CHAPTER 6: SHARE CAPITAL TRANSACTIONS
METHOD is recommended.
 Equity account = Retained Earnings
 Issued Share capital – total par or total stated
value of the issued shares which include the
treasury shares.
 Subscribed Share Capital – the portion of the
authorized share capital that has been
subscribed but not yet fully paid.
 Outstanding Shares – the shares issued and are
in the hands of the stockholders. It is the
difference between the issued shares and the
treasury shares.
- Always less than or equal to the
authorized shares.
 Unissued Shares – those shares which have
never been issued and are still available for
issuance.
 Share Capital is only DEBITED only upon
retirement, redemption, or cancelation of the
issued shares.
 Expense = Organization, Pre-operating costs,
pre-operating expenses
TWO ALTERNATIVE METHODS OF ACCOUNTING FOR
SHARE CAPITAL
 Memorandum Method
 Journal Entry Method
Subscription Receivable is reported as a shareholders’
equity account if the said amount is collected beyond (1)
year from the reporting date of the statement of
financial position.
However, if the balance of this account is collectible
within one year, it will be shown as a current asset item.
 Treasury Stock/Share – shares of stock which
have been issued and fully paid for, but
subsequently reacquired by the issuing
corporation either by purchase, redemption,
donation or through some other lawful means.
Sources of Treasury shares:
1. Repurchase of own stock but not cancelled or
retired.
2. Delinquent subscription without a highest
bidder.
3. Donation shares of corporation’s own stocks.
 In accounting for treasury shares, only the COST
 The acquisition or purchase of treasury shares
will not decrease the number of issued shares.
 Only the outstanding shares will decrease
resulting from the repurchase of the
corporation’s own stock and holding those
shares instead of retiring them.
 Under the cost method, at the time of the share
repurchase, the treasury stock account is
debited to decrease total shareholders' equity.
The cash account is credited to record the
expenditure of company cash. If the treasury
stock is later resold, the cash account is
increased through a debit and the treasury stock
account is decreased, increasing total
shareholders' equity, through a credit. In
addition, a treasury paid-in capital account is
either debited or credited depending on
whether the stock was resold at a loss or a gain.
Corporation does not:
(1) Pay dividends on treasury stock
(2) Vote treasury stock
(3) Recognize gains or losses if the treasury is reissued.
 Treasury stock is the only stock account not
recorded at par.
 Treasury stock is not viewed as an asset, that’s
why no gain or loss is recorded upon reassurance
or retirement.
 When treasury shares are reissued, treasury
stock account is credited at the cost of the
treasury stock sold.
 When purchasers of treasury stock pay more
than the cost of the stock, they have contributed
additional capital to the corporation.
 The excess of the cost of treasury stocks sold
over its reissuance price is referred to indicated
loss.
 Shall be dumped to RETAINED EARNINGS
 Upon the retirement of treasury shares, the
treasury stock account is closed by CREDITING it
AT COST and the Share Capital account is closed
by debiting it at the TOTAL PAR VALUE of the
retired share.
Loss from the retirement of treasury shares would be RETAINED EARNINGS OR ACCUMULATED PROFITS
debited to the following accounts in order: Debit Credit
1. Share Premium to the extent of the credit when - Closing of Income - Closing of income
the share was issued Summary with DEBIT summary with CREDIT
2. Share Premium from Treasury Stock transactions balance balance
of the same class of the share - RE appropriation for - Prior period
3. Retained Earnings specific purpose adjustments for
- Declaration of dividends UNDERSTATEMENT of
- Prior Period net income.
 The donated shares received by the corporation
adjustments for
will reduce their outstanding shares. The OVERSTATEMENT of net
donated capital or share premium is credited at income.
the time when the donated shares are sold or
issued by the corporation.  Except for stock dividends, all the other forms of
 If no epayment was made within thirty (30) days dividends decreases the shareholder’s equity of
from the date specified in the subscription the corporation.
contract on the date stated in the call made by  For preference shares, the dividend rate is fixed.
the board of directors, all stocks covered by the  Temporary account – Dividends
subscription shall become “delinquent” and  To close dividends:
shall be subjected to sale, unless the board of Dr Retained Earnings
director orders otherwise. Cr Dividends
 Ordinary share capital is the sum of money
CHAPTER 7: RETAINED EARNINGS
raised by a corporation from private and public
 RE refers to the corporation’s accumulated sources through the issue of its common shares.
profits or losses minus the cumulative amount of
dividends declared. TYPES OF DIVIDEND
 Income summary is closed to Retained Earnings  Cash Dividend
 If Income summary has debit excess, it  Script Dividend
represents the NET LOSS for the current  Property Dividend
reporting period. – RE is DEBITED.
 Stock Dividend/Share Dividend (Bonus Issue)
 If Income summary has credit excess, it
represents the NET PROFIT for the current
Treasury Shares as Share Dividend
reporting period. – RE is CREDITED.
 If a corporation declares its own treasury shares
 Stock corporations are prohibited from retaining as share dividends, the 20% rule on outstanding
surplus profits in excess of 100% of their paid-in
shares shall be observed.
capital or contributed capital. (There are
 Share Dividend is actually the capitalization of
exceptions)
RE.
 It is merely a transfer of RE to the Share Capital
Retained Earnings can be classified as
Account.
(1) Unappropriated or Unrestricted or Free
- It can be distributed as dividends to the
LIQUIDATING DIVIDENDS
stockholders.
 Those dividends declared and paid out of capital
(2) Appropriated or Restricted
or they are considered as return of capital.
- The portion of RE that is not available
 A liquidating dividend is accounted for by
for any dividend declaration because it is
reducing SHARE PREMIUM.
restricted for a specific purpose which
 The Capital Liquidated account is deducted from
the BOD deems necessary.
the Shareholders’ Equity.
- “Reserve”
  After the allocation of the total dividend Perks for preference shareholders:
payment, the distributed earnings or profit 1. Cash dividend preference
represents a return of investment. 2. Liquidation preference

