinary shares are
appropriately issued.
 If the Par Value of OSC issued (PVOSC) > original issue price (OIP) of preference shares
→ difference is debited to “Retained Earnings”
 If the Par Value of OSC issued (PVOSC) < original issue price (OIP) of preference shares
→ difference is credited to “PIC from conversion of Share Capital”
Transaction Pro-forma Entry
*If PVOSC > original issue price:
Pref. Share Capital (at Par) XX
Pref. Share Premium (OIP-Par) XX
Retained Earnings (PVOSC-OIP) XX
Ordinary Share Capital (at par) XX
Share Capital Conversion
*If PVOSC < original issue price:
Pref. Share Capital (at Par) XX
Pref. Share Premium (OIP-Par) XX
Ordinary Share Capital (at Par) XX
PIC from con. of SC (PVOSC-OIP) XX

A share split is a corporate action in which a company divides its existing shares into multiple shares to
boost the liquidity of the shares. Share split increases the number of shares outstanding and decreases
the par value per share. Although the number of shares outstanding increases by a specific multiple, the
total value of the shares remains the same compared to pre-split amounts, because the split does not add
any real value. This is done when the market price of the shares are high.

A reverse share split, on the other hand, decreases the number of shares outstanding and increases the
par value per share. This is done when the market price of the shares are low. Share splits and reverse
share splits are normally recorded using a memorandum entry and they will not affect total shareholders’
equity nor total share capital.

Transaction Description
Total shares outstanding would be multiplied by 2
2 for 1 share split
and par value per share would be divided by 2
 Total shares outstanding would be divided by 2
1 for 2 share split (reverse)
and par value per share would be multiplied by 2