Share Capital Transactions

Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: BRG6-2NDSEM-2020-2021
College: Business Education

Campus : Bayombong Campus
DEGREE BSBA COURSE BRG 6

PROGRAM NO.
SPECIALIZATION FM/MM/HRM/BE COURSE Partnership and Corporation
TITLE Accounting
YEAR LEVEL First Year TIME WK 15- IM 07
FRAME NO. 17 NO.
I. UNIT TITLE/CHAPTER TITLE: ACCOUNTING FOR CORPORATION
II. LESSON TITLE:

Lesson 1: Basic Component of Shareholders’ Equity
Lesson 2: Basic Types of Shares
Lesson 3: Terms related to share capital transactions
Lesson 4: Accounting for issuance of share capital
Lesson 5: Methods of Accounting for Share Capital
Lesson 6: Treasury Shares
Lesson 7: Donated Capital
III. LESSON OVERVIEW
Generally, the type of business organization- sole proprietorship, partnership or

corporation, does not affect the asset and liability sections of the statement of
financial position. The only difference is in the owner’s equity sections. Sole
proprietorships and partnerships use capital accounts and ultimately combine the
owner’s contributions and accumulated earnings. Corporations separately report
contributed capital and accumulated profits in accordance with some legal
provisions.
Shareholder’s equity-it is the owner’s equity section of a corporation’s statement of

financial position.
IV. LEARNING OUTCOME

1. Identify the basic components of the shareholders equity.
2. Discuss the basic types of shares.
3. Journalize basic transactions for issuance of share capital.
4. Discuss the basic methods of recording share capital.
5. Discuss the accounting treatment for treasury shares
6. Discuss Donated capital.
V. LEARNING CONTENT
Lesson 1: Basic Components of Shareholders’ Equity
1. Share Capital (contributed or paid-in capital). Reflects the amount of resources

received by a corporation as a result of investment by shareholders, donations or
other share capital transactions.
2. Retained Earnings (accumulated profits or losses). The amount of capital

accumulated and retained through the profitable operations of the business.
Shareholder’s Equity
“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be
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NVSU-FR-ICD-05-00 (081220) Page 1 of 14
Share Capital
Preference Shares-P50 par, 1,000 shares authorized,
Issued and outstanding 50,000
Ordinary Shares-P5 par, 30,000 shares authorized
20,000 shares issued and outstanding 100,000
Share Premium-Ordinary 50,000 150,000
Total Share Capital 200,000
Retained Earnings 80,000
Total Shareholder’s Equity P280 000
SHARE CAPITAL
It is the shares to be subscribed and paid in or secured to be paid in by the shareholders,

either in money, property or services, at the time of organization of the corporation or
afterwards, and upon which it is to conduct its operations. The share, contributed or paid-in
capital is further divided into the following:
Legal Capital
Capital contributed by shareholders comes from the sale of shares of stock. The shares of
stocks issued are generally referred to as share capital. Legal capital is that portion of the
contributed capital or the minimum amount of paid-in capital, which must remain in the
corporation for the protection of corporate creditors.
The amount of legal capital is determined as follows:
Par value shares- legal capital is the aggregate par value of all issued and subscribed
shares.
No-par shares- legal capital is the total consideration received by the corporation for the
issuance of its shares to the shareholders including the excess of issue price over the
stated value.(section 6, par.3, Corporation Code of the Phils.).
Share Premium (or Additional Paid-In Capital)

