Acctg For Corp - Part 1 Intro and Share Issuance

ACCOUNTING FOR
CORPORATION:
PART I
Introduction to Corporation
and Share Issuance
3 Forms of Business Organization
1.Sole Proprietorship Assets = Liabilities + Owner’s Equity

Financial Accounting and Reporting
2.Partnership Assets = Liabilities + Partners’ Equity

Advance Accounting
3.Corporation Assets = Liabilities + Shareholders’

Equity
Accounting for Corporation: Part 1 – Introduction to Corporation

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Conceptual Framework and Accounting
Standards
Equity Component Income and Expense

• closed/transferred to Owner’s
SOLE Capital account at the end of
accounting period.
PROPRIETORSHIP
“Owner’s Equity”
Owner’s Drawing
Owner’s Capital • account used to monitor the
• cash or non-cash assets brought by owner’s withdrawal to the business
the owner to the business. Sometimes for personal use.
known as the
“owner’s investment”
CORPORATION

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“Shareholders’ Retained Earnings
• represents the accumulated
Equity” earnings of the corporation. This is
where the income and expense
Share Capital transferred to.
• also known as Capital Stock. This
refers to the fixed amount paid or
secured to be paid by the Dividends
shareholders. • pertains to distributed earnings of
the corporation to its shareholders.
What is Corporation?

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Characteristics
an artificial being
created by
A operation of law
Corporation is
With right of
succession
Has rights and

privileges

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Explanation
Existence is separate from the owners.
A mere agreement will not form a corporation.
The ownership can be transferred without dissolving the corporation. The corporate term has
perpetual existence. (Sec. 11 of RA no. 11232)
It has rights and privileges defined by law which incidental to its existence.

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General Classification
Stock Corporation Non-Stock Corporation

Capital in the form of Stock. Capital comes from Fees.
Owners are called Owners are called MEMBERS
SHAREHOLDERS Usually for entities non-profit.

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Usually for entities profit-oriented.

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Typical Corporate Organizational
Structure

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Shareholders
Board of Directors
President
Vice President
Production and Supply Human Resources

Sales Department Finance Department
Department Department
Other Employees of the Organization (Rank and File = non-managerial or non-executive)

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Three Stages of Organizing a Corporation
Stage 1:
Promotion • Drafting of Articles of Incorporation
(AOI) known as the Corporate Charter.
• Filing of AOI with SEC for the issuance
of Certificate of Incorporation.
• Stock corporations shall not be
Stage 2: required to have minimum capital
Incorporation stock.(Sec. 12 of RA no.11232)
Generally,the corporation shouldstart

its operation within five (5) year
from
the date of its incorporation. Stage 3:
Commencement of the
Failure to do so, its certificate of
incorporation shall be revoked. Business
(Sec. 21 of RA no.11232)

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Basic Rights of Shareholders/Stockholders
When a corporation has only one class of shares, it is identified as
ordinary share capital (common stock). Ordinary or Common
Shareholders has the following general rights:
• To vote at shareholders’ meetings

• To sell or dispose their shares
• To purchase additional shares when a new share capital is issued.
This is known as preemptive right
• To receive dividends, if any
• To share in any assets remaining after creditors are paid in a

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liquidation
Another class of shares is the preference share capital (preferred

stock). Preferred Shareholders have the priority (1) to distribution of
dividends and (2) to distributions of assets in the event of corporate
liquidation.
Stock Certificate
SAMPLE OF STOCK CERTIFICATE issued in the Philippines
A STOCK CERTIFICATE
serves as proof that a
stockholder has purchased
shares.

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1 ownership unit is equivalent
to one share.
Source: https://www.pds.com.ph/

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Corporate capitalarising from
Shareholders’ Equity investment by shareholders.
Shareholders’ Equity Amount

Contributed Capital
Share Capital maximum number of shares that
a corporation may issue.
12% Preference Shares, P 50 par, 50,000 shares authorized,
XXX,XX
10,000 shares issued and outstanding
X
Ordinary Shares, P 50 par, 100,000 shares authorized,
XXX,XX
55,000 shares issued and 50,000 outstanding
X
Additional Paid
-in Capital
Issued Shares
Preference Share Premium XXX,XX
Total stock/shares that has been
Ordinary Share Premium X
XXX,XX issued or sold.
Total Contributed Capital X
XXX,XX
Retained Earnings (Deficit) X
XXX,XX Outstanding Shares
Less: Treasury Shares X
(XXX,XX
)
Total stock/shares that has been
X issued or soldLESS
TOTAL SHAREHOLDERS’ EQUITY XXX,XXX SHARES . TREASURY
Corporate capitalarising from
14 earnings from its operations.
Par Value
Two Kinds of Share Capital is the least amountassigned to
each share to be paid by the
investor (or buyer of shares).
Known as the minimum legal
PREFERENCE (PREFERRED) SHARE CAPITAL capital. Stated in the Stock
Certificate and Articles of
– normally issued with a par value and a dividend rate.Incorporation.
Stated Value
Same with par but the amount is
stated only in the Articles of
Dividend rate
Incorporation.
ORDINARY (COMMON) SHARE CAPITAL

