SHAREHOLDERS' EQUITY

= also known as stockholders' equity

= residual interest of owners Assets = Liabilities + Capital
= the excess of assets over liabilities = NET ASSETS
= ASSETS - LIABILITIES = CAPITAL/EQUITY/NET ASSETS

6 MAJOR COMPONENTS
1 SC = Share Capital
**issued and fully paid shares at the extent of par or stated value
** ordinary share capital / preference share capital

2 SSC = Subscribed Share Capital

**subscribed, thus not yet issued, may be partially paid at the extent of par or stated value
**the balance may be reduced by the subscriptions receivables provided the
receivables are not current Subscriptions receivable
Subscribed share capital
3 SP = Share Premium
** Upon ORIGINAL ISSUANCE - excess over PAR or STATED value
** Upon ISSUANCE OF TREASURY SHARES - excess over COST
** Upon RETIREMENT OF TREASURY SHARES - excess PAR over COST
** Upon DONATION of a SHAREHOLDER to the Corporation
** Upon ISSUANCE of COMPOUND FINANCIAL INSTRUMENTS
= share premium warrants outstanding
= share premium conversion privilege
** Upon DECLARATION of SMALL share dividends
**Quasi-reorganization and recapitalization

4 RE = Retained Earnings
**the cumulative balance of periodic earnings or losses
** also known as: Accumulated profits (losses)
**affected and adjusted by:
= prior period errors
= changes in accounting policy
= Net income (losses)
= Dividend declaration
regardless whether: Cash, Property, Liability, Share dividends
** can be APPROPRIATED thru:
 1. LEGAL
2. CONTRACTUAL
3. VOLUNTARY

5 RS = Revaluation Surplus
** excess Revalued amount over Carrying value of assets
** most often seen in PPE transactions

6 (TS) = Treasury Shares

**issued shares, reacquired but not canceled
** recorded at COST
** can only be entered to by the corporation IF there is sufficient balance
in the Retained earnings - unappropriated balance

RIGHTS OF SHAREHOLDERS
Ordinary Preference
1 Voting rights / x
2 Right of Pre-emption / / stock rights
3 Right to dividends / /
4 Right to assets / /

SHAREHOLDERS' EQUITY
PRESENTATION:
1 2 3
SC Contributed capital Share Capital
SSC SC SC
SP SSC SSC
RE SP
RS (TS) Reserves:
(TS) SP
Earned Capital RE - appropriated
RE RS
RS
Retained earnings - unappropriated
(Treasury shares)
 DEBT SECURITIES - BONDS
INVESTOR ( CREDITOR )
BONDHOLDER

INVESTMENTS (FVPL/FVOCI/FAAC)
CASH

EQUITY SECURITIES - SHARES

INVESTOR - SHAREHOLDER

INVESTMENTS (FVPL/FVOCI/UES/INV. IN ASSOC)

e extent of par or stated value CASH
es provided the
Cash SHARE CAPITAL AUTHORIZED S
Subscriptions receivable 30,000 1,000,000 SHAR
ISSUED MAXIMUM SHA
IP > Par/stated FULLY PAID THAT A CORPO
IP > Cost AMOUNT
Par > Cost 2M SHARES

NO PAR VALUE SHARES

=AMOUNT PER SHARE IS UNDEFINED IN THE ARTICLES OF INCORPORATION
A A. NOPAR - STATED VALUE B. TRUE NO PA
Fair value > Par 5 SHARES @ STATED VALUE OF 10 PESOS 5 SHARES

ISSUED AT 50 ISSUED AT 50
Cash (5 shares x P50) 250 Cash
Ordinary share capital (5 shares x P10) 50 Ordinary sh
Share premium 200
C. PAR VALUE
ISSUED 5 SHARES AT P50, PAR P10 A
Cash (5 shares x P50) 250 B
Ordinary share capital (5 shares x P10) 50 C
Share premium 200
y, Share dividends
 Subcriptions receivable 10
Subscribed share capital 10

SHE:
Subscribed share capital 10
Less: Subscriptions receivable 10 0 **noncurrent

SHE:
Subscribed share capital 10

Asset:
ient balance Subscriptions receivable 10 **current

year NI (NL) RE when can dividends b

1 10 10 yes
2 30 40 yes
3 -5 35 yes
4 -25 10 yes
5 -15 -5 deficit no
6 2 -3 no
7 4 1 yes
 LIABILITIES
INVESTEE ( DEBTOR)
ISSUER/SELLER OF BONDS

