ReSA ‘The Review School of Accountancy ‘wTel. No. 735-9807 & 734-3989 Lecture: Shareholders’ Equity 1. Measure of eapta when issue a. with par—at par any excess to Share Premiom account without par bat with a sted val: bts value any exces o Share Prema ba, total ammount or proceeds onthe ise of the share 2. Measure of the consideration received on the sue of share capital: a. foreash orreceabe~ at face . formoncash~ atthe FMV ofthe non-cash or PMV ofthe shares issued whichever i cea deterioubl. © For services rendered ~ al the PMV ofthe services rendered or markt value of the stock issued whichever is clearly determinable When the tok red actly ed athe mat hema aot sok wl be the or mea ofthe could rected 3. Issuance of Ordinary and Preference Shares for a Basket Pri [Both Securities are treated as equity Ifthe markt values of both equity shares are howe, the basket pic i allocated using thelr market vale rato, 'b) When only one security has a known market vale, the basket pie or proceeds i allocated tothe securiics by deducting the market value ofghe security with a Known market vac (the market value ofthat Security will be iS ‘signed value the exces wllte assigned value of the security without own market vale Preference Shares are treated s Det: ‘The resist method is used to allocate the proceeds between the Onnay Share Cepitl (equip) and the Preference Share (deb) The fava ofthe Prefene Sas (e deste fom the wal proceeds avin tte five athe Ordinary Share Cpt ey) 4. Issuance of Preference Share witha Share Warr Preference Share is treated 9s Equity: 8) Whe market value of the preference shae and the muket value of the warns are own = the proceeds is allocated tothe securities Using hei market vale rao. 1b) When only one security has a known market value the proceeds is allocated othe securities by deducting the masket value ofthe security witha known market value (he met value of Unt security willbe is assigned value) the txcess will he assigned value of the security without a known rake value, Preference Share is treated 3t Debt: The residual method is used to allocate the procedsberweon the Share Warrants (equi) and the Preference Share (deb). “The fie value ofthe Preference Share (Je) is deducted for the total proves aving at he ai vale ote Share Warrants (equity) 5. Measure'of Treasury Share ~ at cost which i equal to the fice vale of cash of fir market valu of nomash asset surrendered in teacquting shares ofthe company. Disposal of treasury share thru re-esuance-the rise priceless the cost of treasury share. Any positive excess ‘credited to Share Pemivm for Treasury. Any negative excess debited to Share Prervume Tears to the cust ota ‘existing credit balance prior to resssuanc, any remaining nepaive excess is charged t0 Retained Earsnge ot ‘Aecumilated Profits or Loses account Diperal of treasiy share tha riement~ compar th crying vate ofthe shar to which to he teas shore Belongs agnint the Cnt ofthe tesuy Any pie excess ceed to Shire remom: rom Reuse age tegtve excess chad tothe exiting Stare Prem = Tens any andthe venaing sma Rech Eaming/Accimalated ofr and Lance +The carrying vale of the share includes the Pa ond the Share Premlum ot the time the shares were originally issued 6. Retirement of Share Capital ~ compare the carrying value ofthe share capital rete (par and share prem) eganst the retirement price any positive excess i creel directly to an equty account (share pemivin ~ retirement). howe, ifthe result is egative exces edited directly to retained euings. 1. Conversion of a Class of Own Equity to another Class of Own Equity - compare the canying value of the share xpital converted aginst the par or sisted capital oF shares isued the diference is credited to share premium aecount ‘Any transaction cost incurred Isa charged tothe share premium acount, 8, Shore Rights «is an issue of rew shares with the terms of isue giving sharcholdrs the right to an addonal umber of shares in proportion to their curent shareholdings. Rights issue may be cenounceable of non-reounceable. IfReSA/ PRACTICA TIS Tare To tir party daring the fer pried xing sharchoWers Ti Savio py rime ee fate he eee queens, a aharchoe ut flowed asl is ot Be gts ID aoe ec th fro acute new Shes CO. Accounting for Share Riel 8). Upom iswance~ 0 freaky 6 B) “Upon exercise fral enty required 9 recon DD Chom redempron ~ fa ety i teu 0 recon thea B) Upon expiration v0 foal etry is neces cou. only a memorandum entry is reuied Fr of ew shares i payment of cash dividend. east 0 the ropetion wo thir current shareholing ato cost the nal carting to make the issue. The bonus i Bonus ttue ~ isan ius of shares to evstingsarenoers Perttan The eompary ne ie ris sess “ Se Th ee tio mua hake eee dese he sco uly the ee a an nt wl enya he components of he eauity or tansaction ins dhe sareolts) eng GRE dtr nas sc increases the har apt and decreases another equity account of he ei. Equity-Setled Share-taed Payment (Share Options Cat mens tne services reeied, aa the corespning