Corporation Accounting

Corporation Accounting
SHE
Prepared by: JS Lumibao
Corporation
 Artificial Being
 Created by Operation of Law
 Rights of Succession
 Has the powers, attributes and properties expressly authorized by law or
incident to its existence

Advantages
1. Shareholders have limited liability.
2. It has continuity of existence.
3. Shares of stock can be transferred without the consent of the other
shareholders.
4. Its management is centralized in the board of directors.
5. Shareholders are not general agents of the business.
6. Greater ability to acquire funds.

Disadvantage
1. A corporation is relatively complicated in formation and management.
2. There is a greater degree of government control and supervision.
3. It requires a relatively high cost of formation and operation.
4. It is subject to heavier taxation than other forms of business organizations.
5. Minority shareholders are subservient to the wishes of the majority.
6. Transferability of shares permits the uniting of incompatible and conflicting
elements in one venture. (hostile take over)

Classes of Corporation
a) Stock corporation. Corporations which have share capital divided into shares
and are authorized to distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the shares held.
b) Non-stock corporation. A non-stock corporation is one where no part of its
income is distributable as dividends to its members, trustees or officers.

 According to nationality
a) Domestic corporation. A corporation organized under Philippine laws.
b) Foreign corporation. A corporation organized under foreign laws.
 According to purpose
a) Public corporation. A corporation formed or organized for the government of a
portion of the state (e.g., provinces, cities, municipalities and barangays).
b) GOCCs
c) Quasi-Public Corporations
d) Private corporation. A corporation created for private aim, benefit or purpose.
 According to charitable purpose or not
a) Ecclesiastical corporation. Those organized for religious purposes.
b) Eleemosynary corporation. Those established for public charity.
c) Civil corporation. Those established for business or profit.
 According to their legal right to corporate existence:

a) De jure corporation. A corporation existing in fact and in law. It is organized in
strict conformity with the law.
b) De facto corporation. A corporation existing in fact but not in law.
 According to degree of public participation with regard to share ownership:
a) Close corporation. A corporation whose share ownership is limited to selected
persons or members of a family not exceeding 20 persons.
b) Open corporation. A corporation where the share is available for subscription or

purchase by any person.
i. Publicly-held corporation. A corporation with a class of equity securities listed on an
exchange or with assets in excess of 50M and having 200 or more holders, at least 100
of which are holding at least 100 shares of a class of its equity securities
ii. Non-publicly-held corporation/unlisted
 According to their relation to another corporation:
a) Parent or holding corporation. A corporation that is related to another corporation
that it has the power to either directly or indirectly elect the majority of the
directors of a subsidiary corporation.
b) Subsidiary corporation. A corporation controlled by another corporation known as
a parent corporation.

Components of a Corporation
 Corporators (Members)
 Incorporators
 Shareholders
 Subscribers
 Promoters
 Underwriters

Steps in the creation of a corporation
1. Promotion
2. Incorporation
 Articles of Incorporation – SEC , Statement of Financial Position, Treasurers affidavit, Certificate
of Bank deposit
 Payment of Filling Fees
 Issuance of Certificate of Incorporation
3. Formal Organization and Commencement

 Adoption of by-laws
 Election of BOD and Officers
Start of operation – 2/5 year rule
by: JS Lumibao
Prepared
Articles of Incorporation
 Name of Corporation and Purpose
 Place of Business
 Term of Existence
 Details of incorporators
 If Stock
1. Authorized Share Capital in pesos
2. Number of shares it is divided
3. Minimum Issue Price
4. Subscribers
 Total Subscription – 25% of ASC
 25% of total subscription must be paid or at least P5,000
By-Laws
 These are the rules of action adopted by the corporation for its internal
government and for the government of its officers, shareholders or members.
 The by-laws shall be adopted within one month from the issuance of the
certificate of incorporation by the Securities and Exchange Commission. Failure
to file a code of by-laws shall render the corporation liable for the revocation of
its registration.

By-Laws
• The time, place and manner of calling and conducting regular or special meetings of
the directors or trustees;
• The time and manner of calling and conducting regular or special meetings of the
shareholders or members;
• The required quorum in meetings of shareholders or members and the manner of
voting therein;
• The form for proxies of shareholders and members and manner of voting them;
• The qualifications, duties and compensation of directors or trustees, officers and
employees;

By-Laws
• The time for holding the annual election of directors or trustees and the mode or
manner of giving notice thereof;
• The manner of election or appointment and the term of office of all officers other
than directors or trustees;
• The penalties for violation of the by-laws;
• In the case of stock corporations, the manner of issuing stock certificates; and
• Such other matters as may be necessary for the proper or convenient transaction of
its corporate business and affairs.

Rights of a Shareholder
1. Right to be issued certificate of stock or other evidence of share ownership and
to transfer such shares.
2. Right to attend and vote in person or by proxy at shareholders' meetings.
3. Right to elect and remove directors.
4. Right to adopt, amend or repeal the by-laws.

Basic Organizational Structure
Shareholders
Board of
Directors
Officers
Employees

Classes of Shares in General
 According to initial value or original amount
1. Par Value Shares
2. No-Par Value Shares –
a) stated value shares or
b) no stated value shares

 According to participation in stockholder’s meeting
1. Voting Shares
2. Non-voting shares
 As to priority to receive dividends and assets
1. Preference shares
2. Ordinary shares

 Others
1. Treasury Shares
2. Convertible Shares
3. Promotion Shares.

Corporate Books and Records
1. Minutes book. It contains the minutes of the meetings of the directors and shareholders.
2. Stock and transfer book. It is a record of the names of shareholders, installments paid and unpaid
by shareholders and dates of payment, any transfer of stock and dates thereof, by whom and to
whom made.
3. Books of accounts. These represent the record of all business transactions. The books of accounts
normally include the journal and the ledger.
4. Subscription book. It is a book of printed blank subscription.
5. Shareholders' ledger. It is a ledger which details the number of shares issued to each shareholder.
6. Subscribers' ledger. It is a subsidiary ledger for the subscriptions receivable account; it reports the
individual subscriptions of the subscribers.
7. Stock certificate book. It is a book of printed blank certificates of stock.
Break

Accounting for Share Capital
Transactions
L L
A A
Share Capital
(Capital Stock
/Contributed Capital)
Shareholder’s
Equity
Retained Earnings
Share Capital
Legal Capital Share Premium
• Capital contributed by shareholders comes • It is the portion of the paid-in capital
from the Sale of shares of stock. The shares of representing amounts paid by shareholders in
stock issued are generally referred to as share excess of par (stated value).
capital. • It may also result from transactions involving
• Legal capital is that portion of the contributed treasury stocks, retirement of shares, donated
capital or the minimum amount of paid-in capital, share dividends and any other "gain"
capital, which must remain in the corporation on the corporation's own stock transactions.
for the protection of corporate creditors.

Two Basic type of Shares
Ordinary Share Preference Share
• This share represents the basic ownership class • This share gives its owners certain advantages
of the corporation. over ordinary shareholders.
• When only one class of share is issued, it must • These special benefits relate either to the
be ordinary share. Ordinary shares are the receipt of dividends when declared before the
entity's residual equity. ordinary shareholders (preferred as to
dividends) or to priority claims on assets in the
event of corporate liquidation (preferred as to
assets).