– residual ownership equity. May be issued with par or stated
Accounting for Corporation: Part 1 – Share Issuance

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value. In rare case, issued with no par nor stated value.
Authorized Share Capital

Authorized Shares – maximum number of shares that a corporation may issue.
Authorized Share Capital – number of authorized shares x par/stated value
Example 1: Jolly Corporation is authorized to issue 200,000 shares of ordinary share capital with a par
value of P 25 per share.
Questions:
How many authorized shares? 200,000 shares.
How much is the authorized share capital? P 5 million.

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Example 2: Golden Corporation is authorized to issue 100,000 shares of 15% preference share capital
with a stated value of P 40 per share.
Questions:
How many authorized shares? 100,000 shares.
How much is the authorized share capital? P 4 million.
Authorized Share Capital

MANNER OF RECORDING THE AUTHORIZED SHARE CAPITAL
Example 1: Jolly Corporation is authorized to issue 200,000 shares of ordinary share capital with a par
value of P 25 per share.
Example 2: Golden Corporation is authorized to issue 100,000 shares of 15% preference share capital
with a stated value of P 40 per share.
Memorandum Entry Method Journal Entry Method

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For Example 1:
Unissued Ordinary Share Capital 5,000,000
Authorized to issue 200,000 ordinary Authorized Ordinary Share Capital 5,000,000
shares with a par value of P25. To record the authorized share capital of Jolly Corporation.
For Example 2:
Unissued Ordinary Share Capital 4,000,000
Authorized to issue 100,000 preference Authorized Ordinary Share Capital 4,000,000
shares with a stated value of P40. To record the authorized share capital of Golden Corporation.
Issuance of Share Capital

Share Capital may be issued in exchange of the following:

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CASH
NON-CASH ASSETS (i.e. vehicle, equipment and land)
SERVICES
SUBSCRIPTION BASIS

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CASH
Illustration: On January 31, 2019, Silver Lining Company (the Company) was formally
organized to operate its retail business. The Company is authorized to issue
200,000 ordinary shares with P 15 par value per share. Subsequently, there are
50,000 shares issued to Mr. Lim.
Scenario A: Issued Price = at Par (P 15)

Cash (50,000shares x P15) 750,000 Cash 750,000
Ordinary Share Capital 750,000 Unissued Ordinary Share Capital 750,000

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CASH
Scenario B: Issued Price = above Par (P 20)
Cash (50,000shares x P20) 1,000,000 Cash 1,000,000

Ordinary Share Premium 250,000 Ordinary Share Premium* 250,000

To record the 50,000 shares issued to Mr. Lim. (50,000 x
To record the 50,000 shares issued to Mr. Lim. P20)
* Other term for Ordinary Share Premium is “Additional Paid-in Capital in excess of Par”
Scenario C: Issued Price = below Par (P 12)

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CASH

Cash
600,000 Cash 600,000
Discount on Ordinary Share Capital 150,000 Discount on Ordinary Share Capital 150,000

To record the 50,000 shares issued to Mr. Lim. (50,000 x
To record the 50,000 shares issued to Mr. Lim.
P12)
Under the Revised Corporation Code of the Philippines, the original issuance of share capital at the price below its par
or stated value is PROHIBITED; therefore, the journal entry above with P 12 issuance price is for illustration only.

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NON-CASH ASSETS/PROPERTY
In hierarchical order, the measurement or value of the non-cash assets in exchange

for shares is based on the:
1. fair market value of the ASSETS at the date the assets received. – “Direct
Measurement”
2. Fair market value of the SHARES on the date of exchange. – “Indirect Measurement”
3. Par or Stated Value

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Illustration: Mr. Bravo invested his parcel of land in exchange for 20,000 ordinary shares
of Silver Lining Corporation with P15 par value per share. (Use memorandum entry method)
Scenario A: If the Land has a fair market value (FMV) of P 400,000

Account Debit Credit
Land 400,000
Ordinary Share Capital (P 15 x 20,000) 300,000
Ordinary Share Premium 150,000
To record the issued 20,000 ordinary shares to Mr. Bravo in exchange for Land @FMV P
400,000.

