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Composition: 1. Contributed Capital/Paid-in Capital a. Share Capital – Aggregate Par or Stated Value of i. Shares Issued ii. Subscribed b. Additional Paid-in Capital (Share Premium) – contributions from stockholders other than the aggregate par or stated value of shares. This category includes: i. APIC or Share Premium from excess over par or stated ii. Treasury stock transactions (reissuance and retirement) iii. Ordinary share warrants and Ordinary share option outstanding iv. Others 2. Unearned Capital/Other Comprehensive Income/Losses a. Revaluation Surplus/Revaluation increment in properties b. Translation Reserves c. Unrealized holding gain or loss from Available-for-sale securities d. Unrealized gain or loss on derivatives (Swaps) e. Actuarial gain or loss on Accumulated Benefit Obligation or Plan Asset under the direct recognition approach 3. Accumulated Profits or Retained Earnings a. Un-appropriated (free of dividends distribution) b. Appropriated i. Voluntary (e.g. Plant expansion) ii. Contractual (e.g. Sinking fund) iii. Legal (e.g. Treasury stock) Share Issue Issuance of Share Capital for Cash – Preference or ordinary shares are created equal to par and the excess to paid-in capital. 1. Share Issuance Costs – include registration fees, underwriter commissions, legal fees, accounting fees, share certificate cost, promotional costs and postage. Generally, for subsequent issuances – charged to APIC relative to that particular issue. For initial issuance – charged to Organizational Expense. 2. Issuance of Preference and Ordinary Shares for a Lump-sum Price – This is accounted as follows: a. If preference are effectively equity securities, use pro-rata approach in reference to the aggregate market value of preference and ordinary shares. b. If preference are effective debt securities (e.g. redeemable), use residual definition approach assigning the fair value of preference and ordinary shares. 3. Issuance of Share Capital on a Subscription Basis – the agreed purchase price is debited to APIC. Upon its full payment, the Share Capital Subscribed is closed to Share Capital. The Subscriptions Receivable is presented as a current asset if collection is expected within one year of the balance sheet date. If there is no definite due date set for subscription receivable, it is shown as a contra to stockholder’s equity, an offset against the Ordinary Shares Subscribed account. Default on Subscriptions a. Shares are offered in an auction. b. The entire amount collected is returned to the defaulting subscriber. c. The entire amount collected is returned to the defaulting subscriber less any cost incurred by the corporation in reissuing the shares. d. A corresponding number of shares is issued to the defaulting subscriber based upon the total amount collected; or, e. The entire amount collected is forfeited. 4. Issuance of Share Capital for Non-cash Consideration (PFRS 2) Non-cash consideration (Asset or Services) received shall be valued at their fair market value, unless the fair values of shares are more clearly determinable.

Sold at a price higher than the cost. Restrictions of Retained Earnings for Treasury Shares – has to appropriate Retained Earnings equal the balance of its Treasury Shares (Appropriation=cost of TS) RIGHTS. which is the original issue price: a. the journal entry is: a. exercise and expiration of such. If OIP < COST (Capital Loss) Ordinary Share (at par) Paid in Capital in Excess of Par (pro-rata) (1)Paid-in Capital from Treasury Shares Transactions (until exhausted) (2)APIC from Treasury Shares Transactions/Retirement Treasury Shares (at cost) xx xx xx xx xx xx xx xx xx 4. use cost model Treasury Stock at Cost Cash 2. The difference however lies on how to account for the issuance. to wit: Distinction Rights Are issued to entitle the general stockholders in relation to their preemptive rights. Retirement of Treasury Shares Retire Treasury Shares at their carrying value. Normally issued attached to a principal security (Bond or Preference Shares) as an inducement to buyers of the principal securities. OSWO** xx Share Prem xx From expired warrants . xx xx Sale of Treasury Shares – When treasury shares are reissued. At a price less than the cost resulting in a “capital loss” Cash xx (1) APIC from Treasury Shares xx Transactions (until balance is exhausted) (2) Retained Earnings xx Treasury shares at cost xx xx xx *Note: When treasury shares are acquired at different costs. to protect their proportional interest whenever corporations issue fresh new shares. Acquisition of Treasury Shares. specific shares may be identified. AND OPTIONS Similarity is that these securities entitle holders to acquire shares at an exercise rate ordinarily lower than the prevailing market rate. WARRANTS. Otherwise a FIFO or Average Cost Per Share is used to determine the cost of treasury shares sold. resulting in a “capital gain” Cash xx Treasury shares (at cost) APIC from TS Transactions/Reacquired Shares (gain) b. If OIP > COST (Original issue price/Carrying Value>Cost of Treasury Share: Capital Gain) Ordinary Share (at par) Paid in Capital in Excess of Par (pro-rata) Treasury Shares (at cost) APIC from Treasury Shares Transactions/Retirement b.Treasury Shares 1. Issuance No entry (memo entry only) 1 right for every 1 stock issued Exercise Normal entry for issuance of shares: Cash xx OS xx Share Prem xx Expiration No entry (memo entry only) Warrants PS with warrants: Cash xx PS xx Share Prem xx OSWO xx *Use pro-rata or residual approach Bonds with warrants: Cash xx Discount xx Prem xx Bonds Payable xx OSWO xx Cash (Ex P) xx OSWO** xx OS xx Share Prem xx **debit OSWO at the carrying value of the warrants exercised. 3.