It is the portion of the paid-in capital representing amounts paid by shareholders in
excess of par. It may also result from transactions involving treasury stocks, retirement of
shares, donated capital, share dividends and any other “gain” on the corporation’s own
stock transactions.
Lesson 2: Two Basic Types of Shares
Share capital is divided into transferrable shares of stocks. A share of stock represents
the interest or right of a shareholder in a corporation and is evidenced by a certificate of
stock. Share capital includes all types of ownership shares in a corporation. Shareholders
acquire either of the following basic types of share capital.
1. ORDINARY SHARE. This share represents the basic ownership class of the
corporation. When only one class of share is issued, it must be ordinary share.
Ordinary shares are the entity’s residual equity.
2. PREFERRENCE SHARE. This share gives its owners certain advantages over
ordinary shareholders. These special benefits relate either to the receipt of
dividends when declared before the ordinary shareholders (preferred as to
dividends) or to priority claims on assets in the event of corporate liquidation
(preferred as to assets).
Lesson 3: Terms Related to Share Capital
AUTHORIZED SHARE CAPITAL. The number of authorized shares indicates the

maximum number of shares the corporation can issue as specified in the article of
incorporation. This maximum number of shares when multiplied by the par value of the
share will yield the authorized share capital. Note that any increase or decrease in the
authorized share capital requires prior approval of the SEC and formal amendment to the
articles of incorporation.
ISSUED SHARE CAPITAL.These are shares which have been sold and paid for in full.
Issued shares may include treasury shares. Share Capital, either Ordinary Shares account
or Preference Shares account, is credited for the total par value of fully collected
subscriptions or in the case of no-par value shares, for the total consideration received in
relation to the issue. Share Capital is debited only when the issued shares are retired,
redeemed or cancelled by the corporation.
SUBSCRIBED SHARE CAPITAL.It is the portionof the authorized share capital that has
been subscribed but not yet fully paid. This shareholders’ equity account is creditedfor the
total par value of the shares subscribed and debited for the total par value of the fully
collected subscriptions.
OUTSTANDING SHARE CAPITAL.These are issued shares, which are in the hands of the
shareholders. The number of outstanding shares will equal the difference between the
issued shares and the treasury shares.
TREASURY STOCK.These are issued shares acquired by the corporation but not retired
and are therefore, awaiting to be reissued at a later date.
Lesson 4: Accounting for Issuance of Share Capital
The entry to record the issuance of share capital depends on whether the stock is with or
without par value.
When shares with par value are sold, the proceeds should be credited to the share
capital account to the extent of the par value of the shares, with any excess being
reflected as share premium.
When shares without par value are sold, the proceeds should be credited to the
share capital account. If the no-par stock has a stated value, the excess proceeds
over stated value may alternatively be credited to share premium.
Section 65 of the Corporation Code prohibits the original issue of share capital (or capital
stock) for a consideration less than the par or stated value (i.e. issued at discount).
Corporations set the par value of their ordinary shares at nominal amounts such as P1 per
share. The par value is no indication of its market value; it merely indicates the amount per
share to be entered in the share capital account.
CONSIDERATIONS FOR ISSUANCE OF SHARES
Share Capital may be issued in exchange for any of the following considerations:
1. Actual cash paid to the corporation.

2. Tangible or intangible properties actually received by the corporation.
3. Labor already performed for or services actually rendered to the corporation.
4. Previously incurred indebtedness by the corporation.
In issuing its share capital, a corporation may avail of the services of an investment
banker who is a specialist in marketing shares to investors. The investment banker may
underwrite a share issue which means that the banker agrees to buy the shares of the
corporation and to sell them to investors. The corporation considers the shares as sold
because the underwriter will buy the shares that he is not able to sell. The underwriter
bears this risk in return for gains from selling the shares at a price higher than that paid to
the corporation. An investment banker who is not willing to underwrite may handle a share
issue on a best efforts basis. In this case, the banker undertakes to sell as many shares
as possible at a set price but the corporation bears the risk on unsold shares.
Share issue costs can be quite substantial given the work involved. The costs include costs
associated with preparing, printing and filing the relevant documentation and marketing the
share issue. Various experts are consulted to ensure a successful issue.
Accounting for share issue costs in paragraph 37 of International Accounting Standards
(IAS) No.32, Financial Instruments: Presentation:
An entity typically incurs various costs in issuing or acquiring its own equity
instruments. Those costs might include registration and other regulatory fees,
amounts paid to legal, accounting and other professional advisers, printing costs
and stamp duties. The transaction costs of an equity transaction are accounted for
as a deduction from equity (net of any related income tax benefit) to the extent
they are incremental costs directly attributable to the equity transaction that
otherwise would have been avoided. The costs of an equity transaction that is
abandoned are recognized as an expense.
SHARE ISSUANCE FOR CASH
Most share issues are for cash since the primary reason for issuing shares is to raise
capital for a corporation’s operating activities. The entries to record the issuance of shares
for cash will depend on whether the share is with or without par value.
With Par Value