Authorized Share Capital
 The number of authorized shares indicates the maximum number of shares the corporation can
issue as specified in the article of incorporation.
 This maximum number of shares when multiplied by the par value of the share will yield the
authorized share capital.
 Note that any increase or decrease in the authorized Share capital requires prior approval of the
SEC and formal amendment to the articles of incorporation.

Issued Share Capital Subscribed Share Capital.
• Shares which have been sold and paid in full. • It is the portion of the authorized share capital
that has been subscribed but not yet fully paid.
• Share Capital, either preference share or
ordinary share account, is credited for the total • This shareholders' equity account is credited
par value of fully collected subscriptions. for the total par value of the shares subscribed
and debited for the total par value of the fully
• Share capital is debited only when issued
collected subscriptions.
shares are retired or cancelled by the
corporation.

Treasury Shares Outstanding Share Capital
• These. are issued shares acquired by the • These are issued shares, which are in the hands
corporation but not retired and are therefore, of the shareholders.
awaiting to be reissued at a later date. • The number of outstanding shares will equal
the difference between the issued shares and
the treasury shares.

L L
A Legal Capital
A Preference Share
(minimum paid in capital) Ordinary Share
Share Premium Share Premium
(Additional paid in capital)
Retained Earnings Retained Earnings

Preference Shares
Subscribed Preference Shares
Ordinary Shares
L Subscribed Ordinary Shares
less: Subscription Receivable – NC
Share Premium (Par) – PS/OS
A Preference Shares
Share Premium (Stated Value) - OS
Share Premium (Treasury Shares)
Ordinary Shares
Share Premium (Retirement)
Share Premium
Share Premium (Donation)
Retained Appropriated Retained Earnings

Earnings Unappropriated Retained Earnings
Prepared by: JS Lumibao Less: Treasury Shares

Accounting for Share capital transactions
1. Issuance of Shares for Cash
2. Issuance of Shares for Non-cash Considerations
3. Shares Subscription
4. Treasury Shares
5. Retirement of Shares

Issuance of Shares
Cash Non-cash considerations

• Issuance of OS at Par or Stated Value • Tangible Property / Intangible
• Issuance of PS at Par Value • Services received during Incorporation
• Issuance of OS at above Par or Stated Value • Lump Sum Acquisition
• Issuance of PS at above Par Value
• Issuance of No-Par, No-Stated value shares
• Expenses for Issuance / Transaction Cost

Note
 When shares with par value are sold, the proceeds should be credited to the share capital
account to the extent of the par value of the shares, with any excess being reflected as share
premium.
 When shares without par value are sold, the proceeds should be credited to the share capital
account. If the no-par stock has a stated value, the excess proceeds over stated value may
alternatively be credited to share premium.
 Section 65 of the Corporation Code prohibits the original issue of share capital for a
consideration less than the par or stated value (i.e. issued at a discount).
 Corporations set the par value of their ordinary shares at nominal amounts such as P1 per share.
The par value is no indication of its market value; it merely indicates the amount per share to be
entered in the share capital account.

Example 1: JPIA Corp. is authorized to issue 2,000 Ordinary Shares with stated
value of P40 each and 500 Preference Shares with par value of P100 each.
1. Issued 30 OS at its stated value of P40.

Cash ₱1,200
Ordinary Shares ₱1,000
2. The Company issued five (5) PS at its par value of P100. Cash was received from Mr. 1 as
payment for these shares.
Cash ₱500
Preference Shares ₱500

Example 1 parin: JPIA
3. JPIA issued 20 OS at its market value of P45. Cash was received from Ms. All Sunday as payment for these
shares.
Cash ₱900
Ordinary Shares ₱800
Share Premium – OS ₱100
4. The Company issued three (3) PS at its market value of P115. Cash was received from Mr. 2 as payment for
these shares.
Cash ₱345
Preference Shares ₱300
Share Premium – PS ₱45
Issuance of No-Par, No-Stated value shares
NFJPIA issued eight (8) OS at its market value of P48. Cash was received from Mr. 3 as payment for
these shares.
Cash ₱384

Expenses for Issuance of Shares - Scenario 1
JPIA issued 10 OS (with stated value of P40) at its market value of P90. Issuance cost of P55 was
incurred by the company and was paid in cash to underwriter.
Journal Entry:
• Cash ₱900
• Share Premium – OS ₱55

Cash ₱55

Expenses for Issuance of Shares – Scenario 2
JPIA issued 10 OS at its stated value of P40. Issuance cost of P55 was incurred by the company and
was paid in cash to broker.
Journal Entry:
• Cash ₱400
• Broker’s Fee Expense ₱55

Cash ₱55

Expenses for Issuance of Shares - Scenario 3
JPIA issued 10 OS (with stated value of P40) at its market value of P41. Issuance cost of P55 was
incurred by the company and was paid in cash to broker.
Journal Entry:
• Cash ₱410
• Broker's Fee Expense ₱45

Cash ₱55
Example 2: AIP-J Corp. is authorized to issue 10,000 Ordinary Shares with par
value of P50 each and 3,000 Preference Shares with par value of P80 each.
1. Issued 400 OS at its par value of P50.

Cash ₱20,000
2. The Company issued 60 PS at its par value of P80.

Cash ₱4,800
Preference Shares ₱4,800

Example 2 parin: AIP-J Corp
3. AIP-J issued 150 Ordinary Shares at P75 per share.

Cash ₱11,250
Share Premium – OS ₱3,750
4. Issued 40 PS at P100 per share.

Cash ₱4,000
Share Premium – PS ₱800

Statement of Financial Position of AIP-J
Cash P40,050 Liabilities 0
Ordinary Shares P27,500

Preference Shares 8,000
Share Premium – OS 3,750
Share Premium – PS 800
Total SHE P40,050

Issuance of stock for non-cash assets
Property Services
Proceeds must be debited to: Proceeds must be debited to:
1. FMV of asset received 1. FMV of services received
2. FMV of shares issued 2. FMV of shares issued
3. Par or stated value of shares issued 3. Par or stated value of shares issued

AIP-J Corp. is authorized to issue 10,000 Ordinary Shares with par value of P50
each and 3,000 Preference Shares with par value of P80 each.
• Issued 500 Ordinary shares with a FMV of P55 for a building worth P40,000.
Journal Entry
Building₱40,000
• Issued 500 Ordinary shares with a FMV of P55 for a building.
Journal Entry
Building₱27,500
Share Premium – OS ₱ 2,500
• Issued 500 P50 par value Ordinary shares for a building.
Journal Entry
Building ₱25,000

• Issued 200 PS with a FMV of P110 per share to a lawyer who helped in the incorporation stage of
the company. FMV of services rendered by the attorney is P20,600.
Journal Entry
Legal Fees Expense ₱20,600
Share Premium – PS ₱4,600
• Issued 200 PS with a FMV of P110 per share to a lawyer who helped in the incorporation stage of
the company.
Journal Entry
• Issued 200 PS with a par value of P80 per share to a lawyer who helped in the incorporation
stage of the company.
Journal Entry

Lump sum acquisition of two kinds of shares. Scenario 1
• Issued 40 OS with a fair value of P175 and 100 PS with a fair value of P130 per share. P16,000
was received from a shareholder as full payment of both stocks.
Cash ₱16,000
Share Premium – PS ?
Share Premium – OS ?

