CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

MODULE 4: PREPARING THE FINANCIAL STATEMENTS

[Please effect changes noted here on your handouts]

H. Statement of Cash Flows, Financing Activities. An analysis of WHITE Company’s

stockholders’ equity section of its Statement of Financial Position at December 31,
2019 are as follows:

December 31, 2019 January 1, 2019

Ordinary share capital, P10 par P 5,500,000 P 4,000,000
Share premium 1,250,000 750,000
Retained earnings, 3,450,000 2,750,000
unappropriated
Retained earnings, for plant 1,000,000 -
expansion
Treasury shares, at cost 650,000 900,000
TOTAL P 11,850,000 P 8,400,000

The following transactions happened during the year:

(1) The company reissued 25,000 out of its 90,000 treasury shares at P15.

(2) The company issued 150,000 ordinary shares at an undisclosed issue price per
share.

(3) The company earned a net profit of P2,050,000 and declared and paid dividends
at the end of year at an undisclosed amount.

Required: Compute for WHITE’s net cash from/(used in) financing activities for the
year ended December 31, 2019.

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Discussion on Problem H

Before we answer the problem, let us discuss first the nature of the T-accounts for various
shareholders’ equity accounts.

A. Ordinary share capital

ORDINARY SHARE CAPITAL

Par value of shares P xx Beginning balance P xx

retired during the year
Par value of shares
issued during the year xx

Ending balance P xx Credited at the trial balance

B. Ordinary share premium

ORDINARY SHARE PREMIUM

Excess over par for P xx Beginning balance P xx

shares retired during
the year
Excess over par for
shares issued during
the year xx

Ending balance P xx Credited at the trial balance

C. Retained earnings (unappropriated)

UNAPPROPRIATED RETAINED EARNINGS

Loss during the year P xx Beginning balance P xx

Dividends declared
during the year xx Profit during the year xx

Appropriated during
the year xx

Ending balance P xx Credited at the trial balance

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D. Appropriated retained earnings

APPROPRIATED RETAINED EARNINGS

Release of appropriations Beginning balance P xx

during the year P xx
Appropriations during
the year xx

Ending balance P xx Credited at the trial balance

E. Treasury shares (at cost)

TREASURY SHARES (at cost)

Beginning balance P xx Reissued during P xx

the year
Acquisitions during
the year xx

Debited at the trial balance Ending balance P xx

Solution to Problem H

To better understand the problem, let us prepare first the journal entries for transactions
that ha ppened during the year:

(1) The company reissued 25,000 out of its 90,000 treasury shares at P15.

Cash [25,000 shares x P15] P 375,000

Treasury shares P 250,000
Share premium 125,000

*Cost of treasury shares reissued = P900,000/90,000 shares = P10 per share x

25,000 shares = P250,000

(2) The company issued 150,000 ordinary shares at an undisclosed issue price
per share.

Let us use the T-account to determine how much is the cash received by the
corporation upon issuance of the ordinary shares.

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 ORDINARY SHARE CAPITAL

Par value of shares P - Beginning balance P 4,000,000

retired during the year
Par value of shares
issued during the year ??

Ending balance P 5,500,000 Credited at the trial balance

So, how much will be the par value of the shares issued during the year in order to
keep the T-account in balance? Therefore, the total par value of shares issued
during the year is P1,500,000.

SHARE PREMIUM

Excess over par for P - Beginning balance P 750,000

shares retired during
the year
Excess over par for
shares issued during
the year ??

Excess over par of

treasury shares reissued
during the year 125,000

Ending balance P 1,250,000 Credited at the trial balance

So, how much will be the premium on shares issued during the year in order to keep
the T-account in balance? Therefore, the premium on shares issued during the
year is P375,000.

Now that we have already analyzed the transaction through the use of T-accounts,
the journal entry for this transaction is:

Cash P 1,875,000
Ordinary share capital P 1,500,000
Share premium 375,000

(3) The company earned a net profit of P2,050,000 and declared and paid
dividends at the end of year at an undisclosed amount.

To determine the amount of dividends declared and paid at the end of the year, let us
again analyze the transaction using T-accounts.
 UNAPPROPRIATED RETAINED EARNINGS

Dividends declared P ?? Beginning balance P 2,750,000

during the year
Profit during the year 2,050,000
Appropriated during
the year 1,000,000

Ending balance P 3,450,000 Credited at the trial balance

Take note that the P1,000,000 appropriation was provided in the problem.

So, how much will be the dividends declared and paid during the year in order to keep
the T-account in balance? Therefore, the dividends declared and paid during the
year is P350,000.

Now that we have already analyzed the transaction through the use of T-accounts,
the journal entry for this transaction is:

Retained earnings P 350,000

Cash P 350,000

(4) Net cash generated from/(used in) financing activities

To get the net cash generated from/(used in) financing activities, summarize all the
cash inflows and outflows affecting the shareholders’ equity during the year:

(1) Proceeds from reissuance of treasury shares P 375,000

(2) Proceeds from issuance of new ordinary shares 1,875,000
(3) Dividends paid during the year ( 350,000)
Net cash generated from financing activities P 1,900,000

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