Corporation - Share Capital Transactions

Share Capital Transactions Subsequent to Example:
Original Issuance
The shareholder’s equity of XYZ Corporation included the
Share Capital Reacquisition (Treasury Shares) following items:
Sometimes, the issuing corporation reacquires its Ordinary Share Capital, P20 par, 50,000 shares 1,000,000
previously issued shares without retiring them. Reacquisition Ordinary Share Premium 250,000
of shares may be due to purchase or donation. These shares are Retained Earnings 500,000
referred to as Treasury Shares. Treasury shares may then be
reissued at a later date. On September 1, 2020, 1,000 shares were reacquired at P24.
On September 30, 700 shares were reissued at P24.
The practice of reacquiring one’s own share capital is done for
some of following reasons: The journal entries concerning treasury shares are as follows:
1. To obtain shares to be used in acquiring plant assets Date
Sep-01 Treasury Shares - Ordinary (1,000 × P24) 24,000.00
2. To improve earnings per share by reducing the number of Cash (1,000 × P24) 24,000.00
shares outstanding. Remember that to calculate for the Retained Earnings 24,000.00
number of shares outstanding, the number of treasury Appropriated Retained Earnings - Treasury Shares 24,000.00
shares is deducted from the number of issued shares. Sep-30 Cash (700 × P24) 16,800.00
Treasury Shares - Ordinary (700 × P24) 16,800.00
3. To invest excess cash temporarily
4. To support the market price of the share capital. By Appropriated Retained Earnings - Treasury Shares 16,800.00
Retained Earnings 16,800.00
reducing the number of shares available in the stock
exchange market, prices will rise, cet. par. Note that the reduction in the appropriated retained earnings is
5. To increase the ratio of liabilities to shareholder’s equity. at cost of treasury shares.
This is because treasury shares functions as a contra-
equity account, that is, its normal balance is debit. Case 1B: Reissued at above reacquisition cost
6. To obtain shares for conversion to other securities such as
When Treasury Shares are reissued at above
the conversion of preference share capital to ordinary
reacquisition cost, share premium on treasury shares shall be
share capital.
credited for the difference. Other than this, the concept on
Case 1: Reacquisition by purchase reissuance at cost is still applicable herein.
When share capital is reacquired through purchase, they Example:

will be accounted for using the cost method. This means that
The shareholder’s equity of XYZ Corporation included the
Treasury Share Capital account will be debited for the amount
following items:
it was acquired for. Note that treasury shares may be acquired
below or above both issue price and par value. Though this Ordinary Share Capital, P20 par, 50,000 shares 1,000,000
will not matter since acquisition of treasury shares will be Ordinary Share Premium 250,000
accounted for at cost. Retained Earnings 500,000
Treasury shares can then be reissued below or above On September 1, 2020, 1,000 shares were reacquired at P24.
acquisition cost. Note here that neither original issue price nor On September 30, 700 shares were reissued at P30.
par value is ignored, and only the acquisition cost is
considered. This means that the illustrations below will also The journal entries concerning treasury shares are as follows:
apply for no-par, no-stated value shares since both par and Date
stated value are ignored. Cash (1,000 × P24) 24,000.00
Case 1A: Reissued at acquisition cost Retained Earnings 24,000.00

Appropriated Retained Earnings - Treasury Shares 24,000.00
When treasury shares are reissued at cost, there will be
Sep-30 Cash (700 × P30) 21,000.00
no complications. Treasury shares are simply credited, Treasury Shares - Ordinary (700 × P24) 16,800.00
reducing the balance of Treasury Shares account, and debiting Share Premium - Treasury Share - Ordinary 4,200.00
cash or specific asset account received for the reissuance. This Appropriated Retained Earnings - Treasury Shares 16,800.00
will also reduce the appropriation for treasury shares.
Note that the reduction in the appropriated retained earnings is
at cost of treasury shares.
Case 1C: Reissued at below reacquisition cost Date
Cash (1,000 × P24) 24,000.00
When treasury shares are reissued below cost, the difference
shall be debited to the following: Retained Earnings 24,000.00
1. First, to Share Premium on treasury shares reissued. Note Sep-30 Cash (700 × P20) 14,000.00
that the share premium on treasury shares shall pertain to Share Premium - Treasury Shares 1,000.00
Retained Earnings [(700 × P4) - 1,000] 1,800.00
the same class of shares only. Even in cases where the Treasury Shares - Ordinary (700 × P24) 16,800.00
shares are no-par, no-stated shares, share premium in Appropriated Retained Earnings - Treasury Shares 16,800.00
treasury could still arise. Retained Earnings 16,800.00
2. Second, if there is no balance in the share premium on