Lump sum acquisition of two kinds of shares – Scenario 1 cont…
• Issued 40 OS with a fair value of P175 and 100 PS with a fair value of P130 per share. P16,000 was received from a
shareholder as full payment of both stocks.
Use the FMV as basis
PS P130 x 100 shs = P 13,000
OS 75x 40 shs = 7,000
Pro-rata
PS P 16,000 x 13/20 = P 10,400 - P8,000 = P2,400
OS P 16,000 x 7/20 = P 5,600 - P2,000 = P3,600
Journal Entry
Cash ₱16,000
Lump sum acquisition of two kinds of shares – Scenario 2
• Issued 40 OS with a fair value of P175 and 100 PS with a par value of P80 per share. P16,000
was received from a shareholder as full payment of both stocks.
Use the residual approach
OS 175 x 40 shs = P7,000 less P2,000 = P5,000 SP-OS
PS P16,000 – P 7,000 = P9,000 less P8,000 = P1,000 SP -PS
Journal Entry
Cash ₱16,000
PIJA Company is authorized to issue 20,000 Ordinary Shares with par value of
P40 each and 5,000 Preference Shares with par value of P150 each.
1. Issued 20 OS at par value.

2. Issued 90 PS at par value.
3. Issued 200 OS at P52 per share.
4. Issued 100 PS at P170 per share
5. Issued 75 OS with FMV of P60 for a machine with a FMV of P5,000.
6. Issued 20 PS with a FMV of P200 for services rendered by a secretary during incorporation
stage. (Use Clerical Fees Expense as account title)
7. Issued 100 OS with FMV of P50 and 300 PS at P200 per share. P52,000 cash was received.

Journal Entries: PIJA Co.
Par Values (OS = P40, PS =150
1. Issued 20 OS at par value. 5. Issued 75 OS with FMV of P60 for a machine with a FMV of
2. Issued 90 PS at par value. P5,000.
3. Issued 200 OS at P52 per share. 6. Issued 20 PS with a FMV of P200 for services rendered by a
4. Issued 100 PS at P170 per share secretary during incorporation stage. (Use Clerical Fees Expense
as account title)
7. Issued 100 OS with FMV of P50 and 300 PS at P200 per share.
P52,000 cash was received.
1 Cash ₱800
Ordinary Shares ₱800 5 Machine ₱5,000
2 Cash ₱13,500 Share Premium - OS
Preference Shares ₱13,500 ₱2,000
3 Cash ₱10,400 6 Clerical Fees Expense ₱4,000

Ordinary Shares ₱8,000 Preference Shares ₱3,000
Share Premium - OS ₱2,400 Share Premium - PS ₱1,000
4 Cash ₱17,000 7 Cash ₱52,000

Preference Shares ₱15,000 Preference Shares ₱45,000
Share Premium - PS Share Premium - PS
₱2,000
₱3,000
Statement of Financial Position of PIJA Co.
Cash ₱93,700 Liabilities 0
Machinery ₱5,000
₱98,700

Retained Earnings -₱4,000
Total SHE ₱98,700

Memorandum Entry Method
Jeremy Co. was incorporated on August 25, 2020 and was authorized to issue 2,000 Ordinary
Shares with a par value of P20.
Memo Entry : Jeremy Co. was authorized to issue 2,000 share of P20 par value Ordinary Shares.

Shares Subscription
1. Subscription of OS at par or stated value
2. Subscription of PS at par value
3. Subscription of OS at above par or stated value
4. Subscription of PS at above par value
5. Partial payment of Subscription Receivable
6. Final and full payment of Subscription Receivable with issuance of Stock Certificate
7. Accrued Interest on Delinquent Shares
8. Auction and advertising of delinquent shares
9. Sale of Delinquent Shares with issuance of Stock Certificate
10. No Bidder of Delinquent Shares
Case 1. A company is authorized to issue 4,000 OS with a par value of P60
1. Received subscription for 1,000 shares at Par.
2. Received subscription for 500 shares at 70 per share.
3. Received full payment of 500 shares from number 1.
4. Received full payment of 250 shares from number 2.
Journal Entry
1 Subscription Receivable ₱60,000 3 Cash ₱30,000
Subscription Receivable ₱30,000
Subscribed Ordinary Share ₱60,000
2 Subscription Receivable ₱35,000
4 Cash ₱17,500
Share Premium - OS ₱5,000
Prepared by: JS Lumibao Ordinary Shares ₱15,000
1. Received subscription for 1,000 shares at Par.
2. Received subscription for 500 shares at 70 per share.
3. Received P30,000 as partial payment from shareholder in number 1.
4. Received P 20,000 of partial payment from shareholder in number 2.
Journal Entry
1 Subscription Receivable ₱60,000 3 Cash ₱30,000
Subscribed Ordinary Share ₱60,000 Subscription Receivable ₱30,000
4 Cash ₱20,000
2 Subscription Receivable ₱35,000 Subscription Receivable ₱20,000
Share Premium - OS ₱5,000

1. Received subscription for 500 shares at Par and received a down payment of P10,000.
2. Received P20,000 for full payment of 500 shares.
Journal Entry
1 Cash ₱10,000
2 Cash ₱20,000

Ordinary Share ₱30,000

Accounting for Share Subscription
Aisim company si authorized to issue 1,000 OS with a par value of P40 and 400
PS with P75 par value.
1. Issued 300 OS at Par value.
2. Issued 100 PS at P 80 per share.
3. Received subscription to 50 OS at P60 per share. Payment is expected within 3 months.
4. Received subscription to 20 PS at P90 per share. Payment is expected after 18 months.
5. Received payment for the 50 shares subscribed in transaction #3.
6. Received subscription from various subscribers for 30 OS at P50, paying 30% down and the
balance will be due after six months.
7. Received balance due from subscriber of 1 share from transaction #6. The corresponding
shares of stock were issued to him.

Accounting for Share Subscription
Aisim company si authorized to issue 1,000 OS with a par value of P40 and 400 PS with P75 par
value.
3. Received subscription to 50 OS at P60 per share.
1. Issued 300 OS at Par value. Payment is expected within 3 months.
Cash ₱12,000
Ordinary Shares ₱12,000 Subscription Receivable -C ₱ 3,000
Subscribed Ordinary Share
₱2,000
2. Issued 100 PS at P 80 per share. Share Premium - OS ₱1,000
4. Received subscription to 20 PS at P90 per share. Payment is
Cash ₱8,000 expected after 18 months.
Preference Shares ₱7,500 Subscription Receivable – NC ₱ 1,800

Share Premium - PS ₱500 Subscribed Preference Share
₱1,500
Share Premium - PS ₱ 300
Aisim company si authorized to issue 1,000 OS with a par value of P40 and 400
PS with P75 par value.
5. Received payment for the 50 shares subscribed in 7. Received balance due from subscriber of 1 share
transaction #3. from transaction #6. The corresponding shares of stock
were issued to him.
Cash ₱3,000
Subscription Receivable-C ₱3,000 Cash ₱35
Subscription Receivable-C ₱35
Ordinary Shares ₱2,000 Subscribed Ordinary Share ₱40
6. Received subscription from various subscribers
for 30 OS at P50, paying 30% down and the balance
will be due after six months.
Cash ₱ 450
Subscription Receivable-C ₱1,050
Share Premium - OS ₱ 300