1. Issuing Share Capital at Par
Illustration: Narsan Holdings is authorized to issue P1,000,000 ordinary shares divided

into 10,000 shares, with a par value of P100 per share. The diversified company issued on
cash basis 2,000 shares at par. The share issuance entry will be:
Cash 200,000
Ordinary Shares 200,000
The amount of P200,000 invested in the corporation is called paid-in capital or contributed
capital. The credit to Ordinary Shares increases the share capital of the corporation.
2. Issuing Share Capital Above Par

Illustration: Suppose the 2,000 shares were sold at P150 per share, the entry follows:
Cash 300,000
Share Premium 100,000
This sale of shares increases the corporation’s contributed capital by P300,000. When the
shares with par value are sold, the proceeds should be credited to the Ordinary Shares
account to the extent of the par value-in this case, P200,000; with any excess to be
reflected in the Share Premium account. The excess of P100,000 is not a “gain”. The
company can neither earn a profit nor incur a loss when it issues shares to or acquires from
its shareholders.
Without Par Value
1. Issuing No-Par Share Capital
Illustration: Morning StarTravel is a domestic corporation engaged in the business of

organizing tour packages for Asian and European visitors to the Philippines. The company
which is located at J. Bocobo St., Manila, has two classes of shares-preference shares and
no-par ordinary shares. 5,000 ordinary shares were issued for P85,000. The entry to record
the issue of these no-par shares will be:
Cash 85,000
When shares without par value are sold, the proceeds should be credited to the Ordinary
Shares account. Accounting for issuance of preference shares is basically the same as that
of ordinary shares. Note, however, that Section 6 of the Corporation Code prohibits the
issue of no-par value preference shares.
2. Issuing No-Par Share Capital with Stated Value
Illustration: Suppose that Morning StarTravel’s no-par ordinary shares have a stated value
of P20. The company issued 5,000 shares at P25 per share. The entry will be:
Cash 125,000
When shares without par value are sold, the proceeds should be credited to the Ordinary
Shares account. If the no-par stock has a stated value, the excess proceeds over stated
value-In this case, P5 per share, may alternatively be credited to share premium.
Cash 125,000
Share Premiums 25,000
Subscription of Shares
There are times when a corporation sells its shares directly to investors on a subscription
basis. The subscription contract is a legally binding contract which provides for the number
of shares subscribed, the subscription price, the terms of payment and other conditions of
the transaction. A subscriber becomes a shareholder upon subscription but the stock
certificates evidencing ownerships over shares of stocks are not issued until the full
collection of the subscription.
Illustration: JS Auto Shop, Inc is a quality car care center located at St. Paul St., San
Antonio Village, Makati City. Assume that 5,000 shares of 10 par value ordinary shares of
the company were sold on subscription at P12 per share on Sept. 1, 2015 to Karlah C.
Subscription installments of P24,000 and P36,000 will be due on Sept. 16 and 30,
respectively.
The related entries follow:
Subscriptions Receivable 60,000

Subscribed Ordinary Shares* 50,000
To record subscriptions above par.
Cash 24,000
Subscriptions Receivab 24,000
To record initial installment.
Cash 36,000
To record final installment.
Subscribed Ordinary Shares* 50,000