always consider in the analysis the estimated number of employees who shall remain within the company’s employs until the end of the vesting period. earnings. In estimating the compensation expense for each period. 4. i. If options vest immediately (dr. the stock dividend is termed small. Comp exp xx OSOO xx At FMV of options or the intrinsic value. i. Any changes in the number of employees remaining with the company until the options vest shall be accounted for as a mere change in estimate. This means that the options shall only become exerciseable if the additional vesting condition (apart from the cesting period) is achieved. there is an additional vesting condition). OSOO** xx Share Prem xx From expired warrants Notes on Accounting for Option Issuance (Equity-settled share based payment): 1. preference shares to ordinary shareholders. whichever is appropriate (see note below) Cash (Ex P) xx OSOO** xx OS xx Share Prem xx **debit OSOO at the carrying value of the warrants exercised. (a) PP errors (b) Change in policies RE.e. Less than 20% of the shares previously outstanding and subscribed. market-based condition cannot be directly influenced by key employees. comp expense for the entire valuation of the options) 2. contractual Voluntary) (h) Net loss 1. Retained Earnings Retained Earnings RE.*Use residual approach Options Normally issued to key executives and officers as additional compensation for either past or future services provided to the company. If additional vesting condition is NON-MARKET-BASED (e. That is. Stock Dividends or Capitalization or Bonus Issue – an ordinary stock dividend is a stock dividend of the same class. Beginning Prior period adjustments: (a) PP errors (b) Change in policies (c) Capital lossed from TST (d) Capital loss from recapitulation (e) Dividends declared from earnings (f) Appropriations (legal. ordinary shares to ordinary shareholders. consider whether the additional nonmarket based condition is achieved or not in vesting the options. Number of options b. a. Fair value of options If non-market-based vesting condition is not achieved.e. beg as adjusted (g) Reversal on appropriations (i) Net income RE. In addition. A special stock dividend is a stock dividend of a different class. account for the option as if it is fixed. target sales. increase in sales etc). end 2. .the option shall revert to the company. ascertain which among the following items are variable/varies in response to the non-market-based condition: a. If additional vesting condition is MARKET-BASED (e. options shall vest regardless whether the additional market condition is achieved or not. Cash Dividend Computation of Cash dividends payable: Number of shares outstanding and subscribed * (% of cash dividend * Par per share) Property Dividends – measured at fair market value of the asset declared as dividends. If options are under FIXED OPTION PLAN (the only vesting condition is the vesting period). determine if option plan is fixed or variable. This is because the determination of the fair valuation of the options considers the probability that market-based condition will be achieved or not achieved. Vesting period c. determine what is the nature of the additional vesting condition (MARKET-BASED OR NON-MARKET-BASED) a.g. If options do not vest immediately. share price). charge compensation expense to the vesting period by allocating the valuation of the options to the said vesting period (Options/VP) b. If options are under VARIABLE OPTION PLAN (if apart from the besting period. in which case the amount to be charged to Retained Earnings is equal to its current market value.g. In addition. 3. Determine if options vest immediately or do not vest immediately a. 3. a.

Property Dividends Payable and Scrip Dividends Payable re classifies as liabilities whereas Stock Dividends Distributable is an addition in the Stockholder’s Equity. 4. the stock dividend is termed large in which case the amount charged against Retained Earnings is equal to par value. Balance Sheet Classification – Dividends Payable. Scrip Dividends – A corporation may declare a scrip dividend by issuing promissory notes called scrip. At least 20% of the shares previously outstanding and subscribed. . 5. This arises when the corporation may have adequate Retained Earnings to meet the legal dividend requirements but has insufficient funds to disburse. If the promissory note bears interest this is charged to Interest Expense.b.

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