4/25/2021

CORPORATION ACCOUNTING
By: PROF. JONAS B. ABELLAR, CPA, MBA

http://www.free-powerpoint-templates-design.com

Learning Objectives
State the components of
1 shareholders’ equity.

Account for the initial

2 issuances of shares of stocks.

3 Account for treasury shares.

1
 4/25/2021

Introduction
Corporation Accounting

Introduction
• The Philippine Corporation Code defines a corporation as “an artifici
al being created by operation of law, having the right of succession a
nd the powers, attributes and properties expressly authorized by law
or incident to its existence.”
• A corporation is formed by at least 5 but not exceeding 15 natural pe
rsons, all of legal age and a majority of whom are residents of the Ph
ilippines.
• The entity’s articles of incorporation must be authorized by the Secur
ities and Exchange Commission (SEC).

2
 4/25/2021

Introduction (continuation)
• The articles of incorporation states, among other things, the entity’s authorized
capital stock, which is the maximum number of shares that the entity can issue.
Any excess share issued is deemed illegal. In order to issue shares in excess
of the authorized capital stock, the entity must amend its articles of incorporatio
n.
• To amend the articles of incorporation, a majority vote of the board plus a vote
by shareholders representing at least two-thirds (2/3) of the outstanding share
capital is needed. After ratification, the amended articles of incorporation are fil
ed with the SEC and shall become effective only upon approval by the SEC.
• At least 25% of the entity’s authorized capitalization should be subscribed and
at least 25% of the total subscription must be paid upon subscription. In no cas
e shall the paid-up capital be less than five thousand pesos (₱5,000).

Components of Stockholders’ Equity

3
 4/25/2021

Transactions Affecting Equity

1 2 3 4 5

Authorization, Acquisition and Retirement Donated Distribution to

subscription reissuance of of shares. Capital owners
and issuance treasury (Dividends)
of shares. shares.

Accounting for Share Capital

Memorandum Method Journal Entry Method

Only a memorandum is The authorized

made for the authorized capitalization is recorded by
crediting “authorized share
capitalization. capital” and debiting
Subsequent issuance of “unissued share capital”.
share are credited to the Subsequent issuances of
share capital. shares are credited to
“unissued share capital”.

4
 4/25/2021

Minimum Requirement of the Law

The law requires issuance of shares of stocks from the

original issuance at 25% of the authorized capital stoc
k.

25% of the issued shares must be paid up.

Controlling interest

A controlling interest is when a shareholder, or a group

acting in kind, holds a majority of a company's voting s
tock, giving it significant influence over any corporate a
ctions. Shareholders that have a controlling interest oft
en are able to direct the course of a company and mak
e most strategic and operational decisions.

5
4/25/2021

6
 4/25/2021

Legal Capital

9,000
Text Here Text Here Par value shares
8,000 Easy to change Easy to change
colors, photos colors, photos
and Text. and Text.
6,000

4,000

3,000 No-Par Value

Text Here Text Here
Shares
Easy to change Easy to change
2,000 colors, photos colors, photos
and Text. and Text.

Share Issuance Cost

“The transaction costs of an eq
uity transaction are accounted f
or as a deduction from equity
to the extent they are incremen
tal costs directly attributable t
o the equity transaction that oth
erwise would have been avoide
d.” (PAS 32.7)

7
 4/25/2021

Treasury Shares

Accounting for Treasury Shares

The cost method is used in accounting for treasury sh
are transactions. Under this method, the reacquisition
and subsequent reissuance of treasury shares are rec
ognized and derecognized, respectively, at cost.

Donated Capital

Donation from Shareholders

01 Recognized directly in equity (i.e., credited to
share capital)

Donation from the government

03 Recognized as government grant.

Donation from other sources.

05 Recognized in the profit or loss when the
conditions attached to the donation are
fulfilled.

8
 4/25/2021

Donated Capital
(Continuation)

Non Entity’s
Cash Cash Own
Assets Shares

Initially recorded thru

Recognized at Recognized at memo entry. Donated
capital is recognized
the amount of fair value of only when donated
cash received the non cash shares are subsequently
or receivable. assets. reissued.

Thank you