To record issuance of stock certificates.
*The subscribed ordinary shares account represents the par value of the subscribed
shares.
Subscriptions Receivable is a shareholder’s equity account. It is presented in the

statement of financial position as a deduction from the related subscribed ordinary shares;
however, when it is collectible within one year, this may be shown as a current asset. It is
debited for the total proceeds of the subscriptions to the ordinary shares and credited for
the collections on the subscriptions.
There are instances when a subscriber fails to settle the subscriptions in full on the date
specified in the subscription contract or in the “call” made by the board of directors. In such
case, the subscribed shares are declared delinquent shares. The usual remedy is to
dispose of these shares in a public auction for the account of the delinquent subscriber. The
shares will be sold to the person who is willing to pay the “offer price” which includes the full
amount of the subscription balance plus accrued interest, cost of advertisements and
expenses of auction sale in exchange for the smallest number of shares. This person is
referred to as the highest bidder.
Illustration. Assuming the same facts as above except that the subscriber failed to settle
part of his subscription in the amount of P48, 000. After complying with the legal procedures
pertaining to delinquency sale, a public auction was held. The offer price is P56,000
including P3,000 accrued interest and P5,000 expenses of sale. Three bidders are willing to
pay the offer price, namely:
Lenore Alcantara 4,300 shares

Luz Peralta 4,500 shares
Felipe Baasis 4,700 shares
Alcantara is the highest bidder. The P5, 000 shares are deemed fully paid. Karlah C., the
original subscriber, gets 700 shares and Alcantara receives 4,300 shares.
Subscription Receivable 60,000

Subscribed Ordinary Shares 50,000
To record subscription above par.
Cash 12,000
Subscription 12,000
To record partial initial installment.
Receivable from the Highest Bidder 3,000

Interest Revenues 3,000
To record accrued interest of delinquent shares.
Receivable from Highest Bidder 5,000

Cash 5,000
To record auction expenses.
Cash 56,000
Receivable from the Highest Bidder 8,000
To record sale at public auction.
Subscribed ordinary shares 50,000

Ordinary shares 50,000
To record issuance of stock Certificates.
If there is no bidder, the corporation may bid for the delinquent shares and total amount due
shall be Credited as paid in full in the books of the corporation. These shares shall be
considered as treasury shares.
All the other entries will be the same except for the following:
Treasury Stock 56,000

Receivable from Highest Bidder 8,000
Subscription Receivable 48,000
To record purchase of own shares.
A stockholder may be sued directly by creditors to the extent of their unpaid subscriptions to
the corporation (Keller vs. COB Marketing, 141 SCRA 86).
SHARE ISSUANCES FOR NON-CASH CONSIDERATIONS
When share capital is issued in exchange for non-cash assets which is known as non-
monetary exchanges, Philippine Financial Reporting Standards No. 2 on Share-Based
Payment states that the non-cash assets received shall be measured at its fair market
value. If the fair market value of the non-cash asset received cannot be estimated reliably
or cannot be determined, the non-cash asset is recorded at the fair market value of the
equity instrument issued. Share Capital is credited at its par value and any excess of the
recorded value of the asset over the par value of the share capital is credited to Share
Premium.
Issuing Shares for Assets
Illustration: Durian Corporation is a medium-sized closely held company based in Quezon

City. A group of Taiwanese investors would like to acquire shares of the company because
of its tremendous earnings potential. After much thought on the part of its president, the
investors were allowed to make investments. One of the considerations given was a tract of
land in Iloilo City with a fair value of P1,000,000.
The entry to record the issue 900 of P1,000 par ordinary shares in exchanged for the land
is as follows:
Land 1, 000,000
Ordinary Shares ( 900 shares x P1,000) 900,000
To record the issuance of 900 shares of stock in exchanged for land.
Assuming that the shares of stock of the corporation illustrated is traded in the stock
exchange and therefore, will fair value the basis to record the acquisition of the land will still
be the same as above. Note that the first priority is fair value of the goods or
consideration received. However, if only the fair value of the ordinary shares issued is
objectively determinable, then it will be the basis for recording the acquisition of the land.
Issuing Shares for Services or Outstanding Liabilities
A corporation may issue shares in exchange for legal, accounting or other services. These
costs, which are incurred before the corporation begins operations, include incorporation
fees, legal fees for the preparation of the articles of incorporation, and other expenditures
necessary for the formation of the corporation.
When shares are issued for services in connection with the incorporation, the account
Organization Expense may be debited at an amount equal to the fair value of such
services (per IFRS 2, par. 10). Shares shall not be issued for future services.
Per International Accounting Standards (IAS) No. 38, Intangible Assets, start-up costs
which consists of establishment cost such as legal fees are recognized as an expense
when incurred. Organization cost should be expensed immediately. Before IAS No. 38,
costs of this nature are considered intangible assets.
Organization Expense 100, 000