Cash P 23,485
Subscription Receivable – C 1,015
Total Current Assets P 24,500
Total Assests P 24,500
Total Liabilities P0
Preference Share P 7,500

Subscribe Preference Share 1,500
Ordinary Shares 14,040
Subscribe Ordinary Share 1,160
Subscription Receivable – NC (P1,800)
Total Share Capital P24,500
Retained Earnings P0
Prepared by: JS Lumibao Total SHE P24,500
Cash P 23,485
Total Assests P 24,500

Total Share Capital P24,500
Total SHE P24,500
Accounting for Delinquent shareholder
Nawansehan Co. is authorized to issue 2,000 Ordinary Shares with a par value of
P30 per share
1. Received subscription for 200 shares from Mr. S. Nakataka at P50 per share. He paid half of it and the
balance in 30 days.
2. Mr S. Nakataka did not pay the remaining balance. Thus his shares were sold in an aution sale.
3. P300 was also paid to the action house.
4. It took substantial period of time before the shares were held for auction. Nawansehan Co. decided to
recognize a P120 interest income on the remaining subscription receivable.
5. Received the following bids at the auction sale:
Mr. 1 - 195 Shares
Mr. 2 - 196 Shares
Mr. 3 - 197 Shares
The winning bidder paid the amount due from him. Share certificates were issued to the respective
shareholders

P30 per share
1. Received subscription for 200 shares from Mr. S. 3. P300 was also paid to the action house.
Nakataka at P50 per share. He paid half of it and
the balance in 30 days. Auction Fee Expense ₱300
Cash ₱5,000 Cash
Subscription Receivable-C ₱5,000 ₱300
Subscribed Ordinary Share
₱6,000 Due from Highest Bidder ₱300
Ordinary Shares 4. It Auction
took substantial period of time before the shares
Fee Expense
2. Mr S. Nakataka did not pay the remaining balance.
₱4,000 were
₱300 held for auction. Nawansehan Co. decided to
Thus his shares were sold in an aution sale. recognize a P120 interest income on the remaining
Due from Highest Bidder ₱5,000 subscription receivable.
Subscription Receivable-C
Interest Receivable ₱120
₱5,000
Interest Income
₱120
Prepared by: JS Lumibao Due from Highest Bidder ₱120

Interest Receivable ₱120
P30 per share
5. Received the following bids at the auction sale: *Special Case: No bidder for Delinquent Shares
Mr. 1 - 195 Shares
Mr. 2 - 196 Shares Treasury Shares ₱5,420
Mr. 3 - 197 Shares Due from Highest Bidder
Mr. 1 is the highest ₱5,420
bidder.
The winning bidder paid the amount due from him. Subscribed Ordinary Share ₱6,000
Share certificates were issued to the respective Ordinary Share
shareholders ₱6,000
Cash ₱5,420 Note:

Due from Highest Bidder ₱5,420 Nawansehan Co – 200 shares
Mr. S Nakataka – “0” shares
Note:
Mr. 1 Shares – 195 shares
Mr. S Nakataka – 5 shares Prepared by: JS Lumibao
Accounting for Delinquent Shares Example 2
Naonsehan Co. is authorized to issue 3,000 Ordinary Shares with a par value of
P20 per share and 500, P60 par value Preference shares.
1. Issued 400 OS at P27 per share.
2. Issued 70 PS at P90 per share.
3. Received subscription for 20 OS at P25 per share. Half was paid by the subscriber. Payment is expected
within one month.
4. Received subscription for 100 OS at par. Payment is expected after two years.
5. Received subscription for 30 PS at par. Payment is expected after two 2 months.
6. The shares subscribed in transaction #3 was declared delinquent.
7. Auction fee of P100 was paid. Unfortunately, there were no bidders is such auction.
8. Rendered services to customers amounting to P50,000 on account.
9. Paid P1,500 to employees for their salaries.
10. The nominal accounts from transaction # 9 and 10 are closed to Retained Earnings account.
Naonsehan Co. is authorized to issue 3,000 Ordinary Shares with a par value of P20 per share and
500, P60 par value Preference shares.
4. Received subscription for 100 OS at par. Payment is expected
1. Issued 400 OS at P27 per share. after two years.
2. Issued 70 PS at P90 per share. 5. Received subscription for 30 PS at par. Payment is expected
after two 2 months.
Cash ₱10,800
Ordinary Shares
Subscription Receivable-NC ₱2,000
₱8,000
Share Premium – OS
₱2,800
Subscription Receivable-C ₱1,800
Subscribed Preference Share ₱1,800
Cash ₱6,300
Preference Shares 6. The shares subscribed in transaction #3 was declared
3. Received subscription for 20 OS at P25 per share. Half delinquent.
₱4,200
was paid
Shareby the subscriber.
Premium – OS Payment is expected within
one month.
₱2,100 Due from Highest Bidder ₱250
Cash ₱250
Subscribed Ordinary Share ₱400
Share Premium - OS
₱100
Naonsehan Co. is authorized to issue 3,000 Ordinary Shares with a par value of P20 per share and
500, P60 par value Preference shares.
7. Auction fee of P100 was paid. Unfortunately, there 9. Paid P1,500 to employees for their salaries.
were no bidders is such auction.
Salaries Expense ₱1,500
Auction Fee Expense ₱100 Cash
Cash ₱1,500
₱100 10. The nominal accounts from transaction # 9 and 10 are
closed to Retained Earnings account.
Due from Highest Bidder ₱100
Auction Fee Expense Service Revenue ₱50,000
₱100 Salaries Expense ₱1,500
Income Summary ₱48,500
Treasury Shares ₱350
Due from Highest Bidder Income Summary ₱48,500
₱350 Retained Earnings ₱48,500
Subscribed Ordinary Share ₱400
8. Rendered services to customers amounting to P50,000
Ordinary Share
on account.
₱400
Accounts Receivable ₱50,000
Service Revenue ₱50,000
Cash P 15,750 Naonsehan Co.
Accounts Receivable 50,000 Balance Sheet
Total Non- Current Assests P0

Share Premium – PS 2,100
Retained Earnings P48,500

Treasury Shares (350)
Total Assets P 67,550 Total Liab & SHE P67,550
Total Legal Capital Total Contributed Capital Total SHE
Preference Share 4,200 4,200 4,200
Subscribe Preference Share 1,800 1,800 1,800
Share Premium – PS Ignore 2.100 2.100
Ordinary Shares 8,400 8,400 8,400

Subscribe Ordinary Share 2,000 2,000 2,000
*Share Premium – OS Ignore 2,900 2,900
S. Receivable – NC Ignore (2,000) (2,000)
Retained Earnings Ignore Ignore 48,500
Treasury Shares Ignore Ignore (350)

P 16,400 P 19,400 P 67,550
* If the Share Premium is in excess of stated value – include.
Treasury Shares
 Treasury stocks are 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
other lawful means. Such shares may again be disposed of for a reasonable price fixed by the
board of directors.
• No dividends
• No voting rights
Note:
 Number of Issued Shares
 Number of Outstanding Shares

Reasons for Treasury Shares
1. To increase the market value of shares

2. To improve earnings per share
3. To invest on its own.
4. No bidder on delinquent shares.
5. To help the liquidity problem of the company by donating the shares of the shareholders to the
company.