treasury shares, it shall be debited to retained earnings.
at cost of treasury shares. Further, Retained Earnings was
Other than this, the concept on reissuance at cost is still debited after exhausting the balance in the share premium on
applicable herein. treasury shares account. This is because, the total difference of
P2,800 is more than the balance of share premium on ordinary
Example:
treasury shares. Thus, the excess of P2,800 – P1,000 = P1,800
The shareholder’s equity of XYZ Corporation included the is further debited to Retained Earnings. Note that if the share
following items: premium on ordinary treasury shares was more than P2,800,
all of the difference shall be debited to share premium on
Ordinary Share Capital, P20 par, 50,000 shares 1,000,000 treasury shares, and none will be debited to retained earnings.
Ordinary Share Premium 250,000
Retained Earnings 500,000 Case 2: Reacquisition by donation
On September 1, 2020, 1,000 shares were reacquired at P24. There are instances when shareholders will return shares
On September 30, 700 shares were reissued at P20. to the issuing company gratuitously, that is, for free. Upon
receipt of donated shares, a memorandum entry is made. Upon
Assume further that there is a balance in the Share Premium – reissuance, cash or specific asset account received for the
Treasury Shares – Preference of P1,000. reissuance will be debited, and donated capital is credited.
The journal entry concerning treasury shares are as follows: This means that the illustrations below will also apply for no-
par, no-stated value shares since only the cash or asset
Date
Sep-01 Treasury Shares - Ordinary (1,000 × P24) 24,000.00 received is considered upon reissuance.
Cash (1,000 × P24) 24,000.00