Ordinary Shares 80, 000
Share Premium 20, 000
To record issuance of 800 shares of stock in exchange for services.
If ordinary share is issued for an outstanding liability, the amount of the liability set off
should be the measure for recording.
Lesson 5: Two Methods Of Accounting For Share Capital
There are two methods of accounting for share capital authorization and issuance namely:
The journal entry method and the memorandum method. The difference between the
two lies in the entries pertaining to authorization and issuance of share capital.
Illustration: Lucky Draw Corporation was authorized to issue P400, 000 ordinary shares
divided into 4000 shares with a par value of P100 per share. On August 13, 2015, the
company received subscriptions for 1, 000 shares at par from various individuals. As at
September 20, 2015, 600 of the subscribed shares have been fully paid and the stock
certificates issued correspondingly. Next day, the company issued 400 shares at par for
cash. The entries are as follows:
Journal Entry Method Memorandum Method

Authorization:
Unissued Ordinary Shares 400, 000 Memo Entry: The company was
authorized
Authorized Ordinary Shares 400,000 to issue P400, 000 ordinary
share
divided into 4, 000 shares,
with P100 par.
Shares subscriptions at par:
Subscriptions Receivable 100,000 Subscriptions Receivable

100,000
Subscribed Ordinary Shares 100,000 Subscribed Ordinary Shares
100,000
Subscriptions fully collected:
Cash 60,000 Cash 60,000

Subscriptions Receivable 60,000 Subscriptions
Receivable 60,000
Issuance of stock certificates after full payment of subscriptions:
Subscribed Ordinary Share 60,000 Subscribed Ordinary Shares

60,000
Unissued Ordinary Shares 60,000 Ordinary Shares
60,000
Cash subscriptions at par:
Cash 40,000 Cash 40,000

Unissued Ordinary Shares 40,000 Ordinary Shares
40,000
If a statement of financial position is prepared on September 21, 2015, a portion of the

shareholders’ equity section will appear as follows:
Journal Entry Method
Shareholders’ Equity:
Authorized Ordinary Shares, P100 par, 4000 shares P400

000
Less: Unissued Ordinary Shares, 3000 shares 300
000
Issued Ordinary Shares
P100 000
Subscribed Ordinary Shares P 40, 000

Less: Subscription Receivable 40, 000 P100,
000
MEMORANDUM METHOD
Shareholder’s Equity
Ordinary Shares, P100 par, 4, 000 shares authorized,
1,000 shares issued
P100, 000
Subscribed Ordinary Shares P 40, 000

Less: Subscription Receivable 40, 000
P100, 000
Lesson 6: Treasury Stocks
These are shares of stocks which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation either by purchase, redemption, donation or through
other lawful means. Such shares may again be disposed of for a reasonable price fixed by
the board of directors.
Section 41 of Corporation Code provides that a stock corporation has the power to
purchase its own shares for a legitimate purpose provided it has unrestricted retained
earnings. Some of the reasons for the purchase of treasury stock are as follows:
1.) to support employee stock compensation plans

2.) to improve the stock market price by decreasing the supply of shares
3.) to avoid takeover by an outside party.
Paragraph 33 of International Accounting Standards (IAS) No. 32, Financial Instruments