Accounting for Treasury Shares
1. Purchase of Treasury Shares
2. Reissuance of TS at acquisition cost
3. Reissuance of TS at above acquisition cost
4. Reissuance of TS at below acquisition cost

Example 1: Smoke Inc. is authorized to issue 20,000 Ordinary Shares at its par
value of P30.
1. Issued 500 OS at its marker value of P45.

2. Purchased 100 of its own shares at P20 per share.
3. Re-issued 10 of its Treasury Shares at P20 per share.
4. Re-issued 60 of its Treasury Shares for P35 per share.
5. Re-issued 20 of its Treasury Shares for P15 per share.

Smoke Inc. is authorized to issue 20,000 Ordinary Shares at its par value of P30.
1. Issued 500 OS at its marker value of P45. 4. Re-issued 60 of its Treasury Shares for P35 per share.
Cash ₱22,500 Cash ₱2,100

Ordinary Share ₱15,000 Treasury Shares ₱1,200
Share Premium 7,500 Share Premium – TS 900
2. Purchased 100 of its own shares at P20 per share. - Reissuance of TS at above acquisition cost
Treasury Shares ₱2,000 5. Re-issued 20 of its Treasury Shares for P15 per share.
Cash ₱2,000
3. Re-issued 10 of its Treasury Shares at P20 per share. Cash ₱300

Share Premium – TS 100
Cash ₱2,000 Treasury Shares ₱400
Treasury Shares ₱2,000
- Reissuance of TS at below acquisition cost
- Reissuance of TS at acquisition cost

Smoke Inc.
Shareholder’s Equity

Total SHE P23,100

Smoke Inc. is authorized to issue 20,000 Ordinary Shares at its par value of P30. (Transaction #4
and #5 is switched)
1. Issued 500 OS at its marker value of P45. 5. Re-issued 20 of its Treasury Shares for P15 per share.
Cash ₱300
Cash ₱22,500
Retained Earnings 100
Treasury Shares ₱400
Share Premium 7,500
- Reissuance of TS at below acquisition cost
2. Purchased 100 of its own shares at P20 per share.
Treasury Shares ₱2,000 4. Re-issued 60 of its Treasury Shares for P35 per share.
Cash ₱2,000
Cash ₱2,100
3. Re-issued 10 of its Treasury Shares at P20 per share. Treasury Shares ₱1,200
Cash ₱2,000
Treasury Shares ₱2,000 - Reissuance of TS at above acquisition cost
- Reissuance of TS at acquisition cost

Smoke Inc.
Shareholder’s Equity (Switched)

Retained Earnings (P100)

Total SHE P23,100

Donation of Treasury Shares (Donated Capital)
On Dec. 31. 2020, Smoke Inc. is authorized to issue 5,000 Ordinary Shares at its par value of P30.
The company has already issued all of these shares.
1. On Jan 1 2021, the stockholders decided to donate 8% of all their stocks in order to help in the
liquidity problems of the company. Market value of these shares on this date is P42 per share.
Option 1: Memo Entry Option 2: Journal Entry

On Jan 1 2021, the stockholders decided to donate
8% of all their stocks in order to help in the
Share Premium - Donation
liquidity problems of the company. Market value of
₱16,800
these shares on this date is P42 per share.
2. On Jan 15, 2021, the corporation re-issued all these TS at P45.
Cash ₱18,000 Cash ₱18,000

₱18,000 Treasury Shares ₱16,800
Share Premium - Donation ₱1,200
Donated Capital
 Contributions, including shares of the corporation, received from shareholders should be
recorded at the fair market value of the items received, with the credit going to share premium.
If the donation is in the form of shares of the corporation, the account share premium or
donated capital is credited at the time the shares are reissued.
Example. Moto Inc. received a new machine from its major shareholder as a gift. The donated
asset has a FMV of P250,000.
Machinery ₱250,000
₱250,000
or
Machinery ₱250,000
Prepared by: JS Lumibao Donated Capital ₱250,000
Accounting for Retirement of Share Capital
1. Retirement of shares at its original issue price.
2. Retirement of shares at less than its original issue price.
3. Retirement of shares at more than its original issue price.
4. Retirement of Treasury Shares.

Example 1
JPIA Corporation is authorized to issue 10,000 Ordinary Shares with a
par value of P20.
1. Issued 500 of its shares for P23.
2. Required and retired 100 of this shares at P23.

Example 1.JPIA Corporation is authorized to issue 10,000 Ordinary Shares with a par value of P20.
Scenario # 1
1. Issued 500 of its shares for P23. 3. Required and retired 50 of this shares at P10.
Cash ₱11,500 Ordinary Shares ₱1,000

Ordinary Share ₱10,000 Share Premium 150
Share Premium 1,500 Cash ₱500
Share Premium – Retirement 650
Share Premium 300 Ordinary Shares ₱3,000
Cash ₱2,300 Share Premium 450
Retained Earnings 100
Ordinary Shares P 4,000 Cash
Share Premium – OS 600 ₱4,200

Total SHE P4,500 Prepared by: JS Lumibao
Example 1. JPIA Corporation is authorized to issue 10,000 Ordinary Shares with a par value of
P20.
Scenario # 2 (Switch 3 and 4)
1. Issued 500 of its shares for P23. 4. Required and retired 150 of this shares at P28.
Cash ₱11,500 Share Premium 450
Ordinary Share ₱10,000 Retained Earnings 700
Share Premium 1,500 Cash
₱4,200
2. Required and retired 100 of this shares at P23. 3. Required and retired 50 of this shares at P10.
Ordinary Shares ₱2,000 Ordinary Shares ₱1,000

Share Premium 300 Share Premium 150
Cash ₱2,300 Cash ₱500
Ordinary Shares P 4,000

Share Premium – OS 600

Total SHE P4,500 Prepared by: JS Lumibao
Example 2
JPIA Corporation is authorized to issue 10,000 Ordinary Shares with a
par value of P20.
1. Issued 800 of its shares for P24.
2. Required 200 of this shares for P15.
3. The shares in transaction #2 were subsequently retired
4. Required 300 of this shares for P50
5. The shares in transaction #4 were subsequently retired.