Dividends can be grouped into two categories:
(1) Return of Capital – Refers to the liquidating
dividends paid through the use of capital
invested by the owners.
(2) Return on Capital – it is the most common
purpose of distributing dividends which are
derived and paid out of Retained Earnings.
SHARE SPLITS OR STOCK SPLITS
Occurs when the BOD authorizes a decrease in the par or
stated value of its shares of stock.
 Share Split does not have an effect to the
financial statement, but only needs a MEMO
ENTRY.

 For the legal dividend to exist, there must be

available unrestricted RE credit balance and the
BOD must declare the dividends.
 Treasury stocks are not entitled to dividends.

Dividend Rights of Preference Shares

1. Cumulative PS – is one which is entitled to any
undeclared dividends accumulated each year
until paid. The undeclared and unpaid dividends
are called dividends in arrears.
2. Participating PS – is the one which is entitled to
receive dividends in excess of the basic or fixed
rate. Each PS carries with it certain dividend
rate. The par value of the outstanding
preference shares times the dividend rate is the
basic dividend per share.
3. Convertible Preference Shares – are those
shares which can be exchanged by its owner for
some other security of the issuing corp.
Conversion rights generally provide for the
exchange of preference shares into ordinary CHAPTER 5: FORMULATION AND ORGANIZATION OF
shares or convertible into bonds. CORPORATION
4. Callable Preference Shares – are those shares
that may be called and cancelled at the option of  A corporation is an artificial being created by
the corporation.
operation of law
5. Redeemable Preference Shares – are those
 Has right of succession
shares redeemable at the option of the
shareholder or upon the other conditions not
Characteristics of a Corporation
within the control of the issuer.
1. Separate Legal Existence
2. Limited Liability Shareholders
1. In the absence of any indications, the PS are
3. Transferable Stock Ownership
assumed to be non-cumulative and
4. Easy to Obtain Capital
nonparticipating.
5. Perpetual Corporate Existence or Unlimited Life
Span
6. Corporate Management
 Board of Directors (BOD) – stock
 Board of Trustees (BOT) – nonstock
  SEC registration is mandatory.  Corporation Sole
 Ecclesiastical Corpo
REPUBLIC ACT 11232 (Revised Corporation Code of the  Eleemosynary Corpo
Philippines)  Civil Corpo
 Batas Pambansa Bilang 68 (old corporation code  De jure Corpo
of the ph)  De facto corpo
 The law that governed the creation, formulation,  Corporation by estoppel
management, dissolution and liquidation of  Close corpo
domestic corporation which had over the years  Open corpo
been deemed not attuned to the changing  Parent or holding corpo
business environment and requirements, thus  Subsidiary corpo
the need to revise it.
 Under Pres. Rodrigo R. Duterte An incorporator is the person in charge of setting up a
corporation and registering it with the state.
Revisions include: Corporators of a corporation are those who compose the
- OPC corporation, whether stockholders or members or both.
- not more than 15 incorporators
- no more residency requirement for  All incorporators are corporators but not all
incorporators and directors corporators are incorporators
- Professionals, partnerships, or associations
organized for the practice of a profession is not
allowed for a corporation
- Changes in the contents of AOI
- Corporate name
- Online verification
- Principal office address
- corporate term
- perpetual existence
- directors/trustees
- effect of non-use of corporate charter
- directors/trustees
- no minimum capital stock except if required by
special law
- no more required 25% minimum subscription
and paid-up capital stock at incorporation
- treasurer’s certification in article 9 of the AOI

Classes of corporations:
 Stock Corpo
 Non-stock corpo

Other types of Corporation:

 Domestic Corpo
 Foreign Corpo
 Public Corpo
 Private Corpo
 Quasi-public Corpo
 Corporation Aggregate (corporation with more
than one corporator)