Presentation, states that, if an entity reacquires its own equity instruments, these
instruments (‘treasury shares’) shall be deducted from equity. No gain or loss shall be
recognized in profit or loss on the purchase, sale, issue or cancellation of an entity’s own
equity instruments. Such treasury shares may be acquired and held by the entity or by
other members of the consolidated group. Consideration paid or received shall be
recognized directly in equity.
Treasury stock is not an asset because the corporation may not own shares of itself. To
reiterate, it is reported as a deduction from the total shareholder’s equity.
There are two methods of accounting for treasury stock transactions, namely:
1.) par or stated value method-treasury stock is debited for an amount equal to the
par or stated value of the stock reacquired.
2.) cost method-is the preferred method of accounting for treasury stocks by the
Accounting Standards Council as stated in SFAS No. 18, par. 6. Only the cost will
be illustrated.
Purchase of Treasury Stock
When the cost method is used, treasury stock is recorded at cost regardless of whether the
share is acquired below or above par or stated value. If treasury stock is purchased for
cash, the cost is usually measured by the recorded amount of the non- cash assets
surrendered or given in exchange.
The purchase of treasury shares does not decrease the number of shares issued: only the
outstanding shares decrease both total assets and total shareholder’s equity. Treasury
stock transactions may affect cash flows but they have no effect on the profit of the
corporation.
Illustration: Taitans EcoResort is a world class destination in Indang, Cavite. The

operations have been successful. To consolidate control over the enterprise and thus avoid
a corporate takeover by outsiders, the board of directors decided to minimize outstanding
shares by purchasing 1, 500 shares with a par value of P1, 000 for P2000.
The entry will be:
Treasury Stock 3, 000, 000
Cash 3, 000, 000
To record acquisition of treasury shares.
Reissuance of Treasury Stock
At Cost. Assume that the treasury shares were subsequently reissued at cost.
Cash 3, 000, 000

To record reissue of treasury shares at cost.
Above Cost. Assume that all treasury shares were reissued at P2 500 per share.
Cash 3, 750, 000
Share Premium-Treasury 750, 000
To record reissue of treasury shares above cost.
Treasury stock is always debited for the cost of the shares purchased or credited for the
cost of the shares reissued. There is no reference to par value. The excess over cost of
P750, 000 is not regarded a gain but as a component of shares premium.
Below Cost. Assume that the 1 500 treasury shares were reissued at P1 500 per share.
Cash 2, 250, 000

Retained Earnings 750, 000
To record reissue of treasury shares below cost.
The excess of the cost over reissue price of P 750, 000 should be debited to share
premium-treasury to the extent of its balance. In the absence of any balance in this
account, the “loss” is debited to retained earnings. It is assumed in the above illustration
that the share premium-treasury has a zero balance.
Retirement of Treasury Stock
The shares purchased may be subsequently retired. The Ordinary Shares account is
reduced by its par value. The number of shares issued is reduced by the stock retired. The
treasury stock account is credited at cost. Retirement may result in a “gain” or “loss” (note
IAS 32, par. 33)
With Gain on Retirement
Assume that Plantation Ecoresort purchased the treasury shares for P750 per share.
Observe that there is a “gain on retirement if the cost of treasury shares is less than the par
value.
Ordinary Shares (1, 500 shs. x P1, 000 par) 1, 500, 000
Share Premium 375,
000
Treasury Stock (1, 500 shs. x P750 cost) 1, 125, 000
To record retirement of treasury shares.
With Loss on Retirement
Assume that a total of 10, 000 shares have been issued at P1, 500 treasury shares for P2,
000 per share; these were not reissued and were ultimately retired.
Ordinary Shares (1, 500 shs. x P1,000 par) 1, 500, 000