P20.
Scenario # 1
1. Issued 800 of its shares for P24. 4. Required 300 of its shares for P50
Cash ₱19,200 Treasury Shares ₱15,000

Ordinary Share ₱16,000 Cash
Share Premium 3,200 ₱15,000
5. The shares in transaction #4 were subsequently retired.
2. Required 200 of this shares for P15.
Treasury Shares ₱3,000 Share Premium 1,200
Cash Share Premium – Retirement 1,800
₱3,000 Retained Earnings 6,000
3. The shares in transaction #2 were subsequently retired Treasury Shares ₱15,000
Ordinary Shares P 6,000

Ordinary Shares ₱4,000 Share Premium – OS 1,200
Share Premium 800 Share Premium – Retirement 0
Retained Earnings (P6,000)
Share Premium – Retirement 1,800 Total SHE P1,200
P20.
Scenario # 2 (Switch 4&5 to 2&3)
1. Issued 800 of its shares for P24. 2. Required 200 of this shares for P15.
Cash ₱19,200 Treasury Shares ₱3,000

Ordinary Share ₱16,000 Cash
Share Premium 3,200 ₱3,000
3. The shares in transaction #2 were subsequently retired
4. Required 300 of this shares for P50
Treasury Shares ₱15,000 Ordinary Shares ₱4,000
Cash Share Premium 800
₱15,000 Treasury Shares ₱3,000
5. The shares in transaction #4 were subsequently retired. Share Premium – Retirement 1,800
Ordinary Shares ₱6,000 Ordinary Shares P 6,000

Share Premium 1,200 Share Premium – OS 1,200
Retained Earnings 7,800 Share Premium – Retirement 1,800
Treasury Shares ₱15,000 Retained Earnings (P7,800)
Total SHE P1,200
Types of Preference Shares
1. Callable preference shares
2. Redeemable preference shares
3. Convertible preference shares

Callable preference shares
 Callable preference shares give the issuing corporation the right to purchase (retire) the shares
from its holders at a specified price. The amount paid to call and retire a preference share is its
call price. It is important to state that the redemption date is not definite for it is dependent on
the corporation exercising its "call."
 To illustrate, (1) a corporation issued 10,000 callable P50 par value preference shares for P60
per share. (2) Later, the shares were called in at P75 per share.
Journal Entry 1 Journal Entry 2
Cash ₱600,000 Preference Shares ₱500,000

Preference Shares ₱500,000 Share Premium - PS 100,000
Share Premium – PS 100,000 Retained Earnings 150,000
Cash ₱
750,000
Redeemable Preference Shares
 Some financial instruments take the legal form of equity but are liabilities in substance and
others may combine features associated with equity instruments and features associated with
financial liabilities. International Accounting Standards (IAS) No. 32, Financial Instruments,
paragraph 17, states that:
a) a preference share that provides for mandatory redemption by the issuer for a fixed or determinable
amount at a fixed or determinable future date, or gives the holder the right to require the issuer to
redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial
liability.
b) a financial instrument that gives the holder the right to put it back to the issuer for cash or another
financial asset (a 'puttable instrument'), is a financial liability.

Redeemable Preference Shares
 Illustration. On Oct. 29, 2018, Viva Corporation issued P1,000,000 of 5% preference share at
par value. The preference shareholders have the right to force the entity to redeem the shares at
par value if the Federal Reserve Bank interest rate rises above 5%. On Dec. 10, 2020, the
Federal Reserve Bank interest rate reached that level. Because the future event that triggers
redemption is outside the control of both Viva and the shareholders, the preference shares must
be classified a financial liability.
 The entry to record issuance of the shares is as follows:
Cash ₱1,000,000
Redeemable Preference Shares Liability
₱1,000,000

Convertible preference shares
 Preference share is more attractive to investors if it carries a right to exchange preference shares
for a fixed number of ordinary shares. When a corporation prospers and its ordinary shares
increases in value, convertible preference shareholders can share in this success by converting
into the more valuable ordinary shares.
Preference Shares, P200 par value, 10,000 shares P2,000,000
Ordinary Shares, P60 par value, 200,000 shares
authorized, 100,000 shares outstanding 6,000,000
Share Premium-Preference 400,000
Share Premium-Ordinary 2,000,000
Retained Earnings 4,000,000
If the preference shares are all converted into ordinary shares in a 1:3 ratio, the entry:
Preference Shares ₱2,000,000
Share Premium - PS 400,000
Ordinary Shares ₱ 1,800,000
Prepared by: JS Lumibao Share Premium - OS
600,000
Comprehensive Problem - Easy
 The accounts below appeared in the trial balance of BSAC Corporation as at Dec. 31, 2020:
Ordinary Shares, P150 par, 20,000 shares
authorized, 18,000 shares issued P 2,700,000
Subscriptions Receivable 170,000
Subscribed Ordinary Shares 270,000
Retained Earnings 2,000,000
Share Premium 950,000
Treasury Stock, 1,000 shares, at cost 250,000
Compute for the following:

1. Total amount of authorized ordinary shares 8. Number of outstanding shares:
2. Total amount of unissued ordinary shares 9. Total Shareholders' Equity:
3. Total amount of issued ordinary shares
4. Total amount of ordinary shares subscribed
5. Number of shares issued:
6. Number of shares subscribed
7. Number of treasury shares: Prepared by: JS Lumibao
Answer:
1. Total authorized ordinary shares: 20,000 shs x P150 = P3,000,000
2. Total unissued ordinary shares: 2,000 shs. x P150 = P300,000
3. Total issued ordinary shares: 18,000 shs. x P150 = P 2,700,000
4. Ordinary shares subscribed: = P 270,000
5. Number of shares issued: = 18,000 shs
6. Number of shares subscribed: P270,000 / P 150 = 1,800 shs
7. Number of treasury shares: = 1,000 shs
8. Number of outstanding shares:18,000 - 1,000 = 17,000 shs
9. Total Shareholders' Equity:
Ordinary Shares P 2,700,000

Subscribed Ordinary Shares P 270,000
Subscription Receivable (170,000) 100,000
Total Share Capital P 3,750,000
Retained Earnings P 2,000,000
P 5,750.000
Treasury Shares (250,000)
Total SHE P 5,000,000
Part III Transactions Subsequent to Formation
 Closing entries of a corporation
 Dividends
1. Cash Dividends
2. Property Dividends
3. Share Dividends
4. Stock Splits
 Allocation of Cash Dividends
 Appropriation of Retained Earnings
 Book Value per Share
 Liquidating Dividends
Closing Entries
1. Close the income accounts to Income Summary 3. Close the Income Summary account to Retained
account Earnings Account
Sales/Revenue ₱ xxx Income Summary ₱ xxx
Other Income xxx Retained Earnings ₱ xxx
Income Summary ₱ xxx
2. Close the expense accounts to Income Summary or
account
Retained Earnings ₱ xxx
Income Summary ₱ xxx Income Summary ₱ xxx
COGS/COS ₱ xxx
Other Expenses xxx

Cash Dividends
Illustration: On December 1, 2020, BSMA Inc. declared a P2 cash
 Date of Declaration dividends to share holders of record on February 1, 2021.
 Date of Record
As of the moment, there are 3,000 Ordinary shares outstanding with a
 Date of Payment par value of P10.
The Cash Dividends will be paid on March 1, 2021.

