FAR 3: SHAREHOLDER’S EQUITY

Shareholder’s Equity
Book Value per Share
Earnings per Share
Share-based Payments

GATO, Abdul Barri Indol

MSU - Main Campus

09452146094
 SHAREHOLDER’S EQUITY Donated Capital Treasury Shares @ Cost Method
Legal Capital
With par NO par - donations from shareholders
Acquisition: @ Cost
Ordinary / Preferred Share Capital X X X 1) Entity’s own shares Reissuance
Subscribed Share Capital X X X - memo entry - above cost: excess is credited
Less: Subscription Receivable X - outstanding shares are reduced to SP - Treasury Shares
Share Dividends Payable X X X X - donated capital is credited upon - below cost: debit (order of priority)
Share Premium (Ordinary / Preferred) X X X sale of donated shares a. SP - Treasury Shares
Other Share Premium From original issuance
2) Asset b. Retained Earnings
- from Treasure Shares X - donated capital is credited Retirement
- from Conversion option (bonds) X Organization Costs upon receipt of donated asset - perceived gain (orig. issue price > cost)
- Share Warrants Outstanding X - legal fees: expensed a. Cancel SC & SP-orig. issuance
- Share Options Outstanding X (i.e for incorporation) Retirement of Share Capital b. Credit excess to SP-TS
- Donated Capital X X - perceived loss (orig. issue price < cost)
1) Derecognize SC and its related a. Cancel SC & SP-orig. issuance
Total Paid-In (Contributed) Capital X SP - orig issuance
Share Issuance Costs b. Debit perceived loss (order of priority)
Retained Earnings - unappropriated
(accumulated profits) X - SP from issuance is reduced; = (Issue Price - Par value) SP - Treasury Shares
: Retained Earnings
Retained Earnings - appropriated - other wise, RE x # of share to be retired
(RE reserves or appropriations) X Under writing fees 2) If gain (retirement price > par Recapitalization
Other Comprehensive Income Documentary stamps of SC + SP): credit SP-retirement
X - when there is a debit RE balance (deficit),
- Changes in Revaluation Surplus Cost of printing stocks certs 3) If loss (retirement price < par
X amount of deficit is eliminated against SP
- Changes in FV of Equity Investment @ FV-OCI SEC filing fees of SC + SP): debit RE - credit excess to SP-recapitalization
- Net re-measurement G/L on defined benefit plan X Cost of promoting stock issue
- G/L on credit risk of a financial liability @ FV-PL X X 1) Change from par to no-par; vice versa
Less: Treasury Shares X 2) Reduction of par or stated value
Total Shareholder’s Equity X 3) Share Split

Issuance of Share Capital Delinquent Subscription Detachable Share Warrants

1) Cash consideration 1) Forfeited Downpayment 1) For Preferred shares
Proceeds > Par of SC issued: SHARE PREMIUM - reverse the original issuance to SP - forf. DP a. Given FV of share ex-warrant } relative
Proceeds < Par of SC issued: DISCOUNT ON SHARE CAPITAL 2) Auctioned Subscription FV of warrants FV method
Deduction against SHE - highest bidder Offer price b. Only one has FV
2) Non-cash consideration - offer price includes:
Smallest # of shares
Proceeds - known FV of security
a. FV of consideration unpaid balance = FV of unknown security
b. FV of shares accrued interest on amount due c. All unknown
c. Par value of shares expenses related in auction (FV of ordinary shares - Exercise Price) FV of share
3) Two or more classes of share capital Summary x # of ordinary shares exercisable = warrants
a. Issued separately - accounted separately Forfeited Downpayment Proceeds - FV of FV of