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Scenario B: If the Land has no FMV and at the time of exchange the FMV of Silver
Lining Corp.’s ordinary share is P 18.
Land ( P 18 x 20,000) 360,000
Ordinary Share Capital 300,000
To record the issued 20,000 ordinary shares to Mr. Bravo in exchange for Land @FMV P18.

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Scenario C: If there’s no FMV of Land and Silver Lining Corp.’s ordinary share.
Land 300,000
To record the issued 20,000 ordinary shares to Mr. Bravo in exchange for Land at Par.

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SERVICES RENDERED
In hierarchical order, the measurement or value of the non-cash assets in exchange

for shares is based on the:
1. fair market value of the SERVICE RENDERED at the date the assets received.
2. fair market value of the SHARES on the date of exchange.
3. par or stated value

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SERVICES RENDERED
Illustration: The Silver Lining Corporation issued 5,000 ordinary shares to Atty.
Romashia
Estavillo as payment for the services she rendered during incorporation.
Each share has P15 par value. (Use memorandum entry method)
Scenario A: If the service rendered is valued at P 80,000

Pre-Operating Expenses 80,000

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SERVICES RENDERED
To record the issued 5,000 ordinary shares to Atty. Estavillo in exchange for services rendered @ P80,000.
Romashia
Scenario B: If the service rendered has no FMV. At the time the services is performed,
the FMV of Silver Lining Corp.’s ordinary share is P 17.
Pre-Operating Expenses (P 17 x 5,000sh) 85,000

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SERVICES RENDERED
Ordinary Share Capital (P 15 x 5,000sh) 75,000

To record the issued 5,000 ordinary shares to Atty. Estavillo in exchange for services rendered @ FMV P17.
Romashia
Scenario C: If in case the FMV of service rendered and Silver Lining Corp.’s ordinary
share cannot identify.

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SERVICES RENDERED
Pre-Operating Expenses 75,000

To record the issued 5,000 ordinary shares to Atty. Estavillo in exchange for services rendered
at P ar.

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SUBSCRIPTION BASIS
What is Subscription?
It is a contract for the purchased shares of the subscriber to the issuing

corporation wherein the settlement will be made at a later date. The
stock certificate will be issued upon the full payment.
Three important journal entries in subscription:
1. To record the receipt of subscription
Share Capital Subscription Receivable* XXX,XXX
Share Capital Subscribed (@ par/stated value) XXX,XXX

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SUBSCRIPTION BASIS
Share Premium XXX,XXX
2. To record the collection from subscribed
shares
Cash XXX,XXX
Share Capital Subscription Receivable XXX,XXX
* Share Capital Subscription Receivable - If collectible within one year – classified as ASSET
- If collectible BEYOND one year – classified as EQUITY, deductible to Share Capital
Subscribed
Three important journal entries in subscription:
3. To record the issuance of stock certificate upon full payment of subscription
Share Capital Subscribed XXX,XXX
Share Capital* XXX,XXX
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SUBSCRIPTION BASIS
* Use “Unissued Share Capital account” if it is Journal Entry Method.
Issued Price
Illustration: On August 10, 2019, Silver Lining Corporation received subscription from
Mr. Jose Cruz for 10,000 shares of its P 15 par value ordinary shares at P 22.
On the same date, Mr. Cruz made 65% partial payment and the balance is
due on September 3, 2019. The balances has been paid in full on September
3, 2019. (Use memorandum entry method)
Date Account Debit Credit
Aug- Cash ([P22 x 10,000shares] x 65%) 143,000

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SUBSCRIPTION BASIS
10 Ordinary Share Capital Subscription Receivable 77,000
Ordinary Share Capital Subscribed (P15 par x 10,000 shares) 150,000
To record the subscription of 10,000 ordinary shares with P 15 par value of Silver Lining Corp to Mr. Cruz at P22.
2. To record the collection from subscribed shares
Sep-03 Cash ([P22 x 10,000shares] x 35%) 77,000
Ordinary Share Capital Subscription Receivable 77,000
To record the 35% for settle the full payment of the 10,000 subscribed shares.
3. To record the issuance of stock certificate upon full payment of subscription

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SUBSCRIPTION BASIS
Sep-03 Ordinary Share Capital Subscribed 150,000
To record the issuance of stock certificate to Mr. Cruz.