Cash Dividends
Illustration: On December 1, 2020, BSMA Inc. declared 02/01/2021
a P2 cash dividends to share holders of record on Date of Record
February 1, 2021.
Walang Entry
As of the moment, there are 3,000 Ordinary shares
outstanding with a par value of P10.
The Cash Dividends will be paid on March 1, 2021. 03/01/2021
12/01/2020 Date of Payment
Date of Declaration Cash Dividends Payable P6,000

Cash ₱ 6,000
Retained Earnings ₱ 6,000
Cash Dividends Payable P6,000

Cash Dividends
Illustration:
On December 1, 2020, BSMA Inc. declared a P2 cash dividends to shareholders of record on February 1,
2021. Market value of shares improves from P40 to P42 upon declaration.
As of the moment, there are 3,000 Ordinary shares outstanding with a par value of P10. The Cash
Dividends will be paid on March 1, 2021.
In the morning of February 2, 2021, FMV of shares rolled back to P40 per share.
FMV of P42 = “shares selling dividends-on”
FMV of P40 = “shares selling ex-dividend”

Property Dividends
1. Trading's Securities or Shares ng ibang corporation
2. Inventories
3. Non-current Assets

Property Dividends – Trading Securities
Illustration: Scenario 1
Instead of cash dividend, assume that BSMA Inc. declared a property dividend on December 1, 2020 to shareholders of
record on February 1, 2021. As of the moment, BSMA Inc. owns 5,000 shares of Jillibe Corp. with a marker value of
P20. The BOD declared a property dividend of 1 share of Jillibe Corp. for every BSMA shares owned.
On December 31, 2020, the shares are selling at P23 per share.
On the date of payment (March 01,2021), the shares are selling at P28 per share.
12/01/2020 02/01/2021 Walang Entry

Property Dividends Payable P15,000 03/01/2021
Trading Securities ₱ 3,750
12/31/2020 Realized Gain on T/S P3,750
Unrealized Gain on T/S P2,250 Retained Earnings ₱ 3,750
Property Dividends Payable ₱ 3,750
Retained Earnings ₱ 2,250 Property Dividends Payable ₱ 21,000
Property Dividends Payable ₱ 2,250 Trading Securities ₱ 21,000
Property Dividends – Trading Securities
Illustration: Scenario 2
Instead of cash dividend, assume that BSMA Inc. declared a property dividend on December 1, 2020 to shareholders of
record on February 1, 2021. As of the moment, BSMA Inc. owns 5,000 shares of Jillibe Corp. with a marker value of
P20. The BOD declared a property dividend of one (1) share of Jillibe Corp. for every four (4) BSMA shares owned.
Shares outstanding is 3,000 shares.
On December 31, 2020, the shares are selling at P18 per share.
On the date of payment (March 01,2021), the shares are selling at P15 per share.
12/01/2020 02/01/2021 Walang Entry
Property Dividends Payable P15,000 03/01/2021
Realized Loss on T/S ₱ 2,250
12/31/2020 Trading Securities ₱ 2,250
Unrealized Loss on T/S ₱ 1,500
Trading Securities ₱ 1,500 Property Dividends Payable ₱ 2,250
Property Dividends – Inventories
Illustration: On December 1, 2020 BSMA Inc. declared all of their P500,000 inventory as property dividends to
shareholders of record on February 1, 2021. At the time of declaration, inventories were selling at a 20% mark-up
based on cost. The property dividends will be paid on March 1, 2021.
12/01/2020

Property Dividends Payable P60,000
02/01/2021 Walang Entry
03/01/2021 03/01/2021
Option 1 Option 2
Property Dividends Payable ₱ 60,000 Property Dividends Payable ₱ 60,000

Sales ₱ Inventory ₱ 50,000
60,000 Gain on Distribution ₱ 10,000
Cost of Good Sold ₱ 50,000

Inventory ₱ 50,000
Property Dividends: Non-depreciable Non-current assets
Scenario 1: On December 1, 2020 BSMA Inc. declared the Land worth P70,000 as property dividends to shareholders of
record on February 1, 2021. At the time of declaration, the FMV of the land is P85,000. On December 31, 2020, its
FMV went up to P89,000. The property dividends will be paid on March 1, 2021. On this date the FMV of the NCA is
P99,000.
12/01/2020 03/01/2021
Asset Held for Distribution ₱ 70,000 Retained Earnings ₱ 10,000
Land P70,000 Property Dividends Payable ₱ 10,000

Property Dividends Payable ₱ 85,000 Asset Held for Distribution ₱ 70,000
Gain on Disposal ₱ 29,000
12/31/2020

Property Dividends: Non-depreciable Non-current assets
Scenario 2: On December 1, 2020 BSMA Inc. declared the Land worth P70,000 as property dividends to shareholders of
record on February 1, 2021. At the time of declaration, the FMV of the land is P80,000. On December 31, 2020, its
FMV went down to P65,000. The property dividends will be paid on March 1, 2021. On this date the FMV of the NCA
is P82,000.
12/01/2020 03/01/2021
Asset Held for Distribution ₱ 70,000 Retained Earnings ₱ 17,000
Land P70,000 Property Dividends Payable ₱ 17,000
Retained Earnings ₱ 80,000 Asset Held for Distribution ₱ 5,000

Property Dividends Payable ₱ 80,000 Land P5,000

12/31/2020
Asset Held for Distribution ₱ 70,000
Impairment Loss ₱ 5,000


Property Dividends: Depreciable Non-current assets
Scenario 1: On December 1, 2020 BSMA Inc. declared its Building worth P70,000 as property dividends. As of January
1, 2020, the building has the following value:
Building Cost P120,000
less: Accum. depreciation 12,000
Book Value P108,000
The Building has no salvage value and has useful life of 10 years. The company uses the straight line method of
depreciation. On December 1, 2020, it has a FMV of P101,000. On Dec. 31, 2020 its FMV went up to P104,000. On
March 1, 2021 the new FMV of the building is P110,000.
12/01/2020 12/31/2020
Depreciation Expense ₱ 11,000 Retained Earnings ₱ 3,000
Accumulated Depreciation P 11,000 Property Dividends Payable ₱ 3,000
Asset Held for Distribution ₱ 97,000 03/01/2021

Accumulated Depreciation ₱ 23,000 Retained Earnings ₱ 6,000
Building ₱ 120,000 Property Dividends Payable ₱ 6,000

Property Dividends Payable ₱ 101,000 Asset Held for Distribution ₱ 97,000
Book Value P108,000
depreciation. On December 1, 2020, it has a FMV of P90,000. On Dec. 31, 2020 its FMV went down to P85,000. On
12/01/2020 12/31/2020
Depreciation Expense ₱ 11,000 Impairment Loss ₱ 5,000
Accumulated Depreciation P 11,000 Asset Held for Distribution ₱ 5,000
Asset Held for Distribution ₱ 97,000 Property Dividends Payable ₱ 5,000

Accumulated Depreciation ₱ 23,000 Retained Earnings ₱ 5,000
Building ₱ 120,000
Impairment Loss ₱ 7,000

Retained Earnings ₱ 90,000 Prepared by: JS Lumibao

Book Value P108,000
depreciation. On December 1, 2020, it has a FMV of P90,000. On Dec. 31, 2020 its FMV went down to P85,000. On
03/01/2021
Asset Held For Distribution ₱ 12,000

