Sim Week 4

Republic of the Philippines
Department of Education
REGION V
SCHOOLS DIVISION OF MASBATE PROVINCE
CATAINGAN NATIONAL HIGH SCHOOL
SELF - INSTRUCTIONAL
MATERIAL (SIM) No.4
Learner's Information:
Name of Learner:
Grade 12- ABM
Grade Level: S.Y. 2020 - 2021
EDWIN P. ABAL
Name of Teacher: T-III
Learning Area: FUNDAMENTALS OF ACCOUNTING, BUSINESS AND

MANAGEMENT 2
1.) OBJECTIVES:
Address: Poblacion, Cataingan, Masbate

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Content – Statement of Changes in Equity (SCE)

Content Standard – The learners demonstrate an understanding of….the forms of business
organization, namely; single proprietorship, partnership, and corporation, and the structure of
a Statement of Changes in Equity of a single proprietorship that will equip him/her in the
preparation of the said financial report.
Performance Standard – The learners shall be able to…. Solve exercises and problems that
require preparation of a Statement of an Statement of Changes in Equity for a Single
Proprietorship.
Learning Competencies :
The learners shall be able to… A. ) Identify the different forms of business organization . Code :
ABM_FABM12-Ie-8 B.) Prepare an Statement of Changes in Equity for a single proprietorship.
Code : ABM_FABM12-Ie-9.
Specific Learning Objectives : At the end of the lesson, the learners shall be able to identify the
different forms of business organization.
ACTIVITIES/DISCUSSIONS :
BUSINESS ENTITY CONCEPT:
Business entity concept is a prevailing assumption in accounting. It states that the transactions of the business (as a
separate entity) must be distinguished and differentiated from the transactions of the owners. Business
transactions must be captured in the financial statements of the reporting entity. Personal transactions, on the other
hand, must be kept in the records of the owners.
FORMS OF BUSINESS ORGANIZATIONS:
There are three major types of business organizations in the Philippines, based on classification of ownership.
These business organizations are sole proprietorship, partnerships, and corporations.
SOLE PROPRIETORSHIPS :
A sole proprietorship is a business organization owned by one person. It is also called a single
proprietorship. The owner of the sole proprietorship is the proprietor. In most cases, the
proprietor is also the general manager of a sole proprietorship. As general manager, he
oversees the day-to-day operations of the sole proprietorship. A sole proprietor is more
involved than other business owners. Sole proprietorships are relatively easy to organize.
Business registration for sole proprietorships starts with the business name registration at the
Department of Trade and Industry. Next, the potential sole proprietor obtains local clearances
such as Barangay Clearance and Mayor’s Permit. Finally, the potential sole proprietor now
registers with the Bureau of Internal Revenue, Social Security System and Philippine Health
Insurance Corporation.
Major disadvantages of a sole proprietorship include limited source of capital, proprietor’s
unlimited liability and business entity’s limited existence. In sole proprietorships, the sole
proprietor is the major source of financing available for the business. Business loans may,
however, be obtained from banks. But due to the credit concentration to the sole proprietor,
banks usually charge high interest rates or lend only a limited amount to a sole proprietor.
Another major disadvantage of sole proprietorship is the unlimited liability of the sole
proprietor.