:
b. Issued simultaneously With Highest Bidder share warrants = preferred shares
- both shares have FV: relative FV method 1) to highest bidder
- only one have FV: residual goes to other -# of shares he is willing to be received when bid was made 2) For Bonds Payable
- both have no FV: proportional method 2) to delinquent subscriber - refer to FAR 2: Compound Financial Instruments
(using par value of shares issued) - any remaining shares
No highest bidder
1) Corporation acquires the shares: treasury shares
2) Corporation is prohibited to acquire shares: no issuance will be made
 PREFERRED SHARES
1) Preference as to Assets
- entitled to liquidating dividend value plus
any dividends in arrears
2) Preference as to Dividends
- entitled to receive dividends first
Non-cumulative Non-participating
Cumulative Participating
with dividends participate in the balance after
in arrears ordinary shares receive dividends

- before participation, ordinary shares must first

receive a dividend = PS % x Par of Ordinary SC
- in case of multiple classes of PS with different %,
use the PS %having the lowest %
RETAINED EARNINGS
Dividends Appropriations
⑥ Forms For preferred shares: 1) Legal Appropriations
A) Use fixed % - Treasury Shares appropriations
1) Cash Dividends B) If there are many classes, use lower rate 2) Contractual Appropriations
2) Property Dividends - Sinking Fund/Bond Redemption appropriations
Dividend Payable (@FV) Property to be distributed - redemption of preferred shares appropriations
CA 3) Voluntary Appropriations
Date of Declaration @FV Lower
FV less CTS - Plant expansions
Recognize impairment loss - Increases in working capital
if meron (CA>FVLCTS)
- Contingencies
Year-end remeasurement
Date of Settlement
Items affecting the RE total balance
remeasurement
Large (>= 20%) @ PAR VALUE Dividends declared / paid
from Unissued Shares Small (<20%) @ FAIR VALUE Effect of changes in accounting policy
3) Stock Dividends Net Income / Loss for the period
from Treasury Shares @ COST OF TS Prior Period errors
⑥ Dividends on unpaid subscription Other SC transactions (balancing figure)
1) For cash dividends, apply it first to unpaid balance plus costs & expenses..
Any excess, pay to shareholder..
2) For share dividends, it will be withheld until subscription is fully paid
 BOOK VALUE PER SHARE
ONE CLASS OF SHARES
Overview of Formula
Total SHE Par of PS X Non-cumulative:
BVPS = # of shares outstanding
Preferred Dividends X current only
Cumulative:
Liquidation Premium current + in arrears
MULTIPLE CLASSES OF SHARES (Liquidation Value - Par Value)
x # of outstanding shares X
Preferred Preferred SHE Amount of Participation for PS X
Shares = # of shares outstanding Preferred SHE X
BVPS Total SHE (exc. SR) - Preferred SHE = Ordinary SHE
Ordinary Ordinary SHE
Shares = # of shares outstanding

Notes:
Do not deduct subscription receivable for BVPS computation
: Treasury shares are considered retired for BVPS computation
Procedural Approach
1) Compute outstanding shares of each class 2) Compute excess over par
and its total par value
Amount Total SHE exc. SR X
Shares
Less: Par of OS & PS X
SC issued X X Excess over par X
Add: Subscribed SC X X
Less: Treasury Shares @par X X
Oustanding Shares X X

3) Compute BVPS for each class of shares

A. Non-participating B. Participating
Excess over Par PS Equity OS Equity
Excess over Par PS Equity OS Equity
Balances X X X
Balances X X X X
Liquidation Premium X
Liquidation Premium X X X
Preference Dividends X
Preference Dividends X X X X
Balance to ordinary X X Ordinary Dividends
Balance for participation X
Total SHE X X
/ Outstanding Shares X Preferred Shares
X
BVPS X Balance for X Par, PS X X For full participation
X
-

participation Par, PS + OS
For partial participation,
Ordinary Shares
amount of participation
Balance for X Par, OS X X is equal to:
participation Par, PS + OS
Total SHE X X % of participation - Fixed % of PS X
X Total Par, PS X
/ Outstanding Shares X X Amount of participation X
BVPS X X
 EARNINGS PER SHARE 2) Convertible Preferred Shares