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SUBSCRIPTION BASIS – Delinquent Subscription
Delinquent Subscription
– This happens when a subscriber fails to settle the obligation after the several notice.
– Upon default, the subscribed shares are declared as DELINQUENT SHARES.
– The delinquent shares are then offered for sale in a public auction and issued to the HIGHEST
BIDDER.
– If no highest bidder (means the shares is not sold), it will be transferred under the name of corporation
through TREASURY SHARES.
Highest Bidder Treasury Shares

The one who will pay the unpaid subscription shares buyback by the issuing company. This happens

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PLUS any incidental cost relevant to the sale of when the issuing company buy its own shares.
delinquent shares and is willing to receive the
lease number of shares.
Common journal entries:
1. Upon Default
XXX,X
Receivable from Highest Bidder XX
Share Capital Subscription Receivable XXX,XXX
2. Cost incurred relevant to sale of delinquent shares

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XXX,X
Receivable from Highest Bidder XX
Cash/Accounts Payable XXX,XXX
3. Settlement of Balance
Scenario A: If with Highest Bidder – receipt of payment
Cash XXX,XXX
Receivable from Highest Bidder XXX,XXX
Scenario B: If NO Highest Bidder – issuing company purchase its own shares

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Treasury Share Capital XXX,XXX
Receivable from Highest Bidder XXX,XXX
4. To record the issuance of stock certificate
Share Capital Subscribed XXX,XXX
Share Capital* XXX,XXX
* Use “Unissued Share Capital account” if it is Journal Entry
Method.
Illustration: On August 10, 2019, Silver Lining Corporation received subscription from
Mr. Jose Cruz for 10,000 shares of its P 15 par value ordinary shares at P 22.

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On the same date, Mr. Cruz made 65% partial payment and the balance is due
on September 3, 2019. The balances has been paid in full on September 3,
2019. (Use memorandum entry method)
Aug- Cash ([P22 x 10,000shares] x 65%) 143,000
10 Ordinary Share Capital Subscription Receivable 77,000
Ordinary Share Capital Subscribed (P15 par x 10,000 shares) 150,000

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SCENARIO A: (WITH HIGHEST BIDDER)
Assuming Mr. Cruz failed to pay the 35% balances on September 03.
September 7 After several noticed to him, Silver Lining Corporation (the Corporation) decided
to
declare the subscription shares as delinquent shares.
September 10 the delinquent shares were offered for sale in a public auction and then a P5,000
was incurred in connection to the auction of shares. Mr. Medina won the bidding.
September 28 Mr. Medina paid the balances. On the same date, the Corporation issued the stock

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certificate to Mr. Cruz for 7,000 ordinary shares and to Mr. Medina for 3,000
ordinary shares.
September 7 After several noticed to him, Silver Lining Corporation (the Corporation)
decided to declare the subscription shares as delinquent shares.

Sep-07 Receivable from Highest Bidder 77,000
Share Capital Subscription Receivable 77,000
To record the subscribed shares as delinquent shares.

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September 10 the delinquent shares were offered for sale in a public auction and then a
P5,000 was paid in connection to the sale of shares. Mr. Medina won the
bidding.

Cash 5,000
To record the cost incurred to sell the delinquent shares.
September 28 Mr. Medina paid the balances. On the same date, the Corporation issued
the stock certificate to Mr. Cruz for 7,000 ordinary shares and to

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Mr. Medina for 3,000 ordinary shares.

Sep-28 Cash 82,000
Receivable from Highest Bidder (P 77,000 + P5,000) 82,000
To record the payment made by Mr. Medina (the Highest Bidder).
September 28 Mr. Medina paid the balances. On the same date, the Corporation issued
the stock certificate to Mr. Cruz for 7,000 ordinary shares and to
Mr. Medina for 3,000 ordinary shares.

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Sep-28 Ordinary Share Capital Subscribed 150,000
To record the issuance of Stock Certificate.
How much Ordinary Share Capital goes to Mr. Mr. Cruz (7,000 shares x P 15 par = P105,000)
Cruz and Mr. Medina? Mr. Medina (3,000 shares x P 15 par = P45,000)
SCENARIO B: (WITHOUT HIGHEST BIDDER)
Assuming Mr. Cruz failed to pay the 35% balances on September 03.

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P5,000 was incurred in connection to the auction of shares. However, the
shares were not sold. The Corporation decided to acquire the delinquent
shares and issue the stock certificate.

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Share Capital Subscription Receivable 77,000
To record the subscribed shares as delinquent shares.


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Cash 5,000
To record the cost incurred to sell the delinquent shares.

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Sep-10 Treasury Share Capital 82,000
Receivable from Highest Bidder (P 77,000 + P5,000) 82,000
To record acquisition of delinquent shares
Ordinary Share Capital Subscribed 150,000
To record the issuance of Stock Certificate.