Share Premium * 750, 000
Retained Earnings 750, 000
Treasury Stock (1, 500 shs. x P 2,000 cost) 3,
000,000
To record retirement of treasury shares.
*1, 500 retired shares x (P1, 500 issue –P1, 000)=P750, 000
The “loss” on retirement of P1, 500,000 should be debited to the following accounts in the
order given:
1.) share premium to the extent of the credit when the share is issued;
2.) share premium from treasury stock transactions of the same class of share;
3.) retained earnings.
In relation to the illustration above, the credit to share premium applicable to the 1, 500
shares when originally issued was P750, 000 {(P1, 500 issue- P1,000 par) x 1, 500 shares}.
Hence, when the shares are retired the debit to share premium is only to the extent of
P750, 000. The first priority was satisfied after taking special notice of the limitation. There
is no share premium-treasury so the balance of P750, 000 was debited to retained
earnings.
Lesson 7: Donated Capital
Contributions, including shares of the corporation, received from shareholders should be

recorded at the fair market value of the items received, with the credit going to share
premium. If significant, such contributions may be designated as donated capita as
donated capital (SFAS No. 18, par. 28)
If the donation is in the form of shares of the corporation, the account share premium or
donated capital is credited at the time the shares are reissued.
Illustration: Jack’s Food, Inc. received a new service van from its major shareholder as a
gift. The donated asset has a cash price of P350, 000. The entry will be as follows:
Service Vehicle 350, 000

Donated Capital 350, 000
To record receipt of the donated service van.
The donated asset increases the total assets and total shareholder’s equity by their market
value of the asset received. Donated capital is shown as part of share premium.
Illustration: Assume instead that Jack’s Food Inc. received 500 of p100 par value ordinary
shares from its major shareholder as a gift. The receipt of the donated share is recorded by
means of a memorandum entry as follows:
“Received 500 ordinary shares as donation’
This transaction does not affect the assets, liabilities or shareholders’ equity of the
corporation. Note, however, that the number of shares received as donation will reduce the
outstanding shares.
These donated shares are essentially treasury stocks which may be reissued at any price.
The sale of these donated shares will increase assets and shareholders’ equity. Assume
that the 500 shares were issued at P80 per share. The entry will be:
Cash 40, 000

Donated Capital 40, 000
To record sale or donated shares.
VI. LEARNING ACTIVITIES
Activity 1. Share Issuance for Cash. Journalize the share capital transactions below:
Balda Tours Inc., is authorized to issue 220,000 shares of no-par ordinary shares, P15
state value. Journalize the following transactions:
May 23 Sold 4,000 shares of ordinary shares at P18 per share for cash.
June 19 Sold 12,500 shares of ordinary shares at P17 per share for cash.
Activity 2. Issuance of Ordinary Shares
Fernando Corporation is authorized to issue 400,000 shares of P85 par value ordinary
shares. Journalize the following transactions:
Feb 10 Sold 75,000 shares of ordinary shares at 86/share, received cash.

27 Issued 21,500 shares of ordinary shares in exchange for land with a fair
market value of
920,000 and a building with a fair market value of P1,087,500.
Mar 3 Sold 28,000 shares of ordinary shares at P86.50 per share, received cash.
VII. ASSIGNMENT
ASSIGNMENT 1. Issuance of Ordinary and Preference Shares
Villarama Corporation was organized on January 1, 2015. It is authorized to issue 20,000

shares of 6%, P50 par value preference shares and 50,000 shares of with par value of
P10 per share. The following stock transactions were completed during the year:
Jan. 10 Issued ordinary shares for cash P35 per share.

Mar 1 Issued 10,000 preference shares for cash at P55 per share.
Apr 1 Issued 2,500 ordinary shares for land. The asking price of the land was
P90,000; the fair market value of the land was P85,000.
May 1 Issued 7,500 ordinary shares for cash at P40 per share.
Sep 1 Issued 500 ordinary shares for cash at P60 per share.
Nov 1 Issued 2,000 preference shares for cash at P53 per share.
Required:
1. Journalize the transactions.