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REGION V
Bankruptcy occurs when the sole proprietorship is unable to pay its debts. In the Philippines, in
case the assets of the sole proprietorship are not enough to cover its existing liabilities,
creditors can run after the personal assets of the sole proprietor (e.g., personal car, personal
house, and /or personal property). This makes the liability of the sole proprietor unlimited.
Lastly, sole proprietorships have limited life. A sole proprietorship generally exists with the sole
proprietor. This puts a limitation to the existence of the sole proprietorship compared to
corporations.
Common examples of sole proprietorships are franchised enterprises. These enterprises include
food stalls commonly found inside malls and other areas with high foot traffic. Another example
of this type of entity is individuals rendering professional services, such as lawyers, physicians,
dentists, and accountants.
ILLUSTRATIVE CASE : UY LAW OFFICE
The bookkeeper of Uy Law Office prepared a worksheet that will make the preparation of
financial statements easier. The worksheet can be found below :
ILLUSTRATIVE CASE : UY LAW OFFICE
COD
E ACCOUNTS Unadjusted Adjustment Adjusted SCI SFP
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
588,50
1001 CASH 588,500 0 588,500
1002 ACCOUNTS RECEIVABLE 75,000 75,000 75,000
1003 OFFICE SUPPLIES 5,000 3,000 2,000 2,000
110,00
1004 PREPAID RENT 120,000 10,000 0 110,000
1005 OFFICE EQUIPMENT 36,000 36,000 36,000
1006 ACCUMULATED DEPRECIATION-
OFFICE EQUIPMENT 1,000 1,000 1,000
2001 ACCOUNTS PAYABLE 25,000 25,000 25,000
100,00 100,00
2002 NOTES PAYABLE-BANK 100,000 0 0
2003 UNEARNED REVENUES 35,000 35,000 35,000
2004 INTEREST PAYABLE 500 500 500
500,00 500,00
3001 JAN UY, CAPITAL 500,000 0 0
3002 JAN UY, WITHDRAWAL 25,000 25,000 25,000
247,50
4001 PROFESSIONAL FEES 247,500 0 247,500
5001 SALARIES EXPENSE 15,000 15,000 15,000
5002 RENT EXPENSE 10,000 10,000 10,000
5003 UTILITIES EXPENSE 8,000 8,000 8,000
5004 REPRESENTATION EXPENSE 25,000 25,000 25,000
5005 OFFICE SUPPLIES EXPENSE 3,000 3,000 3,000
5006 DEPRECIATION EXPENSE 1,000 1,000 1,000
5007 INTEREST EXPENSE 500 500 500
5008 PERMIT AND LICENSES EXPENSE 10,000 10,000 10,000
909,00 909,00 661,50

TOTAL 907,500 907,500 14,500 14,500 0 0 72,500 247,500 836,500 0
NET INCOME 175,000
175,00

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836,50
TOTAL 247,500 247,500 836,500 0
STATEMENT OF CHANGES IN EQUITY FOR SOLE PROPRIETORSHIP:

Example :
Mr. Snackstore Food Cart
Statement of Changes in Equity
For the Year Ended December 31, 2014
Mr. A Equity, Beginning 100,000
Add: Additional Investment 10,000
Net Income 25,000 35,000
Total 135,000
Less : Mr. A, Drawings (20,000)
Mr. A Equity, Ending 115,000
The Equity beginning is the opening balance of the owner’s equity account. This is the ending
balance of the equity account in the previous year. In the above case, this pertains to any
capital infusion made by the owner for the year. Net income on the other hand, pertains to the
amount earned by the sole proprietorship for the year. This amount is taken from the
statement of comprehensive income. After net income, drawings is deducted from the balance.
Drawing represents the owner’s return of investment. Finally, equity ending represents the
balance of the owner’s equity at the end of the year. In the above case, 115,000 represents the
equity balance of Mr. A as of December 31, 2014. Recall that capital or equity account is real
account. This means that the balance will be carried forward to the succeeding year. This makes
115,000 the balance as of December 31, 2014 and January 01, 2015.
PROCEDURES IN CONSTRUCTING STATEMENT OF CHANGES IN EQUITY – SOLE
PROPRIETORSHIP: Sample: Uy Law Office
1. Draft the Heading
UY LAW OFFICE
For the Year Month December 31, 2015
2. Determine the beginning balance of equity (capital)
In the above case, there is no beginning balance of the capital (equity) since Uy Law
Office started it’s operations in the current year. In the event of the subsequent year,
the bookkeeper or accountant will trace the beginning balance from the previous year’s
SCE.
3. Determine the amount of investment (initial or additional)
Since 2015 is the first year of operations for Uy Law Office, the SCE should bear line item
“initial investment” instead of “Additional Investment”. Additional investment would be
used for succeeding years of operations. The amount of the initial investment can be
traced to the general ledger account or T-Accounts as shown below.

