Shareholder’s Equity

Mr. Remark M. Montalban

Accounting Instructor
Department of Accountancy
Holy Name University
 Objectives

• Understand the components of Shareholder’s

Equity
• Know the different components of Shareholder’s
Equity
• Learn the Accounting for Share Capital
Transactions
 Definition

 Shareholder’s Equity is the “residual interest of

the owners in the assets of the corporation as a
business entity, measured by the excess of assets
over liabilities.”
 Is the capital section of the corporation.
 Components of Shareholder’s Equity

1. Share Capital
2. Subscribed Share Capital
3. Share Premium or Additional Paid-in Capital
4. Reserves
5. Accumulated Profits (Losses) or Retained
Earnings
6. Treasury Shares
 Components of Share Capital

1. Authorized Share Capital

2. Subscribed Share Capital
3. Issued Share Capital
4. Unissued Share Capital
5. Treasury Share
6. Outstanding Share Capital
 Sections of the Shareholder’s Equity

1. Contributed Capital
i. Share capital
ii. Subscribed share capital
iii. Subscription Receivable
2. Reserve
i. Additional Paid-in Capital
ii. Revaluation reserve
iii. Appropriated Retained Earnings
3. Retained Earnings
Sections of the Retained Earnings
Shareholder’s Equity
SMC Shareholder’s Equity
 Share Capital

 refers to maximum amount fixed by the

corporate charter or articles of incorporation to
be subscribed and paid-in by the shareholders,
either in money or property, labor or services at
the organization of the corporation.
 Classes of Share Capital

1. Ordinary Shares – does have same rights and

privileges and enjoy no preference
2. Preference Shares – enjoy preference over
another in terms of dividends and distribution
of assets.
 Types of Shares

1. Par Value Shares

- has a nominal value stated on the face of the
share certificate and fixed in AI.
- should not be issued below par (Sec. 65,
Corporation Code)

2. No Par Value Shares

- No par or nominal value printed in the share
certificate or in AI.
- May be sold at the amount fixed in AI, by the
BOD and those approved by the shareholders.
 Methods in Accounting Share Capital

1. Memorandum Entry Method

2. Journal Entry Method

Transactions that distinguished the two:

1) Authorization as to number of shares with par
value
2) Subscription of share capital
3) Collection of subscription receivable
4) Issuance of share (stock) certificate
 Comprehensive Problem

 On January 1, 20A, Archers Corporation is authorized to issue 5,000

shares of 8% Preference Shares at a par value of P100 per share and
20,000 shares of Ordinary Shares at a par value of P50 per share.

 On January 30, 20A, Mr. Detoya paid in full his subscription.

 Accounting for Issuance of Share Capital

 Issued or sold for Cash

 Issued or sold on Subscription Basis
 Issued in Exchange for Non-Cash Assets
 Issued in Exchange for Services Rendered or
Liability Incurred
 Issued in Exchange for Equity Securities of other
Corporation
 Comprehensive Problem

 On Jan. 1, 2019, Metro Marketing Corporation is Authorized by its

charter to issue 10,000 ordinary shares at par value of P100 per share.
At this date 25% has been subscribed and 25% of the total subscription
has been paid-up.
 The Corporation sold 200 ordinary shares at par.
 An additional 200 ordinary shares are sold at P130.
 Issued 100 ordinary shares at par to Nathalyn Alegre on subscription
basis and collected 30% downpayment. The balance is paid 3 months
after.
 Another 200 shares are subscribed by Mr. Gwapo for P120 per share.
The amount is paid 2 months after.
 Ms. Gwapa subscribed 100 shares at par. On Jan. 15, Ms. Gwapa paid
30% of her subscription and defaulted the rest. The company advertises
the auction sale an incurred a total of P200. Mr. Savior is willing to pay
the subscription balance plus expenses for 90 shares and Mr. Angel 95
shares.
 Comprehensive Problem

 Mr. Humble subscribed 150 shares at P1110. On Jan. 20, Mr. Humble
paid 10% of her subscription and defaulted the rest. The company
advertises the auction sale an incurred a total of P200. There is only one
bidder, and the Board decided to repurchase back the defaulted share.
 The corporation issued 1,200 shares to Mr. Henry Sy in exchange for a
parcel of land. The fair value per share is P130 and the land has a fair
market value of P200,000.
 Issued 500 shares to Atty. Opinion in payment of legal services rendered
which has a market value of P75,000.
 Issued 250 shares to BPI for its liability relating to arrangement of selling
the shares. The total amount of liability is P30,000.
 The corporation issued its 900 shares at par value of P100 in exchange
for Orange, Inc. 1,000 equity shares. The fair market value of the share is
P120 while that of Orange, Inc. is P110.
 The company issued 1,200 shares at par value in exchange for the land
with fair market value of P100,000.
 Comprehensive Problem

Question?

Please answer Problem 7-1 and 7-3