tease in eyuity irc. a dhe fae valve of the ae sri ee antes ths fr valve cant he wstimated reliably, he eniy cannot estimate eily che fit vale of Rea ihe cat shall mesture tr farsi and the eoresponding snersase im equity, indict, (Rites roth hi value ofthe equity srmenes granted, Tecause ofthe difficly a directly measuring the cost of Ae erscedrcety the ent shal messize tel value the employee services ressived By reference to the fair vale ities equity tstruments granted However, in rate ees, the enity may he unable to estimate elibly the fi va of TRaranens rami at the measurement date the eaity shal instead measure the equity instruments at thei in rs Mee eee lon on the die of grat and if necessary i is remcasured at cach accounting reponing date use the weing period Remeaurement fs necessity whch subsequent information differs from previous ‘Th following ae the fogturs in me wring ss cost of series: 31 numberof shares tobe suc: Fined =o performance condi bs detenae nuaber oF employees with vested benefits Varah tomer any perforsuncs cant sind determine umber of employees wit vested benefits, hy Value ofthe option ~ is dtemninable Fair Markt Valus (or value mee) or its Intinic Value ( Mov). The Intrinsic Value i he diernce of the Fae Market Value of shares onthe date of rant 0 Option Pace. The inns model ws any when the fie wala ofthe option isnot clearly determinable ©) Vesting period Fixed = no perfomance condition Varable= Consider perfomance condition Recognition ~ 2 Already vested ~ recognize immtels Bh las yetan vest =the fr val ofthe scevice is amortize ove the vesting petiod and recognize ws an expense in cach yearend during the vesting pio. Cash Settled Share Uased Payment: The cntty shall mesure the ponds oF services aire aed th Raility incwre at the Bie value of the abiley. Ua he Tabi i setled, the entity shall remcosie the fie value of the ibility at each reparting date and at the date of sloment with any chars fi Accounting fr cash-ettiod share-based payer Te Mensurement = : 1a) For fature services toe remered th ysarcal ding the vesting pio and amortize over the total remaining require service peti. the cumpensation has yet be exereised aler the vesting petal but before the expiration ofthe rene exercied pred farther rcmeasarement sree Uh following oe he factors fo measuring the corsets 3) umber of karst be issucd Fined no performance con iin but dtc numberof employees with vest Benefits ‘Vanahie™ consider any performance cofiton an determine mumbr of crployece with vested ene 1) Value ofthe option - is determinable Fae Maret Value (fr value wodel ois Inns Value (nrinsie Model). The trinsic Value the rence ofthe Fat Market Val of shares in each accounting rpartn date ovr the pre-determined ark cs The intrinsic model swe only when he Fe val a the open ‘ot ele determinable «) Vesting petod — ised = no performance comliton aisle consider performance conion Resa ‘The Review Scnool of Accountancy ‘Brel. No. 735-9007 & 734-3089,* Equity BeSA/ PRACTICAL ACCOUNTING 1 Lecture — Shareholders 2 Recognit a. Already vested recognize immediately i 1 Has yet to vest —the fur value ofthe service is amortize ove the vesting period and recon ‘ach yearend drig the vesting period ie as an expense in 12, Share-Based Payment with Cash Atlernatives: i ‘or the counter pary For share tase pment wanscions in which the tre ofthe sangeet provide citer the evo he OP withthe choice of wheter the ety sles the transaction i cash (or other asst) of by ising se “lity shall aeenunt or hat tnsation, or the components of hal transactions, asa casted shae-bse PTY transection if and wo the extent th the ely ts incredibly to sete in exsh or other assets. oF #8 share-based peyment wansscton i andi the extent that. no such ability hasbeen incur. 1 sebum te Co fy nacht | Me atone nein enc Soe er ere ht nt nae eu cao eh eed egw cote sere Sash er en he na pl fr moet ere eae For transactions. incdng transactions with employee, the entity shall measure the fava ofthe compound financial insrumen tthe mensirement dae, king into account he terms and conditions on which the rights 1 cash or equity insiruments were granted. The entity shall fst measure the fir value ofthe debt component ard then measute the fir ‘value of he equity component faking ino account hat he counterparty mus oft height to recive cash im oder 10 feceive he equity instrament 14, Share-Based Payment ~The Entity with 4 Choice of Settemes ihe terms of the arrangement provide an catty wih the thoie of whether fo seein cash or by issuing equity instruments, the entity Shall determine whether it has a present obligation to sete in eash and account forthe share-based payrnnt transaction sccordinglyThe entity Ras 3 present obligation to sete i eas if the choice of Selement in equity Insiument has no commercial substance (eg. beeaus the ety is legally prohibited from issuing shares). ofthe entity tsa pst practice wr asated policy of setting in cash, or generally Seley in cash whenever the counterparty