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JAN UY, CAPITAL - 3001
Dec. 01 500,000
Below is the partially completed statement of changes in equity for the case:
UY LAW OFFICE
For the Month Ended December 31, 2015
Initial Investment P 500,000
4. Determine the amount of the Net Income

The bookkeeper or the accountant determines the amount of the net income. This is
usually done by referencing to the statement of comprehensive income. This is the
reason why the statement of comprehensive income is first constructed before the SCE.
Sample of Uy Law Office Statement of Comprehensive Income:
UY LAW OFFICE
Statement of Comprehensive Income
For the Month Ended December 31, 2015
Professional Fees 247,500

Operating Expenses :
Representation expense 25,000
Salaries expense 15,000
Rent expense 10,000
Permit and Licenses expense 10,000
Utilities expense 8,000
Office supplies expense 3,000
Depreciation expense 1,000
Interest expense 500 72,500
NET INCOME 175,000
Refer to the partially completed SCE of Uy Law Office below :
UY LAW OFFICE
Add : NET INCOME 175,000
A case of NET LOSS happens when total expenses are greater than revenues. In case of NET
LOSS, the corresponding amount is deducted to arrive at the ending capital or equity balance,
as opposed to being added. This is because NET LOSS decreases the equity of the owner to the
business.
5. Determine the balance of the drawing (withdrawal) account.

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After determining the balance of the net income, the accountant then determines the
balance of the owner’s drawing account. This can be done by referring to the ledger
balance or T-account of the withdrawal account. The T-account for the drawing of Jan
Uy is shown below:
JAN UY, DRAWING- 3002
Dec. 17 25,000
Below is the partially completed SCE of Uy Law Office:

UY LAW OFFICE
Add : Net Income 175,000
Less : Jan Uy – Withdrawal/Drawings (25,000)
6. Determine the ending balance of the capital or owner’s equity account. After
determining balance investments, net income (or net loss), and withdrawal, the
accountant now determines the ending balance of the equity account. This is done by
footing (mathematically) the partially completed SCE. The competed SCE of Uy Law
Office is shown below:
UY LAW OFFICE
Add : Net Income 175,000
Less : Jan Uy – Withdrawal ( 25,000)
Jan Uy, Capital, Ending P 650,000
==========
The ending balance of the equity or capital account coincides with the ledger balance of the
said account in the post-closing trial balance. Uy Law Office’s post-closing trial balance is shown
below. Notice that the P 650,000 ending equity balance coincides with that in the post-closing
trial balance.
UY LAW OFFICE
Post-Closing Trial Balance
December 31, 2015
DEBIT CREDIT
1001 CASH 588,500