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NO PAR OR STATED VALUE
In a rare case, a corporation issue shares with no par or stated value: Provided, that the
issuance price is not below Five pesos (P5.00) per share. Further, the entire
consideration received by the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
Corporation NOT allowed to issue no-par value shares specified by the Code:
Preneed corporations and other corporations authorized to obtain or access funds
from the public. The restriction applies to the covered corporations, whether
publicly listed or not.

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This is mandated in Section 6 of RA no. 11232 also known as Revised Corporation
Code of the Philippines
NO PAR OR STATED VALUE

Illustration: On February 2, 2019, Hilton Corporation was organized and is authorized
to issue 160,000 shares of no-par, no-stated value ordinary share capital.
Subsequently, the Corporation issued 40,000 shares with issuance price of
P 7 per share. (Use memorandum entry method)
Cash 280,000
Ordinary Share Capital (P7 issuance price x 40,000 shares) 280,000
To record the issued 40,000 shares of Hilton Corporation with no par for P 7 per share issuance price.
THE END

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ACCOUNTING FOR

1.Sole Proprietorship Assets = Liabilities + Owner’s Equity

2.Partnership Assets = Liabilities + Partners’ Equity

3.Corporation Assets = Liabilities + Shareholders’

Accounting for Corporation: Part 1 – Introduction to Corporation

Equity Component Income and Expense

Accounting for Corporation: Part 1 – Introduction to Corporation

Accounting for Corporation: Part 1 – Introduction to Corporation

Has rights and

Accounting for Corporation: Part 1 – Introduction to Corporation

A mere agreement will not form a corporation.

Accounting for Corporation: Part 1 – Introduction to Corporation

Stock Corporation Non-Stock Corporation

Owners are called Owners are called MEMBERS

SHAREHOLDERS Usually for entities non-profit.

Accounting for Corporation: Part 1 – Introduction to Corporation

Accounting for Corporation: Part 1 – Introduction to Corporation

Accounting for Corporation: Part 1 – Introduction to Corporation

Production and Supply Human Resources

Other Employees of the Organization (Rank and File = non-managerial or non-executive)

Accounting for Corporation: Part 1 – Introduction to Corporation

Generally,the corporation shouldstart

Accounting for Corporation: Part 1 – Introduction to Corporation

• To vote at shareholders’ meetings

Accounting for Corporation: Part 1 – Introduction to Corporation

Another class of shares is the preference share capital (preferred

Accounting for Corporation: Part 1 – Introduction to Corporation

Accounting for Corporation: Part 1 – Introduction to Corporation

Shareholders’ Equity Amount

ORDINARY (COMMON) SHARE CAPITAL

Accounting for Corporation: Part 1 – Share Issuance

Authorized Share Capital

Accounting for Corporation: Part 1 – Share Issuance

Authorized Share Capital

Accounting for Corporation: Part 1 – Share Issuance

Issuance of Share Capital

Accounting for Corporation: Part 1 – Share Issuance

NON-CASH ASSETS (i.e. vehicle, equipment and land)

Accounting for Corporation: Part 1 – Share Issuance

Scenario A: Issued Price = at Par (P 15)

Cash (50,000shares x P15) 750,000 Cash 750,000

Ordinary Share Capital 750,000 Unissued Ordinary Share Capital 750,000

Accounting for Corporation: Part 1 – Share Issuance

Cash (50,000shares x P20) 1,000,000 Cash 1,000,000

Ordinary Share Premium 250,000 Ordinary Share Premium* 250,000

Accounting for Corporation: Part 1 – Share Issuance

Memorandum Entry Method Journal Entry Method

600,000 Cash 600,000

Ordinary Share Capital 750,000 Unissued Ordinary Share Capital 750,000

Accounting for Corporation: Part 1 – Share Issuance

In hierarchical order, the measurement or value of the non-cash assets in exchange

3. Par or Stated Value

Accounting for Corporation: Part 1 – Share Issuance

Scenario A: If the Land has a fair market value (FMV) of P 400,000

Accounting for Corporation: Part 1 – Share Issuance

Accounting for Corporation: Part 1 – Share Issuance

Accounting for Corporation: Part 1 – Share Issuance

In hierarchical order, the measurement or value of the non-cash assets in exchange

2. fair market value of the SHARES on the date of exchange.

3. par or stated value

Accounting for Corporation: Part 1 – Share Issuance

Scenario A: If the service rendered is valued at P 80,000

Accounting for Corporation: Part 1 – Share Issuance