asks for fish setement. Ite entity has a present obligation fo sete eas, it shall account forthe tansacton in accordance ‘sth the requirements apivingessl-sexledsbare-bated payment transactions. Ino such obigation, the entity sh account for ansaction in secordance wi the requirements applying equt-sctled share-based payment wansactios. . Reserves ~ i she generic term forall equity 3ccounts other than conuibutd equity. A major component is the Accumulated Profit/Lasses (Retained Earings) account. Other tes included inthe reserves account ae the following Revaluation of property, plant and equipment; forsien exchange reserves: Unrealized gainloss on avaiable fr sale 16. Contacts nvoLviNe AN ENTITY'S OMN EQUITY Net Senment DassatinsConrast Gis Physical Senioment teas ore atc) Countey shee Forward buy Liabiys forthe share Devvaive “ass fae Libity or ibe share redemption amount(s) amcuat tedemplion amount (gos) Forward qui Desvavetibiliy (mt Dessay net amos). amount) Wonca et Equi Dervaivenabity (et Dervtveribily net Prchased put Exuiy set (ot Bavenveibilty (ac srount) Ween pt Li Deatoaitiy (et Laity aout) : Total return swap Derivative ————_ ReSA ‘The Review School of Accountancy ‘Tel. No. 735-9807 & 734-3989ReSA The Review School of Accountancy . Uberita/C. Espenila/G. Macaiiola PRACTICAL ACCOUNTING | u RN UI PROFIS 1. The more common items that ether increas decrease) retained earings are: 0 Net income (loss) Pata) © Prior period adjustments (error correction and certain changes in ect. principle) X(8) © Dividends outofeamines cash, property and lbility and share divider), (wo) © Adjustment as a result of quasi-reorganization wx (on) © Appropition er estcion of retained earings (9) 0 Reversal of appropriatic ial © Loss on share capital (including treasury) transaction oa) 2 Dividends out of earnings - declaration or dstibuton of company's earings be recognized on the date of declaration as charged (debit) to the retained eamningaccumulated profits and losses. The amount or measure depends on the type of dividends, such a8. Cash dividends ~ is measured ot the face value of the dividends. If the cash dividend is based on the ‘number of shares outstanding, the charge to retained earings does not include treasury shares When it is necessary to allocate total dividends bepween common (ordinary shares) and preference, allocation is done hy considering the preferential rights ofthe preference shares, such as Non-cumulative rights — any undeclared dividend is forfeited but the current year dividend be assigned tothe preference shareholders, ‘Cumutative rights ~ emitled to receive any undeclared dividend as wel as the current yess dividend. Nonparticipating rights ~ after assigning the dividends due on either the cumulative or non- ‘cumulative rights, any remaining dividend goes to ordinary shareholders Participating rights ~ after assigning the dividends due on either the cumulative or non-cumulative ihts, the ordinary shareholders will recsive a “ike” percentage of par value oustanding. if there is a remainder of the declared dividends for participation for the preference shares and ordinary shares, it should be allocated in proportion to the par value peso oustanding in exch class of stock. The “lke” percentage isthe dividend rate of the participating preference share, if there are two or ‘more preference shares with different rates and both are participating then the rate or percentage 10 bbe used isthe lower rate Property dividends ~ On January 17, 2008, IFRIC issued draft interpretation D23, ‘Distribution of non= ‘ash to overs’. 23 proposes that al types of distributions of non-cash assets to owners acting in thelt ‘capacity as owners are measured atthe ir value of the assets distributed. The difference between the carrying value ofthe assets and the fair value is taken to the income statement. The interpretation would apply to all types of distributions of an asst to another entity within the same consolidated group. At the time of writing D23 is under deliberation by the IFRIC and both book and fair value treatmen's are accepiable IFRIC Interpretation 17 Distributions of Non-cash Assets to Owners was isued 27 November 2008, IFRIC 17 Distributions of Non-cash Assets to Owners applies to the entity making the distribution, not to the recipient. cappies wlien non-cash assets are distributed to owners of when the owner is given a choice of taking cash in lew of the non-cash assets TFRIC 17 clarifies that * adividend payable shouldbe recognized when the dividend is appropri longer atthe dseretion of the entity ‘an entity should measure the dividend payable atthe fir value ofthe net assets tobe distributed ‘+ anentty should remeasure the ibility at each reporting date and at settlement, with changes recognized diecly in equity + ancatity should recognize the difference between the dividend paid and the carrying amount ofthe net assets distributed in profit or oss, and should disclose it separately ‘an entity should provide additional