SHAREHOLDER’S EQUITY COMPONENTS OF SHAREHOLDER’S EQUITY
Stock and Certificate Transfer
 Each unit of ownership is called share of
stock. A stock certificate serves as proof
that a stockholder has purchased shares.
 A stock certificate is only issued upon full
settlement of SUBSCRIPTION.
 Share Certificate – it is proof that allows
share capital to become dividends into
shares.
Considerations for Stock
- Stocks shall not be issued for consideration
Less than Par or Issued Price thereof.
- Consideration may be:
o Actual cash paid to corporations.
o Property, Tangible or Intangible
o Labor/Services rendered to
corporation.
o Previously incurred indebtedness
o Amounts transferred from
unrestricted RE to stated capital.
o Outstanding Shares exchanged for
stocks in event of conversion.
o Shares of stock in another
corporation
o Other gen. accepted form of
consideration.
GR: Shares of stock shall not be issued in exchange
for promissory note or future service.
SHAREHOLDER’S EQUITY
 Residual interest of owner’s net assets of a
corporation. AKA Owner’s Equity or Net
Assets.
 A = L + SHE
1. Share Capital (Capital Stock) – paid-in
capital representing total amount of par or
stated value of shares issued. Portion of
authorized SC issued and fully paid by
stockholders. ALWAYS MEASURED AT PAR
VALUE.
Two Classes of Share Capital
 Ordinary Shares (Common Stock) – entitles
the holder to an equal pro-rata
(proportional) division of profits without any
preference.
Rights of Shareholders
- Share profit distribution.
- Vote in Election of BoD
- Stock Rights or Pre-emptive Rights: right to
subscribe for additional shares to maintain same
percentage ownersip.
- Share distribution of assets in liquidation (cash).
 Preference Share (Preferred Stock) – Law
provides PS are issued only par value
shares. entitles the holder benefits &
disadvantages over OS such as:
- Priority w/ respect to Division of Dividends
(Income distributed to SH) & Net Assets
- No Voting Rights.
Par & No-Par Value Shares
 Par-Value Shares – value per share fixed in
the AOI and appearing on the share cert.
Minimum Issue / Nominal Peso Price of
Shares. PS only issued as PVS.
 No-Par Value Shares – One without any
value appearing on the face of the share
cert. May have stated value may be fixed in
AOI or by the BoD or shareholders.
 - However, minimum stated value of
a no-par shares is five (5.00) pesos
and is deemed fully paid when
issued.
 No-Par w/ stated Value – has nominal value
appearing on the AOI but not in share
certificate.
 No Par, no Stated Value – no nominal value
appearing on AOI and share certificate.
 Note that the following are not permitted to
issue no-par value shares: (BPI-TB-PO -
ACRONYM)
a. Banks
b. Public Utilities
4. Retained Earnings (Accumulated Profit) –
Cumulative balance of periodic profits or
losses, dividend distributions, prior period
of errors and other capital adjustments. SHE
account arising from retention of assets
generated from profit.
5. Treasury Share (Treasury Stock) – Issued
Shares reacquired but not retired. Deduced
to compute total SHE. Held by Treasurer of
company for own use.
6. Revaluation Reserve (Revaluation Surplus)
– EXCESS of revalued amount of property,
plant, and equipment over its carrying
amount.

c. Insurance Companies
Par Value VS. Market Value Share
d. Trust Companies
Par Value Market Value
e. Building and Loan Associations Indicated in Shares Dictated based on market
Certificate & fixed in selling.
f. Pre-need companies AOI.
 Other corporations authorized to obtain or Minimum / Nominal Always higher than the
Issue Price of Share. minimum price value (Par-
access funds from the public, whether
Value).
publicly listed or not. Influenced by factors such
as:
 Anticipated
2. Subscribed Share Capital (Stock Capital) – Future Earnings
Portion of the AS that has been subscribed  Expected
Dividend Rate per
but not yet fully paid and therefore
Share
unissued.
 Current Fin Pos
 State of Economy
3. Share Premium (Add. Paid-In Capital) –  State of Sec.
Portion of the paid-in capital by Market
shareholders in excess of par value. May
also result from transactions in Comes from:
- Share Premium / Excess of Issue
Price PV/SV
- Treasury / Excess of Issue Price TS
- Donated Capital
- Distribution of Small Share
Dividends
- Retirement of Shares
- Other “gains” of corporation’s own
share transactions.
 CONTRIBUTED CAPITAL

Contributed Capital – Portion of the subscribed or

outstanding SC that is paid.

SHARE CAPITAL TRANSACTIONS

The following are transactions that affect the

accounting of share capital:
Legal Capital – portion of contributed capital (by
shareholders) or minimum amount of SC (paid-in 1. Authorization, Subscription, and Issuance of
capital), which must remain w/ corporation. Shares (^)
2. Acquisition of Treasury Shares (~) Once
Trust Fund Doctrine - must maintain its LC for the issued/bought: (V)
protection of its creditors. LC is not available for 3. Retirement of Shares (V)
distribution to shareholders until the claims of 4. Accounting for Donated Capital (~)
corporate creditors are satisfied.

 Par Value Shares – If LC has PVS; LC = SC at

AUTHORIZED SHARE CAPITAL (TERMS)
Par + Subscribed SC
 No-Par, Stated Value– If LC has no PVS; LC =
Issued + Subscribed + SP
 No Par, No Stated – If LC has no par + no
stated, LC = Issued SC + Subscribed SC

Authorized Shares - the maximum number of shares

the corporation can issue.

 Issued Shares – Authorized shares sold &

held in full by shareholders of company.
(outstanding + treasury = issued)

 Outstanding Shares – company’s stock

currently at hands of /held by shareholders.