1002 CASH ACCOUNTS RECEIVABLE 75,000
1003 OFFICE SUPPLIES 2,000
1004 PREPAED RENT 110,000

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1005 OFFICE EQUIPMENT 36,000
1006 ACCUMULATED DEPRECIATION-

OFFICE EQUIPMENT 1,000
2001 ACCOUNTS PAYABLE 25,000
2002 NOTES PAYABLE 100,000
2003 UNEARNED REVENUES 35,000
2004 INTEREST PAYABLE 500
3001 JAN UY, CAPITAL 650,000
Totals 811,500 811,500
======= =======
EXERCISES :
1. In 2015, Denmark, the owner of Denmark Trading has a beginning capital balance of
504,000. During the year, Denmark Trading earned a net income of 50,400.
Furthermore, Denmark withdrew 37,800 from Denmark Trading for his personal use.
Requirements :
1. How much is the balance of Denmark’s ending capital as of December 31, 2015.
2. Prepare a statement of changes in owner’s equity for Denmark Trading.
2. Canada Foods is owned by Mr. C. Anada. Mr C. Anada’s capital balance as of January 1,
2015 is 300,000. During the year, he infused additional capital of 37,500. Also, Canada
Foods incurred a net loss of 30,000. Furthermore, Mr. Anada withdrew 22,500 during
2015.
1. How much is the balance of Mr. Anada’s capital balance as of December 31, 2015?
2. Prepare a statement of changes in owner’s equity for Canada’s Foods.
3. Holland Law Firm is owned by Atty. Holland. The balance of Atty. Hollang capital balance
as of January 1, 2015 is 1,800,000. During the year, he invested additional cash of
450,000 in the business. Also, Holland Law Firm earned 168,750 of net income. Finally,
he withdrew 112,500.
1. How much is the balance of Atty. Holland’s capital balance as of December 31, 2015?
2. Prepare a statement of changes in owner’s equity for Holland Law Firm.
4. Emerald Architects is owned by Architect Emerald. During 2015, Architect Emerald
invested additional drafting supplies of 140,000. Also, Emerald Architects earned a net
income of 105,000. He also withdrew 70,000. Finally, his ending capital is 455,000 as of
December 31, 2015.
1. How much is Architect Emerald beginning capital balance as of January 01, 2015?
2. Prepare a statement of changes in owner’s equity for Emerald Architect.
5. Danube Paralegal Services provides paralegal consultancy to several clients. Danube
Paralegal Services is owned by Private Inspector Dan Ube. Ube’s capital balance as of
January 01, 2015 is 360,000. Due to a cash shortage problem, he invested additional
cash of 180,000. Furthermore, Danube Paralegal Services earned a net income of
135,000. His capital balance as of December 31, 2015 is 585,000.
1. How much is Danube’s withdrawal for the year?

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2. Prepare a statement of changes in owner’s equity for Danube’s Paralegal

Services.
QUESTIONS :
1. Identify the key elements of a statement of changes in owner’s equity.

2. Discuss the sole proprietorship as a form of business organization.
3. What are the advantages and disadvantages of a sole proprietorship?
4. Define the key elements of a statement of changes in owner’s equity.
5. What item is responsible for the primary increase in the capital account?
ENRICHMENT ACTIVITY :
1. Identify the procedures in constructing a statement of changes in owner’s equity.
PARTNERSHIP – The Philippine Civil Code defines partnership as a contract where :

….two or more persons bind themselves to ontribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves (Philippine Civil
Code, 1949).
Based on the definition above, a Partnership involves two or more persons in
agreement. These persons are called Partners. Their agreement is contained in a dovument
called Articles of Partnerships. Finally, the ultimate goal of the partners is to divide profit among
themselves.
A key advantage of a partnership is the ease of organization, as compared to a
corporation. The Civil Code states that a partnership may be in any form, subject to specific
exceptions. This means that the contract of partnership may be oral or in writing, as a ggeneral
rule. Another advantage of the partnership is the entity’s larger source of capital and expertise,
as compared to a sole proprietorship. Since more people are involved in the entity, it is
expected that larger sources of funds are also available. This is because the source of funds in a
sole proprietorship is only one, while in a partnership the source of funds may be greater. Also,
each partner may contribute his or her expertisse in managing the partnership. In contrast to a
partnership, a sole proprietorship will only have as the person the sole proprietor ultimately in
charge of the entity.
Major disadvantages of partnership include unliited liability, limited exisgence and
mutual agency of the partners. Generally, a partner’s liability in the partnership can extend to
his or her personal properties, similar to a sole proprietor. However, the unlimited liability of a
partner is subject to exceptions ( the concept of a limited partner). Partnership also have
limited existence. Generally, any change in the partnership may dissolve the entity. The most
ommon reason for a partnership’s dissolution is the death of one partner. If the remaining
(alive) partners decide to continue the partnership, the old partnership (with the deceased
partner) is dissolved and a new partnership (among the living partners) is then formed. Finally,
mutual agency may also form as a disadvantage to a partnership. Mutual agency means that

