Title | 6 Share Capital notes for accountancy studes |
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Author | Allia Mae Paran |
Course | Financial Accounting and Reporting |
Institution | University of Mindanao |
Pages | 11 |
File Size | 231.4 KB |
File Type | |
Total Downloads | 409 |
Total Views | 932 |
SHARE CAPITALOVERVIEWcorporations separately report contributed capital and accumulated profits in accordance with some legal provisions. Shareholder’s Equity owner’s equity section of a corporation’s statement of financial position has 2 major components: - Share Capital (contributed or paid-in cap...
SHARE CAPITAL OVERVIEW corporations separately report contributed capital and accumulated profits in accordance with some legal provisions. Shareholder’s Equity owner’s equity section of a corporation’s statement of financial position has 2 major components: -
Share Capital (contributed or paid-in capital) ~ resources received by a corporation as a result of investment by shareholders, donations or other share capital transactions.
-
Retained Earnings (accumulated profits or losses) ~ amount of capital accumulated and retained through the profitable operations of the business.
Sample: Shareholder’s Equity Share Capital Preference Shares – P50 par, 1,000 sahres authorized, issued and outstanding
P 50,000
Ordinary Shares – P5 par, 30,000 shares authorized, 20,000 shares issued and outstanding Share Premium – Ordinary
P100,000 50,000
Total Share Capital Retained Earnings
150,000 P 200,000 80,000
Total Shareholders’ Equity
P 280,000
SHARE CAPITAL shares to be subscribed and paid in or secured to be paid in by shareholders, either in money, property or services, at the time of organization of the corporation or afterwards, and upon which is to conduct its operations. share contributed or paid-in capital is further divided into the following: Legal Capital ~ portion of the contributed capital or the minimum amount of paid-in capital, which must remain in the corporation for the protection of corporate creditors. ~ amount of legal capital can be determined by par if case no-par shares, legal capital is the total considereation received by the corporation for the
issuance of shares to shareholders including the excess of issue price over the stated value (share premium). Share Premium (additional paid-in capital) ~ portion of the paid-in capital representing amounts paid by shareholders in excess of par. ~ may result from transactions involving treasury stocks, retirement of shares, donated capital, share dividends and any other “gain” on the corp. own stock transactions. TWO BASIC TYPES OF SHARES/ SHARE CAPITAL share capital is divided into transferable shares of stock
these share of stock represents the interest or right of a shareholder in a coporation and is evidenced by a certificate of stock.
Ordinary Share represents the basic ownership class of the corporation. when only one class of share is issued must be ordinary share entity’s residual equity.
Preference Share gives its owner certain advantages example: receipt of dividends when declared before the ordinary shareholders (preferred as to dividends) you are priority 1
priority claims to assets in the event of corporate liquidation
TERMS RELATED TO SHARE CAPITAL Authorized Share Capital maximum number of shares the corporation can issue Issued Share Capital sold and paid in full Subscribed Share Capital portion of authorized shares that has been subscribed but not fully paid Treasury Stock
issued shares acquired by corporation but not retired and are therefore awaiting to be issued at a later date Outstanding Share Capital issued shares which are at the hands of the shareholders
ACCOUNTING FOR ISSUANCE OF SHARE CAPITAL With Par Value proceeds should be credited to the share capital accounts to the extent of the par value, with any excess being reflected as share premium.
Without Par Value proceeds should be credited to the share capital account.