2. Post to the shareholders’ equity accounts.
3. Prepare the share capital section of the shareholders’ equity as at Dec. 31, 2019.
ASSIGNMENT 2.
The shareholder’s equity section of Nazaro Freight Express, Inc. as at December 31, 2019
appeared as follows:
6% Preference Shares, P75 par, 200,000 shares authorized,

70,000 shares issued P ?
Ordinary shares, P5 stated value, 500,000 shares authorized,
______ share issued and _____ shares outstanding 500,000
Share Premium-Ordinary 600,000
Retained Earnings 1,000,000
Treasury Stock-Ordinary, 10,000 shares, at Cost 40,000
Required:
Provide the answers to each of the following questions:
1. What is the total issue price of the preference shares?

2. How many ordinary shares were issued?
3. How many ordinary shares are outstanding?
4. What was the total issue price of the ordinary shares?
5. What is the total shareholders equity?
6. For how much per share was the treasury stock purchased?
7. What is the amount of required preference dividends?
IX. REFERENCES:
Ballada, Win. Ballada Susan, (2016). Partnership and Corporation Accounting

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Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

College: Business Education

DEGREE BSBA COURSE BRG 6

I. UNIT TITLE/CHAPTER TITLE: ACCOUNTING FOR CORPORATION

II. LESSON TITLE:

III. LESSON OVERVIEW

Generally, the type of business organization- sole proprietorship, partnership or

Shareholder’s equity-it is the owner’s equity section of a corporation’s statement of

IV. LEARNING OUTCOME

Lesson 1: Basic Components of Shareholders’ Equity

1. Share Capital (contributed or paid-in capital). Reflects the amount of resources

2. Retained Earnings (accumulated profits or losses). The amount of capital

It is the shares to be subscribed and paid in or secured to be paid in by the shareholders,

The amount of legal capital is determined as follows:

Share Premium (or Additional Paid-In Capital)

Lesson 2: Two Basic Types of Shares

Lesson 3: Terms Related to Share Capital

AUTHORIZED SHARE CAPITAL. The number of authorized shares indicates the

Lesson 4: Accounting for Issuance of Share Capital

CONSIDERATIONS FOR ISSUANCE OF SHARES

1. Actual cash paid to the corporation.

SHARE ISSUANCE FOR CASH

With Par Value

Illustration: Narsan Holdings is authorized to issue P1,000,000 ordinary shares divided

2. Issuing Share Capital Above Par

Without Par Value

1. Issuing No-Par Share Capital

Illustration: Morning StarTravel is a domestic corporation engaged in the business of

2. Issuing No-Par Share Capital with Stated Value

The related entries follow:

Subscriptions Receivable 60,000

Subscribed Ordinary Shares* 50,000

Subscriptions Receivable is a shareholder’s equity account. It is presented in the

Lenore Alcantara 4,300 shares

Subscription Receivable 60,000

Receivable from the Highest Bidder 3,000

Receivable from Highest Bidder 5,000

Subscribed ordinary shares 50,000

Treasury Stock 56,000

SHARE ISSUANCES FOR NON-CASH CONSIDERATIONS

Issuing Shares for Assets

Illustration: Durian Corporation is a medium-sized closely held company based in Quezon

Issuing Shares for Services or Outstanding Liabilities

Organization Expense 100, 000

Lesson 5: Two Methods Of Accounting For Share Capital

Journal Entry Method Memorandum Method

Shares subscriptions at par:

Subscriptions Receivable 100,000 Subscriptions Receivable

Subscriptions fully collected:

Cash 60,000 Cash 60,000

Issuance of stock certificates after full payment of subscriptions:

Subscribed Ordinary Share 60,000 Subscribed Ordinary Shares

Cash subscriptions at par:

Cash 40,000 Cash 40,000

If a statement of financial position is prepared on September 21, 2015, a portion of the

Journal Entry Method

Authorized Ordinary Shares, P100 par, 4000 shares P400

Subscribed Ordinary Shares P 40, 000

Subscribed Ordinary Shares P 40, 000

Lesson 6: Treasury Stocks

1.) to support employee stock compensation plans

Paragraph 33 of International Accounting Standards (IAS) No. 32, Financial Instruments