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each partner may bind the partnership and the other partners in business-related matters. For
example, if one partner obtains a business loan in behalf of the partnership, the partnership
and the other partners are
bound by the said loan. This may pose a disadvantage to other partners if one partner will
execute a business-related decision, without consulting first the other partners. Common
examples of partnerships are legal (law) firms and accounting or auditing firms.
STATEMENT OF CHANGES IN PARTNERS’ EQUITY (CAPITAL):
A statement of changes in partners’ equity (capital) is prepared for partnerships after
preparing the statement of comprehensive income. The said statement will have identical line
items with the SCE of sole proprietorships. These line items include equity, net
income,additional investments, withdrawals, and the ending capital. However, the major
difference of a partnerships SCE to a sole proprietor’s SCE is the heading reserved for each
partner’s interest. A sample statement of changes in partners capital is shown below:
ABC PARTNERSHIP
Statement of Changes in Partners’ Capital (Equity)
For the Period Ended December 31, 2014
Amoranto Bersola Cada Total
Partners Equity, January 1, 2014 1,000,000 500,000 300,000 1,800,000
Add :
Share in Net Income (note A) 200,000 400,000 500,000 1,100,000
Additional Investments 500,000 - - 500,000
Less :
Withdrawals - (200,000) ( 50,000 ) ( 250,000 )
Partners’ Equity, December 31, 2014 1,700,000 700,000 750,000 3,150,000
=============================================
ABC PARTNERSHIP
Note A – Schedule of Net Income Distribution
For the Period Ended December 31, 2014
Amoranto Bersola Cada Total
Salaries 12,000 240,000 240,000 492,000
Interest 120,000 60,000 36,000 216,000
Bonus - 32,000 156,000 188,000
Remainder : 68,000 68,000 68,000 204,000
Share in Net Income 200,000 400,000 500,000 1,100,000
A schedule of net income distribution supports the SCE of a partnership. Typically, partners give
themselves salaries for their respective work done in the partnership.
Partners may also agree to give interest to their investments. Usually, a certain percentage (e.g.
12%) is agreed among partners. The basis of the interest may be the beginning capital (as in the
case above) or the average capital (time factored).
Also, a bonus may be given to partners who are also managers of the entity as a form of
incentive for positive operations. Bonuses are generally given when the entity earns net

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income. If the entity incurs a net loss, then no bonus is given since there are no positive
operations or results, hence no incentive must be given to the partners-managers.
Last, the remainder of the net income is to be divided. Usually, partners may agree an arbitrary
ratio(e.g. 2:3:5 or 20%, 30% and 50%) for the remainder. As shown in the above case, partners
may also agree to divide the remainder equally.
CORPORATION – The Corporation Code of the Philippines (1980) defines the word Corporation
as :
“ artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to it’s existence.”
Corporation as a Artificial Being :
In the eyes of the law, a corporation is a being independent of it’s owners. A corporation will
have a name and a “birth” date (incorporation date) just like a normal person.
As an Artificial Being, a corporation has rights, powers, and attributes. An example of a right of
the corporation is to acquire a property in it’s own name. For example, ABC Corporation owned
by Mr. Abelardo B. Catacutan can acquire a piece of land for its office building. The land title
can be in the name of ABC Corporation and not in the name of Mr. Abelardo B. Catacutan.
The name, powers, objectives, and registered address of a corpoation are included in a
document called the Articles of Incorporation.
STOCKS AND STOCKS CERTIFICATES – A corporation unit of ownership is called a STOCK. Every
corporation is authorized to issue a certain number of stock. This authorized stock is the
maximum amount of stock that can be issued by a corporation. The stock or unit of corporate
ownership is represented by a stock certificate. A stock certificate is a piece of paper
representing the ownership of one stock of the corporation. Oftentimes, it has an amount on its
face called a Par Value. Par Value is synonymous to the amount of money printed in Philippine
bills. It signifies the amount of the stock at face value. If the authorized stock is the maximum
amount of stock that a corporation can issue, then subscribed capital is the amount of money
for which certain individuals have promised to pay to the corporation for their ownership. It is
required by the Corporation Code of the Philippines (1980) that 25% of the authorized capital
must be suscribed. Paid up capital refers to that portion of capital for which the corresponding
sum of money has been received. It is required by the Corporation Code (1980) that 25% of the
subscribed capital must be paid up. Stockholders are the owners of stocks evidenced by their
stock certificates.
Mini-Case Study:
Anna, Bea, Cathy, Delia and Edith wanted to put up a corporation. They decided to have
100,000 shares as the maximum shares to be issued by their Corporation. Furthermore, they
decided to include a P10 par value for each share.
Case 1 : How much is the authorized capital?
Authorized capital is 1,000,000. It is computed as P10 par value multiplied by 100,000
shares. The authorized capital is the maximum number of shares that a corporation may issue.