Example:
Yvone had 5,000 ordinary shares of JKL Corporation with a
Sep-30 Cash (700 × P20) 14,000.00
Retained Earnings (700 × P4) 2,800.00
par value of P100 per share. Later, she donated 1,000 shares to
Treasury Shares - Ordinary (700 × P24) 16,800.00 the corporation.
Retained Earnings 16,800.00 Memorandum entry upon receipt of donated shares is:
Note that the reduction in the appropriated retained earnings is “Received 1,000 ordinary shares as donation from
at cost of treasury shares. Further, Retained Earnings was Yvone, a shareholder”
debited instead of the balance on the share premium on
For the reissuance of donated shares, assume that JKL reissued
treasury shares account. This is because, the reissued treasury
the 500 shares at P160. The journal entry will be as follows:
shares were ordinary share. On the other hand, the share
premium on treasury shares pertain to reissued preference Cash (500 × P160) 80,000.00
Donated Capital 80,000.00
shares on treasury. It is as if, there is no share premium on
reissuance of ordinary treasury shares. Further, assume that 300 shares were reissued at P100. The
journal entry is as follows:
Assume instead that there is a balance in the Share Premium –
Treasury Shares – Ordinary of P1,000. Cash (300 × P100) 30,000.00
The journal entry concerning treasury shares are as follows:
Lastly, assume that the remaining 200 shares were reissued at
P80. The journal entry is:
Cash (200 × P80) 16,000.00
As seen above, be the donated shares are reissued at par, Case 1B. 1,000 ordinary shares were reacquired as treasury
above par, or below par, only the donated capital account is shares for P125. Later, 700 of the shares were retired. The
credited for the proceeds and no other accounts are affected. original issuance price of said shares was P125.
Further, donated capital increases the shareholder’s equity
Relevant journal entries are as follows:
balance.
Upon purchase of treasury shares
Share Capital Retirement Treasury Shares - Ordinary (1,000 × P125) 125,000.00
Cash (1,000 × P125) 125,000.00
Share capital may be reacquired and formally retired by
the issuing corporation. When this happens, the related stock Appropriated Retained Earnings - Treasury Shares 125,000.00
certificate, share capital account and share premium of the
Upon retirement
retired shares will be cancelled. This will reduce both the Ordinary Share Capital (700 × P100) 70,000.00
number of outstanding and issued shares. Ordinary Share Premium (700 × P25) 17,500.00
Treasury Shares and Donated Shares can also be retired.
Be it (1) par-value, (2) no-par value but with stated value, or
(3) no-par, no-stated value shares are retired, note that the
original issuance cost is written off. For par-value and no-par Note that the reduction in the appropriated retained earnings is
but with stated value shares, both the par and stated value, at cost of treasury shares.
whichever is applicable, and the share premium upon original
issuance is written off. For no-par, no-stated value shares, note All of the examples above could also be applicable to no-par
that there is no share premium on original issuance. Thus, only with stated value shares. For no-par, nostated value shares,
share-capital is debited. Share Premium + Share Capital in par and stated value shares
is equal to Share Capital.
In cases where there is no data on the original issuance
cost, the share premium assigned to both with par and stated For example, for Case 1B, the journal entry upon retirement is:
value shares is the average share premium (total share Upon retirement
premium ÷ number of issued shares) per share prior to Ordinary Share Capital (700 × P125) 87,500.00
retirement. For no-par, no-stated value shares, the average cost
per share (total share capital ÷ number of issued shares) is
assigned to the retired shares. Appropriated Retained Earnings - Treasury Shares 87,500.00
Retirement of share capital may be done in three different
cases. They are as follows: Case 2: Retired at below issue price
When shares are reacquired and retired at less than the
Case 1: Retired at issue price
issue price, the excess of issue price over retirement price is
In this case, there will be no complication. We simply credited to Share premium from retirement of shares. This will
have to debit the share capital and share premium accounts for not be recognized as gain, nor will it be credited to Retained
the amounts those were credited upon initial issuance of the Earnings. Note that the debits will be the same as if the shares
retired shares. were retired at issue price. The difference will be seen on the
accounts credited. This will also be applicable for no-par, no-
Example: stated value shares. Thus, it is possible to have a share
The shareholder’s equity section of the statement of financial premium account even if the shares issued are no-par, no-
position of ABC Corporation contains the following: stated shares. The share premium account however could only
pertain to reissuance of treasury shares and retirement of share
Ordinary Share Capital, P100 par, 10,000 shares 1,000,000 capital. No-par, no-stated shares do not have any share
Ordinary Share Premium 250,000 premium on original issuance.
Retained Earnings 800,000
Case 1A. 1,000 ordinary shares were reacquired for P125, Example:
then retired. The original issuance price of said shares was The shareholder’s equity section of the statement of financial
P125. position of ABC Corporation contains the following:
Journal entry for the retirement above is as follows:
Ordinary Share Capital, P100 par, 10,000 shares 1,000,000
Ordinary Share Capital (1,000 × P100) 100,000.00
Ordinary Share Premium (1,000 × P25) 25,000.00
Cash (1,000 × P125) 125,000.00
Case 2A: 1,000 ordinary shares were reacquired for P110, are/is debited and not the remaining balance of Share premium
then retired. The original issuance price of said shares was on original issuance. Note that retirement of share capital
P125. means that you are voiding the issuance of retired shares.
Thus, only the amounts pertaining to them should be touched,
Journal entry for the retirement above is as follows: not those pertaining to other issuances. Further, the excess of
Ordinary Share Capital (1,000 × P100) 100,000.00 retirement price over issue price shall not be recognized as a
Ordinary Share Premium [1,000 × (P125-P100)] 25,000.00 loss. Other than this addition, the other debits will be as if the
Cash (1,000 × P110) 110,000.00
Share Premium from Retirement of
shares were retired at issue price.
Ordinary Shares [1,000 × (P125-110)] 15,000.00
Example:
Case 2B: 1,000 ordinary shares were reacquired as treasury The shareholder’s equity section of the statement of financial
shares for P110. Later, 700 shares were retired. The original position of ABC Corporation contains the following:
issuance price of said shares was P125.
Relevant journal entries are as follows: Ordinary Share Premium 250,000
Upon purchase of treasury shares Retained Earnings 800,000
Treasury Shares - Ordinary (1,000 × P110) 110,000.00
Cash (1,000 × P110) 110,000.00 Case 3A: 1,000 ordinary shares were reacquired for P130,
then retired. Assume further that there is a balance in the Share
Appropriated Retained Earnings - Treasury Shares 110,000.00 Premium – Treasury Shares – Preference of P1,000. Also,
there is no data on the original issuance of shares.
Upon retirement
Ordinary Share Capital (700 × P100) 70,000.00
The journal entry concerning the retired shares is as follows:
Ordinary Share Premium [700 × (P125-P100)] 17,500.00
Treasury Shares - Ordinary (700 × P110) 77,000.00 Ordinary Share Capital (1,000 × P100) 100,000.00
Share Premium - Treasury Shares [700 × (P125-P110)] 10,500.00 Ordinary Share Premium [1,000 × (P250,000/10,000)] 25,000.00
Appropriated Retained Earnings - Treasury Shares 77,000.00 Cash (1,000 × P130) 130,000.00
If there is no specific information about the share premium