CONSIDERATIONS FOR ISSUANCE OF SHARES
SHARE ISSUANCE FOR CASH
With Par Value Issuing Share Capital at Par Illustration: Narsan Holdings is authorized to issue P1,000,000 ordinary shares dividend into 10,000 shares, with par value of P100 per share. The diversified corporation issued on cash basis 2,000 shares at par. Cash
200,000 Ordinary Shares
200,000
Issuing Share Capital Above Par Ilustration: Suppose the 2,000 shares were sold at P150 per share. Cash
300,000 Ordinary Shares
200,000
Share Premium
100,000
Without Par Value Issuing No-Par Share Capital Illustration: Morning Star Travel is a domestic corp engaged in the business of organizing tour packages for Asian and European visitors to the Philippines. The entity has 2 classes of shares – preference shares and no-par ordinary shares. 5,000 ordinary shares were issued for P85,000. The entry to record the issue of these no-par shares will be: Cash
85,000 Ordinary Shares
85,000
Issuing No-Par Capital with Stated Value Issuing No-Par Capital (one problem for 2 situations) Illustration: Suppose that Morning Star Travel’s no-par ordinary shares have a stated value of P20. The entity issued 5,000 shares at P25 per share. Cash
125,000 Ordinary Shares
125,000
Issuing Capital with Stated Value The same Illustration
Cash
125,000 Ordinary Shares
100,000
Share Premium
25,000
SUBSCRIPTION OF SHARES Regular Subscriptions Illustration: Warranty Auto Shop, Inc. is a quality car care center located at Makati City. Assume that 5,000 shares of P10 par value ordinary shares of the corporation were sold on subscription at P12 per share on Sept. 1, 2019 to Ashley Langga. Subscription instalments of P24,000 and P36,000 will be due on Sept. 16 and 30 respectively.
Subscription Receivable
60,000
Subscribed Odinary Shares
50,000
Share Premium
10,000
To record subscriptions above par.
Cash
24,000 Subscription Receivable
24,000
To record initial installment.
Cash
36,000 Subscription Receivable
36,000
To record final installment.
Subscribed Ordinary Shares
50,000
Ordinary Shares
50,000
To record issuance of stock certificates.
Delinquent Subscriptions Illustration: Assuming the same facts as above except the subscriber failed to settle part of his subscription in the amount of P48,000. After complying with the legal procedures pertaining to delinquency sale, a public auction was held. The offer price is P56,000 including P3,000 accrued interest and P5,000 expenses of sale. Three bidders are willing to pay the offer price namely:
Lenore Loqueloque
4,300 shares
Luze Un
4,500 shares
Winnie Villanueva
4,700 shares
Loqueloque is the highest bidder. The 5,000 shares are deemed fully paid. Ashley langga, gets 700 shares and Loqueloque receives 4,300 shares.
Subscription Receivable
60,000
Subscribed Odinary Shares
50,000
Share Premium
10,000
To record subscriptions above par.
Cash
12,000 Subscription Receivable
12,000
To record partial initial instalment.
Receivable from highest Bidder
3,000
Interest Revenues
3,000
To record accrues interest on delinquent shares.
Receivable from Highest Bidder
5,000
Cash
5,000 To record auction expenses.
Cash
56,000 Receivable from Highest Bidder
8,000
Subscription Receivable
48,000
To record sale ar public auction.
Subscribed Ordinary Shares
50,000
Ordinary Shares
50,000
To record issuanc of stock certificates.
If no bidder. All the other entries will be the same except for the ff. Treasury stock
56,000
Receivable from Highest Bidder
8,000
Subscription Receivable
48,000
To record purchase of own shares.
SHARE-BASED PAYMENTS
Classifications Measurement
Share-Based Payments to Non-Employees Shares for Assets Ilustration: VYR Construction and Dev. Corp is a medium-sized, closely held entity based in Cagayan De Oro City. A group of Taiwanese investors would like to acquire shares of the corporation because of its tremendous earnings potential. After much internal discussions initiated by its chairman, Virginia Yacapin, and its president, Ruth Russell, the investors were allowed to make investments. One of the considereations given was a tract of land in Davao with a fair value of P10,000,000 Issue of 9,000 shares of 1,000 par ordinary shares in exchange for the land is as follows: Land
10,000,000 Ordinary Shares
9,000,000
Share Premium
1,000,000
To record issuance of 9,000 shares in exchange for land.