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Case 2 : How much must be subscribed of the authorized capital?

Subscribed capital must be P250,000. This is computed as 25% of the P1,000,000
authorized capital. Again, it is required by the Corporation Code that 25% of the authorized
capital must be subscribed. Subscribed capital pertains to the portion of the authorized capital
promised to be paid.
Case 3 : How much must be paid up of the subscribed capital?
Paid up capital must at least be P62,500. This is computed as 25% of the 250,000
subscribed capital. Again, it is required by the Corporation Code that at least 25% of the
subscribed capital must be paid up.
STOCKHOLDERS : TYPES and RIGHTS
Owners of a corporation are called stockholders (also called shareholders). Generally,
stockholders will have rights to vote to dividends and to new stock issues.
Right to vote pertains to the stockholders ability to participate in the significant decision
making agenda of the corporation through voting. Voting in a corporation is generally
proportional to the number of shares held by the stockholders.
Right to dividends pertain to the stockholder’s ability to receive the distribution of excess
profits from current and previous years. Dividends are generally considered as returns on the
amount invested in the stocks. Generally, dividends are declared per unit of share held by the
stockholders. For example, ABC Corporation declares dividends of P1.5 per share in 2015.
Consequently, Mary Consuelo holds 100,000 shares of ABC Corpoaration. Mary Consuelo
receives dividends of P150,000 (100,000 shares multiplied by P1.5) from ABC Corporation.
Right to new stock issues is also called Pre-emptive rights. Pre-emptive right is to existing
stockholders to prevent the dilution of corporate ownership. For example: ABC Corporation is
owned by Anthony (20%), Bryan (20%), Christian (20%), Donald (20%) and Edward (20%). In
2015 , ABC Corporation issues new 100,000 shares. The 100,000 shares will be first offered to
Anthony, Bryan, Christian, Donald and Edward.The said offer will be 20,000 stocks each
(100,000 stocks multipied by 20% ownership). This is to preserve their original ownership
percentage in the corporation. They may decide to purchase or not the offered shares. What is
important is that the cororation first offered the new issue of stocks to it’s existing stockholders
whether or not the stockholders will exercise their pre-emptive right is beyond the control of
the corporation.
Stocks (and stockholders) can either be Common or Preferred. Common stocks have all the
regular rights of a stockholder (vote, dividends and pre-emption). Preferred stocks, however,
are said to be “preferred” in terms of dividends. Preferred stocks are given priority over
common stocks when it comes to dividends. Usually, preferred stocks have a required dividend
for each year. The required dividend is usually a percentage of the preferred stocks.
Mini-Case Study :
Agnes Company has two types of stockholders. Common stockholders with paid up
capital of P1,000,000 and Preferred stockholders with paid up capital of P10,000,000. Preferred
shares are to be given preferential dividends of 8%. In 2015, the board of directors declared
dividends to the stockholders.