Impairment Recovery ₱ 12,000


Share Dividends
 Corporation distributes additional shares of the entity’s own share as dividends
1. Small Share Dividend – if additional shares issued are less than 20% of outstanding shares
2. Large Share Dividend - if additional shares issued is 20% or more of the outstanding shares
Scenario 1.
On December 1, 2020, BSAC Co. declared a 5% share dividend. On that date, the company currently have
3,000 ordinary shares with P100 par value. Shares are selling at P 120. The share dividends will be distributed
on March 1, 2021
12/01/2021 03/01/2021
Retained Earnings ₱ 18,000 Share Dividends Payable ₱ 15,000
Share Dividends Payable ₱ 15,000 Ordinary Share ₱ 15,000
Share Premium 3,000
Note: Share Dividends Payable or Share Distributable is not a liability account

Share Dividends
Scenario 2.
On December 1, 2020, BSAC Co. declared a 30% share dividend. On that date, the company currently have
3,000 ordinary shares with P100 par value. Shares are selling at P 120. The share dividends will be distributed
on March 1, 2021
12/01/2021 03/1/2021
Retained Earnings ₱ 90,000 Share Dividends Payable ₱ 90,000
Share Dividends Payable ₱ 90,000 Ordinary Share ₱ 90,000
Note: Large Share Dividends – ignore FMV of shares

Share Splits
 A share split is when a company divides the existing shares of its stock into multiple new shares
ACINEJ Co. has 10,000 P100 par value ordinary shares issued and outstanding when the board of
directors declared a 5-for 1 shares split.

Effects of Dividends and Share Splits
Declaration of Payments of
Effect On: Small Share Dividends Large Share Dividends Share Splits
Dividends Dividends
Retained Earnings Decrease - Decrease (FMV) Decrease (Par or SV) -
-
Ordinary Shares - Increase (Par or SV) Increase (Par or SV) -
Share Premium - - Increase (Excess) - -

Total SHE Decrease - - - -
Total Liabilities Increase Decrease - - -
Total Assets - Decrease - - -
Outstanding Shares - - Increase Increase Increase

Dividends on Preference Shares and Ordinary Shares
 Preference Shares may contain one of the following combinations of features:
1. Non-cumulative and Non-participating
2. Cumulative and Non-participating
3. Non-cumulative and Fully Participating
4. Cumulative and Fully Participating
5. Non-cumulative and Partially Participating
6. Cumulative and Partially Participating

Illustration
JEREMY Co. started on January 1, 2020. It has the following balances on December 31, 2021
10% Preference Shares P100,000 500 shares P200 Par
Ordinary Shares P400,000 8,000 shares P50 Par
No dividends were declared for 2020. Cash dividends of P130,000 were declared for 2021
PS OS Total
Dividends in Arrears
Basic Dividends – PS
Basic Dividends – OS
Excess Dividends - PS
Excess Dividends - OS
Total
Dividends per Share

Illustration
1. Preference Shares are Non-cumulative and Non- 2. Preference Shares are Cumulative and Non-
participating participating
PS OS Total PS OS Total
Dividends in Arrears - - 0 Dividends in Arrears P 10,000 - P 10,000
Basic Dividends – PS P 10,000 - P 10,000 Basic Dividends – PS 10,000 - 10,000
Basic Dividends – OS - 40,000 40,000 Basic Dividends – OS - P 40,000 40,000
Excess Dividends - PS - - 0 Excess Dividends - PS - - 0
Excess Dividends - OS - 80,000 80,000 Excess Dividends - OS - 70,000 80,000
Total P 10,000 P120,000 P 130,000 Total P 20,000 P 110,000 P 130,000
/500 shs /8,000 shs /500 shs /8,000 shs
Dividends per Share P 20 P 15 Dividends per Share P 40 P 13.75

Illustration
3. Preference Shares are Non-cumulative and Fully- 4. Preference Shares are Cumulative and Participating
Participating
Dividends in Arrears 0 n/a 0 Dividends in Arrears P 10,000 n/a P 10,000
Excess Dividends - PS 16,000 - 16,000 Excess Dividends - PS 14,000 - 14,000
/500 shs /8,000 shs /500 shs /8,000 shs
Dividends per Share P 52 P 13 Dividends per Share P 68 P 12

Illustration
5. Preference Shares are Non-cumulative and Partially 4. Preference Shares are Cumulative and Partially
Participating up to an additional 4% Participating up to an additional 4%
Dividends in Arrears 0 n/a 0 Dividends in Arrears P 10,000 n/a P 10,000
Excess Dividends - PS 4,000 - 4,000 Excess Dividends - PS 4,000 - 4,000
/500 shs /8,000 shs /500 shs /8,000 shs
Dividends per Share P 28 P 14.5 Dividends per Share P 48 P 13.25

Appropriation of Retained Earnings
1. Issuance of long-term bonds Retained Earnings – Unappropriated P x

Retained Earnings – Appropriated x
2. Future plant expansion
3. Contingency for possible future loss Total Retained Earnings P x
4. Treasury Shares

Appropriation of Retained Earnings
1. Closing of Income Summary Accounts
Income Summary ₱ xxx
RE - Unappropriated ₱ xxx
2. Other appropriation transactions

• Issuance of long-term bond
• Future plant expansion
• Contingency for possible future loss
RE - Unappropriated ₱ xxx
RE - Appropriated xxx
3. Purchase of Treasury Shares

Treasury Shares ₱ xxx
Cash ₱
xxx
RE - Unappropriated ₱ xxx Prepared by: JS Lumibao
RE - Appropriated xxx
References
 Partnership and Corporation Accounting “Made Easy” by Win Ballada 2019 Edition
 Corporation Accounting by James Christopher D. Domingo
 Partnership, Revised Corporation, Cooperative Law: Laws, Principles and Jurisprudence by
Andrix D. Domingo

Corporation Accounting

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corporation Accounting

Uploaded by

Copyright:

Available Formats

Corporation Accounting

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

 According to their legal right to corporate existence:

b) Open corporation. A corporation where the share is available for subscription or

Prepared by: JS Lumibao

Prepared by: JS Lumibao

3. Formal Organization and Commencement

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Retained Earnings Retained Earnings

Prepared by: JS Lumibao

Share Premium (Par) – PS/OS

Retained Appropriated Retained Earnings

Prepared by: JS Lumibao Less: Treasury Shares

Prepared by: JS Lumibao

Cash Non-cash considerations

Prepared by: JS Lumibao

Prepared by: JS Lumibao

1. Issued 30 OS at its stated value of P40.

Prepared by: JS Lumibao

Prepared by: JS Lumibao

• Share Premium – OS ₱55

Prepared by: JS Lumibao

• Broker’s Fee Expense ₱55

Prepared by: JS Lumibao

• Broker's Fee Expense ₱45

1. Issued 400 OS at its par value of P50.

2. The Company issued 60 PS at its par value of P80.

Prepared by: JS Lumibao

3. AIP-J issued 150 Ordinary Shares at P75 per share.

4. Issued 40 PS at P100 per share.

Prepared by: JS Lumibao

Cash P40,050 Liabilities 0

Ordinary Shares P27,500

Total SHE P40,050

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

Prepared by: JS Lumibao

1. Issued 20 OS at par value.

Prepared by: JS Lumibao

3 Cash ₱10,400 6 Clerical Fees Expense ₱4,000

4 Cash ₱17,000 7 Cash ₱52,000

Ordinary Shares ₱15,800

Retained Earnings -₱4,000

Total SHE ₱98,700

Prepared by: JS Lumibao

Prepared by: JS Lumibao