CASH
BONDS PAYABLE

SHAREHOLDERS' EQUITY
INVESTEE - ISSUER/SELLER OF SHARES

CASH
ORD. SHARE CAPITAL

AUTHORIZED SHARE CAPITAL UNISSUED

1,000,000 SHARES AT 100/SHARE 970,000 SHARES
MAXIMUM SHARES AT ITS PAR
THAT A CORPORATION COULD ISSUE WITHIN ITS LIFETIME

2M SHARES

ORPORATION
B. TRUE NO PAR
5 SHARES

ISSUED AT 50
250
Ordinary share capital 250

LEGAL CAPITAL
250
250
50
 **noncurrent

**current

when can dividends be declared

10
40
35
10

1
TREASURY SHARES
** entity's own shares that have been issued, reacquired but not canceled

** the corporation can only acquire treasury shares only to the extent
of retained earnings balance - unappropriated
** in order to preserve the legal capital, the retained earnings must be appropriated to
the extent of the COST of treasury shares, and the same must not be declared as dividend
until the necessary treasury shares are subsequently re-issued.

** decreases outstanding shares

** accounting method - COST METHOD

= may be acquired for CASH or NON-CASH consideration
(if non-cash, the treasury shares are usually measured at the
carrying value of the non-cash asset surrendered)

A. ACQUISITION OF TREASURY SHARES

JE: Treasury shares 1000
Cash ( amount paid) OR 1000
Non-cash asset ( carrying value )

Retained earnings - unappropriated 1000

Retained earnings - appropriated 1000

B. ISSUANCE OF TREASURY SHARES ( Issue price vs Cost )

1 IF ISSUE PRICE = COST
JE: Cash ( issue price) xx
Treasury shares ( at cost ) xx

2 IF ISSUE PRICE > COST

JE: Cash ( issue price) xx
Treasury shares ( at cost ) xx
Share premium - treasury shares xx
 3 IF ISSUE PRICE < COST
JE: Cash ( issue price) xx
1. Share premium - treasury shares** xx
2. Retained earnings xx
Treasury shares ( at cost ) xx

**exhaust the balance

C. RETIREMENT OF TREASURY SHARES ( Par vs Cost)

1 IF PAR = COST
JE: Share capital ( @ par ) xx
Treasury shares ( at cost ) xx

2 IF PAR > COST

JE: Share capital ( @ par ) xx
Treasury shares ( at cost ) xx
Share premium - treasury shares xx

3 IF PAR < COST

JE: Share capital ( @ par ) xx
1. Share premium - original issuance
2. Share premium - treasury shares** xx
3. Retained earnings xx
Treasury shares ( at cost ) xx

**exhaust the balance

DONATED SHARES
** shares received by the entity from shareholders by way of donation
 ** these are considered as treasury shares and may be reissued at any price
** decreases outstanding shares

A. ACQUISITION/ RECEIPT OF DONATED SHARES

JE: NO ENTRY - MEMO

B. ISSUANCE OF DONATED SHARES

JE: Cash xx
Donated capital OR Share premium xx

C. RETIREMENT OF DONATED SHARES

JE: Share capital ( @ par ) xx
Donated capital OR Share premium xx

TREASURY SHARES SUBTERFUGE

** occurs when excessive shares are issued for a property with the understanding
that the shareholders shall subsequently donate a portion of their shares
** the resale of the donated shares is not credited entirely to DONATED CAPITAL, but
used in correcting the overvalued asset

A. ISSUANCE OF SHARES ( where the corresponding asset is overvalued)

JE: Non-cash asset (overvalued) xx
Share capital (excessive number of shares ) xx

B. ACQUISITION/ RECEIPT OF DONATED SHARES

JE: NO ENTRY - MEMO

C. ISSUANCE OF DONATED SHARES

JE: Cash xx
Non-cash asset (correct overvaluation) xx
Donated capital OR Share premium xx
 number of shares
issued unissued

authorized = issued + unissued

treasury
donated
outstanding
'= issued + subscribe - treasury - donated

Retained earnings - appropriated

Retained earnings - unappropriated 1000
Retained earnings - appropriated
Retained earnings - unappropriated
Issued 20, 000 shares, par P100, ordinary for a building with a fair value of P120,000.
the shares are currently traded at P15
Building 200,000 OVERVALUED 80,000
Ordinary share capital (20,000 shares x P10) 200,000