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Case 1 : How much will common and preferred stockholders receive if Agnes company
declares dividends of P810,000?
It must be noted that preferred stockholders should receive first their preferential dividends of
P800,000 (10,000,000 multiplied by 8%). The remaining P10,000 should go to common
stockholders.
Case 2 : How much will common and preferred stockholders receive if Agnes Company
declares dividends of P2,000,000?
It must be noted that preferred stockholders should receive first their preferential dividends of
P800,000. The remaining P1,200,000 (2,000,000 dividends declared less P800,00 preferred
dividends) will go to the common stockholders.
Notice that case 1 is favorable to preferred stockholders while case 2 is favorable to
common stockholders. Common stockholders face higher risks than preferred stockholders. But
if the circumstances are favorable (e.g. higher net income), common stockholders may also
obtain higher benefits.
ADVANTAGES AND DISADVANTAGES :
The major advantage of a corporation is the centralization of management through the board
of directors. The board of directors exercises oversight functions over the corporation. They
further protect the interest of the stockholders. All major decisions in the corporation must be
approved by jthem beforehand. The directors composing the board will bring with them the
expertise they have gained throughout their respective careers, as they lead the corporation.
Corporate organizations also have a longer existence. Generally, corporation in the Philippines
are given a life of 50 years, subject to renewal. Unlike Partnerships and sole proprietorships,
corporations may withstand their original owners. Specifically, ownership of a corporation may
be inherited by respective heirs of the original owners. A corporation is given a separat
personality from their shareholders. By extension, it is distinct and different with the
stockholders. Furthermore, the liabilities of it may not extend to the stockholders, unlike in sole
proprietorships and partnerships. Stockholders are only liable to the extent of their original
investment in the corporation.
The major disadvantage of a corporation is it’s stringent requiremnents for registration.

Registering a corporate entity in the Philippines will take a significantly longer period of time
than organizing a sole proprietorship or partnership. Also, corporations are subjected to heavy
government regulations through the Securities and Exchange Commission.
Corporation are also subjected to “double taxation”. The income of the corporation in itself will
be subjected to a corporate tax of 30%. Also, if the corporation decides to declare dividends to
its stockholders, the the dividends are again subjected to a withholding tax. It can be noted that
a corporation’s income is doubly taxed as it passes from the corporation to the stockholders.

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CORPORATE STATEMENT OF CHANGES IN EQUITY :

An example of a corporate statement of changes in equity is shown below:
BASIL CORPORATION
For the Year Ended, December 31, 2015
Common Additional Retatined
Stock Paid-in-Capital Earnings Total
Balance, January 01, 2015 1,000,000 100,000 200,000 1,300,000
Add: Additional stock issuance 100,000 10,000 - 110,000
Net Income for 2015 - - 150,000 150,000
Total 1,100,000 110,000 350,000 1,560,000
Less : Dividends for 2015 - - (100,000) (100,000)
Balance, December 31, 2015 1,100,000 110,000 250,000 1,460,000
========= ======== ========== ========
COMMON STOCK
This column shows the shares issued by the company. Furthermore, this contains the number
of shares issued by the company multiplied by the par value.
ADDITIONAL PAID-IN CAPITAL
This column shows the amount of money received by the company from the issuance of shares,
in excess of the par. For example, during the current year. Basil Corporation issues 10,000
shares (P10 par) for P11 pesos; the par value of 100,000 will go to the common stock column,
While the excess of 10,000 (issue price of P11 less P10, multiplied by 10,000 shares) will go to
the additional paid-in capital column.
RETAINED EARNINGS
This account contains all the net income and net loss incurred by the corporation for the
current and previous years. If the corporation decides to pay dividends to stockholders, then
the dividends are taken from this account.
EXERCISES
1. Which of the following are the major types of business organizations?
a. Sole proprietorship c. corporation
b. Partnership d. all of the choices
2. How many owners a partnership has/have?
a. One c. two but not more than five
b. More than one d. five and above
3. How are owners in a partnership called?
a. Sole proprietors c. shareholders/stockholders
b. Partners d. None of the choices
4. How are owners in a corporation called?
a. Sole proprietors c. shareholders/stockholders
b. Partners d. none of the choices