from the original issuance attributable to retired shares, the
at cost of treasury shares.
share premium is prorated, that is, what is assigned to the
All of the examples above could also be applicable to no-par retired shares is the average share premium per share. Further,
with stated value shares. For no-par, nostated value shares, note that Retained Earnings was debited for the excess instead
Share Premium + Share Capital in par and stated value shares of the balance on the share premium on treasury shares
is equal to Share Capital . account. This is because, the retired treasury shares were
ordinary share. On the other hand, the share premium on
For example, for Case 2B, the journal entry upon retirement is: treasury shares pertain to preference shares on treasury. It is as
Upon retirement if, there is no share premium on ordinary treasury shares.
Case 3B: 1,000 ordinary shares were reacquired as treasury
Share Premium - Treasury Shares [700 × (P125-P100)] 10,500.00
for P130. Later, 700 shares were retired. Assume further that
Appropriated Retained Earnings - Treasury Shares 77,000.00 there is a balance in the Share Premium – Treasury Shares –
Ordinary of P1,000. Also, there is no data on the original
Case 3: Retired at above issue price issuance of shares.
When the cost of reacquired shares or treasury shares, The journal entries concerning the retired shares are as
whichever is applicable, is above original issuance price, the follows:
difference is debited to the following:
1. First, to Share premium on treasury shares. Note that the
share premium on treasury shares shall pertain to the same
class of shares only.
2. Second, if there is no balance in the share premium on
treasury shares, it shall be debited to retained earnings.
You may wonder why either the Share Premium on treasury
shares and/or Retained Earnings, whichever is applicable,
Upon purchase of treasury shares Example:
Treasury Shares - Ordinary (1,000 × P130) 130,000.00
Cash (1,000 × P130) 130,000.00 The shareholder’s equity section of the statement of financial
Retained Earnings 130,000.00 position of ABC Corporation contains the following:
Upon retirement
Ordinary Share Premium [700 × (P250,000/10,000)] 17,500.00
Share Premium - Treasury Shares 1,000.00
Retained Earnings 2,500.00 1,000 ordinary shares were donated by a shareholder. Later,
Cash (700 × P130) 91,000.00
300 of the shares were retired. The original issuance price of
Appropriated Retained Earnings - Treasury Shares 91,000.00 said shares was P125.
Memorandum entry upon receipt of donated shares is:
“Received 1,000 ordinary shares as donation from a
at cost of treasury shares. Further, note that Retained Earnings
shareholder”
was debited after exhausting the balance in the share premium
on treasury shares account. This is because, the total For the retirement of donated shares, the journal entry will be
difference of P3,500 is more than the balance of share as follows:
premium on ordinary treasury shares. Thus, the excess of
P3,500 – P1,000 = P2,500 is further debited to Retained Ordinary Share Premium [300 × (P125-P100)] 7,500.00
Earnings. Note that if the share premium on ordinary treasury Donated Capital (300 × P125) 37,500.00
shares was more than P3,500, all of the difference shall be