Received 5,000 shares from shareholders as donation

issued the donated shares at P20/share

Cash ( 5,000 shares x P20) 100,000
Building 80,000
Donated capital or share premium 20,000
CALLABLE PREFERENCE SHARES
**which can be called in for redemption at a specified price AT THE OPTION of the CORPORATION
** has NO DEFINITE redemption date
** dependent upon the call of the ISSUER/CORPORATION
** it is an EQUITY instrument, part of SHE
** holders = earn dividends; reduces retained earnings
RULES:
When PREFERENCE shares are called in

A. At MORE than the Original issue price OR Call price > Original Issue Price > Par
** excess is DEBITED to RETAINED EARNINGS
OR
1. Share premium from original issuance
2. Retained earnings

B. At LESS than the Original issue price OR Call price < Original Issue Price > Par
** difference is CREDITED to Share premium - Ordinary shares

REDEEMABLE PREFERENCE SHARES

** provides for MANDATORY redemption by the issuer for a fixed amount at a future date
** gives the HOLDER the right to REQUIRE the issuer to redeem the instrument
** classified as a current or non-current financial LIABILITY
** holders = earn interest; reduces current income = income statement
**the DIFFERENCE between the Redemption price vs Financial liabilty = Gain or loss on redemption

IF: REDEMPTION PRICE > FINANCIAL LIABILITY = LOSS

IF: REDEMPTION PRICE < FINANCIAL LIABILITY = GAIN
CONVERTIBLE PREFERENCE SHARES
** one which gives the holder the right to exchange the holdings for other securities of the issuing corp
** a convertible preference share may be converted into:
A. Bonds
B. Ordinary shares
RULES:
A. If the original issue price of PREFERENCE share > Aggregate par value o
= known as CAPITAL GAIN
= difference credited to Share premium - Ordinary shares

B. If the original issue price of PREFERENCE share < Aggregate par value of
= known as CAPITAL LOSS
= difference DEBITED to RETAINED EARNINGS

PREFERENCE SHARES WITH SHARE WARRANTS

** warrants may be included as a "sweetener" to make the securities more attractive to investors
** the consideration received shall be allocated between the shares and warrants based on their mark

A. ISSUANCE OF PREFERENCE SHARES WITH WARRANTS

JE: Cash xx
Preference Share capital xx
Share premium xx
Share warrants outstanding xx

B. EXERCISE OF SHARE WARRANTS

JE: Cash xx
Share warrants outstanding xx
 Ordinary Share capital xx
Share premium xx

C. EXPIRATIONF SHARE WARRANTS

JE: Share warrants outstanding xx
Share premium xx
OPTION of the CORPORATION

ISSUE PRICE = 10, PAR = 5

Cash 10
e Price > Par PS capital (par 5) 5
Share premium - PS 5

B. CALL PRICE = 8 < IP > par

PS capital (par 5) 5
Share premium - PS 5
CASH (CALL PRICE) 8
Share premium - OS 2

A. CALL PRICE = 15 > IP > par

PS capital (par 5) 5
ount at a future date Share premium - PS 5
Retained earnings 5
CASH (CALL PRICE) 15

y = Gain or loss on redemption

Redeemable preference sha 5

Loss on redemption 7
Cash (redemption price) 12
other securities of the issuing corporation

CE share > Aggregate par value of ORDINARY shares

e premium - Ordinary shares

CE share < Aggregate par value of ORDINARY shares

AINED EARNINGS

s more attractive to investors

and warrants based on their market value
SPECIAL ASSESSMENTS
** may be levied on shareholders when shares are originally issued at a discount OR

when the corporation is in dire need of financial assistance

A. Due to original shares issued at a discount

JE: Cash xx
Discount on share capital xx

B. In need of financial assistance

JE: Cash xx
Share premium - special assessment xx

RECAPITALIZATION
** when there is a change in capital structure of the entity. OLD shares are
canceled and NEW shares are issued
SHE balance remains the same prior and after the recapitalization
A. Change from PAR to NO PAR

B. Change from NO PAR to PAR ** Changes shall be charged or credited to SHARE PREMI
** IF increases in share capital exceed share premium, th
C. Reduction of PAR value RETAINED EARNINGS.