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5. Which of the following is subjected to the most regulations?

a. Sole proprietorships c Corporations
b. Partnerships d. none of the choices
6. Which of the following is most related to the saying “two heads are better than
one”?
a. Sole proprietorships c. Corporations
b. Partnerships d. none of the choices
7. Presented below are possible advantages and disadvantages. You are to determine
in the first column whether the item pertains to the advantages or disadvantages.
On the second column, you are to determine the related business organization. Item
1 is given as sample.
ADVANTAGE
INFORMATION OR BUSINESS
DISADVANTAGE ORGANIZATION
1. In the event of bankruptcy, business
creditors can run after the personal SOLE
DISADVANTAGE PROPRIETORSHIP
assets of the owners.
and PARTNERSHIP
2. Involvement of more persons in the
business, hence more sources of
expertise as compared to the most simple
business organization.
3. Transferrability of ownerships.
4. Limited Life
5. Business organization as a juridical or
separate person.
6. Corporate existence of 50 years,
renewable.
7. Most limited source of funding.
8. Most regulated business organization.
9. Double taxation
10. Limited Liability
11. Unlimited Liability
QUESTIONS :

Telephone No.: (056) 578-3469
REGION V
1. Discuss a partnership as a form of business organization. What are the advantages

and disadvantages?
2. Discuss a corporation as a form of business organization. What are the advantages
and disadvantages?
3. What are the two types or stocks? Define each.
4. What are the three rights of a stockholders? Define each.
5. Define Partnership and Corporation.
ENRICHMENT ACTIVITY :
1. How a partnership and corporation is organized?

2. What is the nature of a partnership and corporation?
3. Why is it that a corporation is the most regulated form of business organization?

Telephone No.: (056) 578-3469

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Republic of the Philippines

Learning Area: FUNDAMENTALS OF ACCOUNTING, BUSINESS AND

Address: Poblacion, Cataingan, Masbate

Content – Statement of Changes in Equity (SCE)

Address: Poblacion, Cataingan, Masbate

909,00 909,00 661,50

Address: Poblacion, Cataingan, Masbate

STATEMENT OF CHANGES IN EQUITY FOR SOLE PROPRIETORSHIP:

Address: Poblacion, Cataingan, Masbate

JAN UY, CAPITAL - 3001

Initial Investment P 500,000

4. Determine the amount of the Net Income

Professional Fees 247,500

Address: Poblacion, Cataingan, Masbate

JAN UY, DRAWING- 3002

Below is the partially completed SCE of Uy Law Office:

1001 CASH 588,500

Address: Poblacion, Cataingan, Masbate

1005 OFFICE EQUIPMENT 36,000

1006 ACCUMULATED DEPRECIATION-

Address: Poblacion, Cataingan, Masbate

2. Prepare a statement of changes in owner’s equity for Danube’s Paralegal

1. Identify the key elements of a statement of changes in owner’s equity.

1. Identify the procedures in constructing a statement of changes in owner’s equity.

PARTNERSHIP – The Philippine Civil Code defines partnership as a contract where :

Address: Poblacion, Cataingan, Masbate

Address: Poblacion, Cataingan, Masbate

Address: Poblacion, Cataingan, Masbate

Case 2 : How much must be subscribed of the authorized capital?

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ADVANTAGES AND DISADVANTAGES :

The major disadvantage of a corporation is it’s stringent requiremnents for registration.

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CORPORATE STATEMENT OF CHANGES IN EQUITY :

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5. Which of the following is subjected to the most regulations?

Address: Poblacion, Cataingan, Masbate

1. Discuss a partnership as a form of business organization. What are the advantages

1. How a partnership and corporation is organized?

Address: Poblacion, Cataingan, Masbate

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