Shares for Services (when shares are issued for services in connection with the incorporation, the account Organization Expense may be debited at an amount equal to the fair value of such services. Illustration: Dynasty BookSource Asia, Inc. engaged the services of a promoter during its formation and organization. The corporation issued 800 shares of P100 par value ordinary shares for the services. The fair market valuer of such services is P100,000.
Organization Expense
100,000
Ordinary Shares
80,000
Share Premium
20,000
To record issuance of 800 shares of stock in exchange for serices.
Share-Based Payments to Employees Definition of Terms
Grant Date - date at which the entity and another party (including an employee) agree to a sharebased payment arrangement.
Vest - to become entitlement - a counter party’s right to receive cash or equity instruments of the entity vests when the counter party’s entitlement is no longer conditional on the satisfaction of any vesting conditions.
Vesting Period - is when the cash or equity instruments granted vest.
Vesting Conditions - the ocnditions that determine whetehr the entity receives the services that entitle the counter party to receive cash or quity instruments of the entity, under a share-based payment arrangement.
Recognition Equity-Settled Share-Based Payments
Cash-Settled Share-Based Payments
TWO METHODS OF ACCOUNTING FOR SHARE CAPITAL Lucky Draw Corp. was authorized to issue P400,000 ordinary shares divided into 4,000 shares with a par value of P100 per share. On Aug. 13, 2019, the corporation received subscriptions for 1,000 shares at par from various individuals. As at Sept. 20, 2019, 600 of the subscribed shares have been fully paid and the stock certificates issued correspondingly. Next day, the corporation issued 400 shares at par for cash. Journal Entry Method
Memorandum Entry Method Authorization:
Unissued Ordinary Shares 400,000 Authorized Ordinary Shares 400,000
Memo Entry: The corporation was authorized to issue P400,000 ordinary shares; divided into 4,000 shares, with P100 par.
Shares subscriptions at par: Subscriptions Receivable 100,000 Subscribed Ordinary Shares 100,000
Subscriptions Receivable 100,000 Subscribed Ordinary Shares 100,000
Subscriptions fully collected: Cash 60,000 Cash 60,000 Subscription Receivable 60,000 Subscription Receivable
60,000
Issuance of stock certificates after full payment of subscriptions: Subscribed Ordinary Shares 60,000 Unissued Ordinary Shares 60,000
Subscribed Ordinary Shares Ordinary Shares
Cash subscriptions at par: Cash 400,000 Cash Unissued Ordinary Shares 400,000 Ordinary Shares
60,000 60,000
400,000 400,000
TREASURY STOCKS per IAS No.32
Purchase Re-issuance Retirement SUMMARY OF THE EFFECTS ON ASSETS, LIABILITIES AND EQUITY DONATED CAPITAL CALLABLE PREFERENCE SHARES REDEEMABLE PREFERENCE SHARES CONVERTIBLE PREFERENCE SHARES RECEAPITALIZATION
REVIEW QUESTIONS
TRUE OR FALSE 1. T/F 2. T/F 3. T/F 4. T/F 5. T/F 6. T/F 7. T/F 8. T/F 9. T/F 10. T/F 11. T/F 12. T/F 13. T/F 14. T/F 15. T/F 16. T/F 17. T/F 18. T/F 19. T/F 20. T/F 21. T/F 22. T/F 23. T/F 24. T/F 25. T/F MULTIPLE CHOICE 1.
ABCD
2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.
ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD
PROBLEM #1 PROBLEM #2 PROBLEM #3 PROBLEM #4 PROBLEM #5 PROBLEM #6 PROBLEM #7 PROBLEM #8 PROBLEM #9 PROBLEM #10 PROBLEM #11 PROBLEM #12 PROBLEM #13
PROBLEM #14 PROBLEM #15
PROBLEM #16 PROBLEM #17 PROBLEM #18 PROBLEM #19
PROBLEM #20 PROBLEM #21 PROBLEM #22 PROBLEM #23 PROBLEM #24 MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8.
ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD
MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9.
ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD ABCD...