disclosures ifthe net assets being held for distribution to owners. meet the definition ofa discontinued operation ly authorized and is no TERIC 17 applies o pro rata distributions of non-cash assets (ll owners are treated equally but doesnot apply to common control transactions. Effective Date and Transition ‘© IFRIC 17 is tobe applied prospectively.ReSA / PRACTICAL ACCOUNTING 1_ % IFRIC 17 iseffetive for annual periods begining on oF permited, with some restrictions. red cash of the dividend. Ifa scrip Scrip or liability dividends (deferred cash dividends) ~ measured at face value of iviend bears ier, te irs pion af the cash payne should e debited to Tees Expense and not eeated as dividends ware dividends ~ dividends involving no transfer o cash or any other asset to shareholders but Sheet of sional thes sting eshte sarutan of aol hs Sinton nae tec sal nage Scalar ded epee ele 20 earn she rer he fe mart a tress on destin ate, wl 2 inge shredded (ese 20st 2570 astandng shares) Te messed athe pa vale ine Prior Period Adjustments ~crors dein th ast ae sincovered and comected inthe cute year by a8 ashustment fo the resin earings acount refer a8 prior pid adjustment. Most ears can ‘cea in measuring the rel of operation at inca tats ofthe enterprise. Some eors canbe of mathematical mistakes, file o apply appprite accouring. procedures ot missstement of ‘omission of certain information and also a ckange from an accounting principle that is not generally accepter to one that is generally accepted. ks, iF this is the Some erors are discovered during the aceouniins petiod prior tothe elesing of books, cease, correction can be made hy making corecting evtries directly to the accounts, These corrections will not affect the retained earnings Saeco go ude uring he caret pro but ey rf! y an equa misatnent inthe subsequent period. When this happens, the under oF overstatement of income in one ‘counterbalanced by an equal over oF understatement of inenme in the next period. After “he closing Process is completed for the second year, the retained earvings account is corectly stated. ‘When errors of the past are not counterbalancing, retained earings will be misstated until a correction Jsmade in the accounting records, Restrictions oF Appropriation of Retained Earnings ~ ‘ronsfring retained earnings 10 appropriation is only a reclassification of earings so that ts vectasified earnings can not be declared as dividends, and itis also 2 way of disclosing im the face ov in Uae rate to financial statement that ths company ‘does not want to dsiibute the same amount >f Funds becaise they are needed for a specific purpove(s) such as the following : As a legal purpose ~ the company should appenpiate retained earings equal to the remaining cost of treasury stock As a contractual requirement ~ some bond indenture require appropriation of retained earings ‘ta specified amount over the term uf the bona As a protection of working capital — w= its necessary to maintain a song, current position 30 the company must disclose that she working erpial not available for dividend declaration equal to the amount of appropriation, + For existence of possible or expected 1sses ~ appropriation maybe created for estimated losses arising from lawsuits, unfavorable contractal il satione, and other contingencies. Reversal of Appropriation ~ when the purpose of the appropriation has ben met lke when the treasury ‘stock has been re-issued, when bonds are alrady paid, when there has been a final decision on the lawsuit, when the asset being constructed has heen complete, when contingencies no longer eviss sre then it would be necessary o reverse the appropriation back to the retained earings 6. Quasireorganization — may be accomplished wer wn seeventing procedures such asthe following 1 Deficit reclassification results solely in elim.siting delet i ttained eamings withove restating assets oF liabilities. The procedure 's lined io reclassification of a deficit in reported retained ‘earings as a reduction of ps al (ex. change tom par to no-par oF from mo-par tO pars ‘eduction of par or reduction of stated vals at tock slit) ‘Accounting reorganization ~ involves restating the assets of the enterprise to ther fair values and liabilities to their present values withthe net amount of these adjustments added too deducted rom the deficit. The balance inthe retained earings secount (debit or credit) is then closed to ather capital account, usually Additional Paid In Capital, so thatthe company has a “fresh start" with a sero balance in retained earings 7. Capital stock transaction ~ any gain on the reise (treatry stock), retirement, conversion of stock is ‘redted tothe account Additional Paid in Capua. any los is charged against APIC (forthe treasury), if any, any remaining loss to Retwineé *amings, any loss identified other ca ‘wansaction other than re-issue of reasuy. is debited directly to the account Retained Earn ResA ‘The Review School of Accountancy ‘Brel. No. 735-9807 B 734-1899