debited to share premium on treasury shares, and none will be Note that upon retirement of donated shares at issuance cost,
debited to retained earnings. the whole issuance price becomes part of donated capital.
If the cost of treasury shares in Case 3B were only P126, the Reiteration
difference of 700 × (P126 - P125) = P700 will all be absorbed
To reiterate some concepts surrounding treasury shares, see
by the share premium on treasury shares. There will then be no
the list below:
need to debit retained earnings.
1. They are recorded at cost.
All of the examples above could also be applicable to no-par
2. The balance of treasury shares account reduces the total
with stated value shares. For no-par, nostated value shares,
shareholder’s equity balance.
Share Premium + Share Capital in par and stated value shares
3. The number of treasury shares reduces the number of
is equal to Share Capital for no-par, no-stated value shares.
outstanding shares, but not the number of issued shares.
For example, for Case 3B, the journal entry upon retirement is: This is in contrast to retired shares which reduce the
number of both outstanding and issued shares.
Upon retirement
4. They are not entitled to dividends.
Share Premium - Treasury Shares 1,000.00 5. A portion of retained earnings equal to the balance of the
Retained Earnings 2,500.00 treasury shares account shall be appropriated. The
appropriation will be removed once such shares are either
Appropriated Retained Earnings - Treasury Shares 91,000.00 reissued or retired.
6. They may be reissued or retired.
7. Once retired, the number of retired treasury shares will
Case 4: Retirement of donated shares
reduce the number of both outstanding and issued shares.
Just like treasury shares, donated shares can be retired.
When donated shares are retired, they will be retired at To reiterate some concepts surrounding donated shares, see
original issuance cost. This means that the issuance price of the list below:
the donated shares retired will be credited to donated capital. 1. They are acquired at no cost.
In cases where there is no data on the original issuance 2. Donated Capital is credited at reissuance cost upon
cost, the share premium assigned to both with par and stated reissue or at par upon retirement of donated shares. The
value shares is the average share premium (total share balance of donated capital account increases the total
premium ÷ number of issued shares) per share prior to shareholder’s equity balance.
retirement. For no-par, no-stated value shares, the average cost 3. The number of donated shares reduces the number of
per share (total share capital ÷ number of issued shares) is outstanding shares, but not the number of issued shares.
assigned to the retired shares.
This is in contrast to retired shares which reduce the
number of both outstanding and issued shares.
4. They are not entitled to dividends.
5. They may be reissued or retired.
6. Once retired, the number of retired donated shares will
reduce the number of both outstanding and issued shares.
Share Splits and Reverse Share Splits

Share Split or Split Up occurs when the original
authorized share capital is replaced by a larger number of
shares. In effect, this will reduce the par value per share. Note
that split ups do not affect the total shareholders’ equity
balance.
Example:
The company was authorized to issue 10,000, P10 par value,
ordinary shares for a total of P100,000. A 2-for-1 split will
increase the number of authorized shares to 10,000 × 2 =
20,000 shares, while the par value will decrease to P10/2 = P5
per share. Authorized capital will still be 20,000 × P5 =
P100,000.
Reverse Share Split or Split Down occurs when the

original authorized share capital is replaced by a smaller
number of shares. In effect, this will increase the par value per
share. Note that split downs do not affect the total
shareholders’ equity balance.
Example:
The company was authorized to issue 10,000, P10 par value,
ordinary shares for a total of P100,000. A 1-for-5 split will
decrease the number of authorized shares to 10,000/5 = 2,000
shares, while the par value will increase to P10 × 5 = P50 per
share. Authorized capital will still be 2,000 × P50 = P100,000.

Corporation - Share Capital Transactions

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Corporation - Share Capital Transactions

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Share Capital Transactions Subsequent to Example:

When share capital is reacquired through purchase, they Example:

Case 1A: Reissued at acquisition cost Retained Earnings 24,000.00

2. Second, if there is no balance in the share premium on

Retained Earnings 24,000.00

If there is no specific information about the share premium

shares was more than P3,500, all of the difference shall be

Share Splits and Reverse Share Splits

Reverse Share Split or Split Down occurs when the

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