 Treasury Shares – stock acquired by

company from shareholders to be reissued
later.
  Subscribed Shares – portion of authorized D: Subscription D: Subscription
shares subscribed but not yet fully paid. Receivable Receivable
Once paid, they become issued shares. C: Subscribed Share
Capital C: Subscribed Share
o Subscribers – title given to ( Share * Par ) Capital
potential shareholders who wish to
buy shares to join the company. D: Cash D: Cash
C: SR (SSC *
They become shareholders once
Subscription Payment – C: SR
fully paid. paid in percent)
NOTE: Subscribed Share Capital & Subscription
 Unissued Shares – shares that do not
Receivable are both temporary accounts. Once the
circulate, authorized to issue, but not yet
subscribers fully pay, their balances go 0 and they
sold nor issued and is still available for
become shareholders.
subscription and issuance.
NOTE: You can only debit SSC once it is fully paid. As
 Unsubscribed Shares – Portion of stock that
long as it is not fully paid, it stays as SSC and need to
remains unsold before the Initial Public
be paid via SR.
Offering (IPO). Means demand for company
stock is low and outweighed by overall Share Subscription – Contract between corporation
supply. and buyer of shares, which latter agrees to pay for it
at a future date.

Subscription Receivable (SR) – SHE account.

Formula for Authorized Shares
ASC = Authorized Shares * Par OR Stated Value.
NOTE: The AS may be increased or decreased by
amending AOI and of approval by SEC.
Presented in SFP as a deduction from related
subscribed OS; when COLLECTIBLE in 12 months
from date of SFP, it is presented as current asset in
the current asset portion of the SFP. Ignored in
computation of SHE.

 used whenever there is a shareholder who

Accounting for Share Capital (Authorization) wants to join the corporation but cannot
pay.

Memorandum Method Journal Entry Method

Accounting for Issuance of Shares
The corporation has D: Unissued Share
authorized to issue 10K Capital
shares w/ P100 par
value. C: Authorized Share Memorandum Method Journal Entry Method
Capital (OSC/PSC)
D: Cash D: Cash
NOTE: Default should be memorandum method C: SR (SSC*Subscription C: SR
when authorization of SC is made UNLESS specified. Payment – fully paid)
D: Subscribed SC D: Subscribed SC
S: SC S: Unissued SC
Formula for Subscription & Collection of Shares (to record full payment)

Issuance of Share Capital for Cash

Memorandum Method Journal Entry Method
SC may be issued by the corporation at par or stated 3. Par Value of Shares Issued
value, above or less than par or stated value.

A. If Fair Value of Equipment is Used

I. Issuance at Par/Stated Value

Memorandum Method Journal Entry Method

D: Cash D: Cash D: Equipment (FV of NCC)
C: Share Capital C: Unissued SC C: Ordinary Share (Share * Par)
C: Share Premium

II. Issuance above Par/Stated Value

B. If Fair Value of Shares is Used

D: Equipment (Shares* FV of Shares)

C: OS (Shares * Par)
Memorandum Method Journal Entry Method C: Share Premium (NCC – OS)
D: Cash (Shares * P120) D: Cash
C: Share Capital C: Unissued Share
(Shares*Par Value) Capital C. If Par Value of Shares Issued is Used
C: Share Premium C: Share Premium
(Cash – SC) D: Equipment (Shares*Par)
NOTE: Always remember Par Value. Encircle if C: OS (Shares* Par)
needed.

III. Issuance Less Than Par/Stated Value

Memorandum Method Journal Entry Method

D: Cash D: Cash
D: Discount on SC D: Discount on SC Share Issuance at Cost (Org. Expenses)
C: Share Capital (Shares C: Unissued Share
* Par) Capital Share Issuance Cost – Transaction costs incurred by
NOTE: Nangyayari if luge business. Make sure you corporation to issue shares of stocks.
debit Discount on SC to account for the loss.
 Share Issuance is deducted to SP.
NOTE: Corporation Code prohibits issuance of shares  If SP is insufficient, you deduct RE.
below its par value or stated value.

Issuance of Share Capital for Non-Cash

Considerations

If SC is for NCC, such as tangible or intangible

property or services, SC is recorded at an amount
equal to the following order of priority:

1. Fair Value of Non-Cash/Object Received

2. Fair Value of Shares Issued
NOTE TAKING FROM SIR WIN
Authorized Share – max number of shares corp can
issue

Issued share – shares sold and paid in full by

shareholders.

Share Capital – SHE of the corporation. Share Capital

can be used for expenses or transactions. Used for
Investments. ALWAYS MEASURED AT PAR VALUE.

Organizational Expense – expenses of the

corporation related to its operations.

Subscribers – title given to those who want to buy

shares to join the corporation. (once they pay, they
become shareholders.)
Example of Understanding Shares
Subscription Receivable – used whenever there is a
shareholder who wants to join the corporation but
cannot pay.

Subscribed Share Capital – portion of authorized

shares subscribed but not yet fully paid (may gusting
pero walang pambayad)

Retained Earnings – Used for profit and incurring

expenses. SHE arising from retention of assets
generated from profit – directed activities of corp.

Share Premium – portion of paid-in (issued) capital

representing amounts paid by shareholder in excess
Authorized Share: 100K
of par value.
Issued Shares: 7K (fully paid and sold to
Treasury Shares – shares acquired (or reacquired) by
shareholders)
corporation but not retired. Purpose: reissuance
(pagbebenta muli) to other shareholders at a later Treasury Shares: 1K (bought back by corporation)
date.
Outstanding Shares: 6K (remaining at hands of
Outstanding Shares – Issued shares at the hands of shareholders)
the shareholders.

SCREENSHOTS OF SIR WIN LESSONS