D. Reduction of STATED value

E. Split UP ** NO entry - memo

** NO CHANGE in the shareholders' equity balance, but ONLY on the
F. Split DOWN NUMBER OF SHARES AND PAR OR STATED VALUE
 sup - increase number of shares, par or stated value decreases
sdown - decrease number of shares, par or stated value increases
SHE balance remains the same prior and after the sup/ sdown
SHARE RIGHTS
** Rights granted to existing shareholders to enable them to acquire new shares
at a specified price during a specified period

A. ISSUANCE OF RIGHTS
JE: NO ENTRY - MEMO

B. EXERCISE OF RIGHTS BY SHAREHOLDERS ( normal issuance of shares

JE: Cash xx
Share capital xx
Share premium xx

C. EXPIRATION OF RIGHTS
JE: NO ENTRY - MEMO
 issue price < par
Cash 85
Discount on share capital 15
Ordinary Share capital (par 100) 100

before recap after recp

SHE = 100M SHE = 100M
OLD SHARES: 50,000 SHARES, PAR 100
NEW SHARES: 50,000 SHARES, NO PAR 50

Ordinary share capital ( 50000sh x 100)

redited to SHARE PREMIUM Share premium
xceed share premium, the excess is charged to Ordinary share capital (50000sh x P50)
Share premium - recapitalization

Ordinary share capital ( 50000sh x 100)

Share premium
Retained earnings
nce, but ONLY on the Ordinary share capital (50000sh x P150)
alue decreases
d value increases
e sup/ sdown
AE 121 - INVESTMENTS IN ES
INVESTOR
Accounted for Separately
Share rights
Investment in ES

Investments in ES
Share rights
Cash

Loss on share rights

Share rights
ARES, PAR 100 SHARE PREMIUM 500,000
ARES, NO PAR 50

5,000,000
500,000
0000sh x P50) 2,500,000
3,000,000

5,000,000
500,000
2,000,000
0000sh x P150) 7,500,000
On October 15, 2021, ABC Corporation issued 10,000 shares, P20 par, ordinary, in exchange of land.
The land has a fair value of P500,000 as of January 15, 2021. ABC shares are currently traded in the
market at P45/share.

Given: Par value P20 FV R

Fair value, land 500,000 FV g
Fair value, shares 45/sh par g

JE: Land (10,000 sh x P45) 450,000

Ordinary share capital (10,000 sh x P20) 200,000
Share premium 250,000

SHE Upon subscription of 1 share, par 10 Fully paid subscription - ISSUED

SC 10 10
SSC 10 -10 0
EFFECT ON SHE 10 10

SUBSCRIPTIONS OF SHARES
1. 20 shares, Par 10, ordinary were subscribed at P25
Subscriptions receivable ( 20sh x P25) 500
Subscribed ordinary share capital (20 sh x P10) 200
Share premium 300

2. Collected 30% of the subcription

Cash (30% x P500) 150
Subscriptions receivable 150

3. The corporation declared the subscriber delinquent

** 20 shares as delinquent

4. The corporation opened the delinquent shares for bidding: A

Unpaid balances (500 - 150) 350 no. of shares 10
Other costs 50
Total costs 400

Advances on delinquency sale 50

Cash 50

Cash 400
Subscriptions receivable 350
 Advances on delinquency sale 50

5. The shares are now issued

Subscribed ordinary share capital 200
Ordinary share capital 200

6. IF NO BIDDERS, then the corporation may bid

Treasury shares 400
Subscriptions receivable 350
Advances on delinquency sale 50

Subscribed ordinary share capital 200

Ordinary share capital 200
exchange of land.
ently traded in the

land
share
share

ption - ISSUED

B C
15 8
X C
12 8 20
ABC Company was organized at the beginning of the current year and was authorized to issue
share capital of 100,000 ordinary shares of ₱50 par value. The following transactions occurred during
the current year in connection with the share capital:

1 The incorporators subscribed for 30% of the authorized share capital at par value

JE: Subscriptions receivable (30% x 100,000 shares x P50) 1,500,000

Subscribed ordinary share capital (30% x 100,000 x P50)

2 The incorporators paid 40% on their subscriptions.

JE: Cash (40% x 1,500,000) 600,000

Subscriptions receivable

3 Full payment was received on 18,000 shares originally subscribed

Subscriptions 30,000 50 1,500,000
Less: Partially paid 12,000 50 600,000 40% 240,000
Fully paid shares 18,000 50 900,000 40% 360,000
600,000

JE: Cash (18,000 shares x P50 x 60%) 540,000

Subscriptions receivable

Subscribed ordinary share capital 900,000

Ordinary share capital (18,000 x P50)

4 Land with fair value of ₱750,000 was acquired upon issuance of 12,000 shares.
The market value of the shares at this time is ₱57

JE: Land 750,000

Ordinary share capital (12,000 sh x P50)
Share premium - ordinary

5 Cash subscription to 5,000 shares at ₱65 per share was received

JE: Subscriptions receivable (5,000 shares x P65) 325,000

Subscribed ordinary share capital (5,000 x P50)
Share premium - ordinary

6 Issued 2,000 shares to the legal counsel in payment of ₱100,000 bill for organization services.
 JE: Organization cost 100,000
Ordinary share capital (2,000 sh x P50)

Shareholders' Equity
Share capital 1,600,000 issued shares 32,000
Subscribed share capital 850,000 subscribed shar 17,000
Share premium 225,000
Total 2,675,000
**provided the subscriptions receivable is current

Shareholders' Equity
Share capital 1,600,000
Subscribed share capital 850,000
Less: Subscriptions receivable 685,000 165,000
Share premium 225,000
Total 1,990,000
**provided the subscriptions receivable is non-current

Legal capital
Share capital 1,600,000
Subscribed share capital 850,000
Total 2,450,000

Outstanding shares
Issued 32,000
Add: Subscribed 17,000
Total 49,000
Less: Treasury 0
Donated 0
Outstanding shares 49,000
 1,500,000

600,000

balance
360,000
540,000

540,000

900,000

600,000
150,000

250,000
75,000
 100,000

Par
50 1,600,000
50 850,000
PROBLEM 21-5
GIVEN: Pshares 500,000 5,000 shares
Oshares ### 50,000 shares
Share premium - PS 200,000
Share premium - OS 500,000
Retained earnings ###

1. Issued 20,000 shares, ordinary at P50

JE: Cash (20,000 shares x P50 )
Ordinary share capital (20,000 sh x P50)

2. Purchase of treasury - ordinary, 5,000sh @ P60

JE: Treasury shares (5,000 sh x P60)
Cash

3. Share split = 2 for 1 old par old number

Ordinary shares: split up
Beginning balance 50 50,000 2
Issuance 50 20,000 2

Preference shares
Beginning balance 5,000

Treasury shares cost

Ordinary 60 5,000 2

4.Issuance of treasury shares, 3,000 sh @ P40

JE: Cash (3,000 sh x P40)
Treasury shares ( 3,000 sh x P30)
Share premium - treasury shares

5.Shareholders donated, 15,000 shares; 10,000 of which were re-issued at P40/sh

JE: Cash (10,000 sh x P40)
Share premium - ordinary (donated capital)

6. Net income = 500,000

JE: Income summary
Retained earnings

7. Appropriated retained earnings equal to treasury shares

JE: Retained earnings - unappropriated
Retained earnings - appropriated
 Treasury shares 210,000

no. of treasury shares 7,000 30 210,000

OUTSTANDING SHARES - ORDINARY

ISSUED (TREASURY) (DONATED) OUTSTANDING
BEG BAL 50,000 50,000
#1 20,000 20,000
70,000 70,000
#2 purchase of ts (5,000) (5,000)
70,000 (5,000) - 65,000
#3 Sup multiply 2 2 2
140,000 (10,000) - 130,000
#4 issue ts 3,000 3,000
140,000 (7,000) - 133,000
#5 donated shares (15,000) (15,000)
issue of donated sh 10,000 10,000
140,000 (7,000) (5,000) 128,000

par 25 30 cost 25
share capital 3,500,000 (210,000) 3,200,000

3,500,000

SHAREHOLDERS' EQUITY
SHARE CAPITAL
ORDINARY ###
PREFERENCE 500,000 4,000,000
SHARE PREMIUM
ORDINARY 900,000
PREFERENCE 200,000
TREASURY 30,000 1,130,000
RETAINED EARNINGS
UNAPPROPRIATED ###
APPROPRIATED 210,000 2,500,000
TREASURY SHARES (210,000)

TOTAL 7,420,000

issued - treasury = outstanding

issued treasury
1 issued 1,000 SHARES 1,000
balance 1,000 -
2 reacquired 400 shares (400)
balance 1,000 (400)
3 sold 250 treasury shares 250
balance 1,000 (150)
4 recapitalization - split up 3 for 1 multiply 3 3
balance 3,000 (450)
5 retired 300 treasury shares (300) 300
2,700 (150)
 par
100
50

1,000,000
1,000,000

300,000
300,000

new number new par amount

100,000 25 2,500,000
40,000 25 1,000,000

new cost
10,000 30 300,000

120,000
90,000
30,000

400,000
400,000

500,000
500,000

210,000
210,000
 LEGAL CAPITAL 4,000,000
CONTRIBUTED CAPITAL 4,920,000
EARNED CAPITAL 2,500,000
RESERVES 1,340,000

asury = outstanding
outstanding
1,000
1,000
(400)
600
250
850
3
2,550
- Share capital
2,550 Treasury shares