- pertain only to ordinary shares (OS) Net Income (after tax) before Preferred Dividends
DEPS = Wtd. Ave. OS outstanding + Potential OS
Public enterprises: required to present EPS Upon conversion of PS:
Non-public enterprises: encouraged but not required X
Beg. shares x 12/12
Uses of EPS Add: Other actual issuance during the year (wtd average) X
Assessment of value of shares Total X
Promotion of comparability Add: OS issued upon conversion (wtd average) X
Basis for dividend policy Total Wtd Ave of Actual OS issued X For BEPS computation
Add: Assumed converted OS (wtd average) X
BASIC EARNINGS PER SHARE Total Wtd Ave OS X For DEPS computation
PS Dividends
Cumulative: 1 yr only, declared or not Incremental EPS = < BEPS = dilutive
Net Income (after tax) - Preferred Dividends
Non-cumulative: ONLY if declared Total Shares
Redeemable: ignored
BEPS = Wtd. Ave. OS outstanding 3) Options and Warrants
From date the consideration is receivable
Options > Average Market Price of OS Dilutive
* If Basic Loss per share, still required to be disclosed Options < Average Market Price of OS Anti-dilutive
** For stock rights issuance, adjust the wtd ave OS outstanding before right issue:
Exercise Price X
FV, shares right-on Add: FV of each share option X
Adj. Factor = FV, shares ex-right FV right-on - Theoretical Value of 1 right
Un av ai la ble
Total Exercise Price X Option Shares X
X Option shares X Less: Assumed Treasury Shares X
FV, right-on - Subscription Price X
Proceeds from assumed exercise X Incremental Shares
# of rights to purchase 1 share + 1 X/12
/ Ave. Market Price during the year X Months outstanding/12
DILUTED EARNINGS PER SHARE (If NOT exercised) Wtd. Ave. Incremental Shares X
OR Add: Wtd. Ave. Of actual shares
BEPS Market Price @ Conversion Date issued including those exercised X
Dilutive if: or Anti-dilutive? Only BEPS shall be presented Total Wtd Ave OS X
BLPS (If exercised) X
Method: use “as-if converted method” Assumed Treasury Shares X

1) Convertible Bonds Payable MULTIPLE POTENTIAL DILUTIVE SHARES

Formula Numerator OS
Net Income (after tax) - Preferred Dividends Steps
DEPS = + Interest Expense (after tax) 1) Compute BEPS Basic EP NI - PS dividends X
Wtd. Ave. OS outstanding + Potential OS 2) Check for initial test of dilution Options - X
Upon conversion of bonds: (individual test of dilution) Total NI - PS dividends X
3) Rank from most dilutive to least dilutive Convertible Bonds + Interest Expense
Beg. shares x 12/12 X a. If option/warrants are dilutive: (after tax) X
Add: Other actual issuance during the year (wtd average) X ranked first Total X X
Total X b. Other wise, lowest incremental EPS: Convertible PS + PS dividends X
Add: OS issued upon conversion (wtd average) X most dilutive Total X X
Total Wtd Ave of Actual OS issued X For BEPS computation 4) Include potentially dilutive shares one by one
Add: Assumed converted OS (wtd average) X Every time an item is included, calculate new EPS
Total Wtd Ave OS X For DEPS computation Stop when: next item’s incremental EPS
has greater amount than the last computed EPS
Interest expense on bonds (after tax) < BEPS = dilutive
Incremental EPS =
Total Shares
 SHARE-BASED PAYMENTS PFRS 2
Modifications Cancellation & Settlements
Treatment: shortening of vesting period
1) Beneficial to employees
⑥ Increase in FV of equity instruments a. Continue to use original FV 1) FV of equity > Cash paid

}
of share options
EQUITY-SETTLED PAYMENTS share options (by reducing exercise price) b. Recognize INCREASE IN FV instruments
R Grant Memo
⑥
Increase in # of equity instruments granted (or EQUITY INSTRUMENTS) and - no accounting issue
spread over remaining periods
e
c Employees date entry
⑥
Reducing vesting period or modifying non- Journal entry:
Measurement
✗ Non-employees
i
p market performance condition Take to account the
Share options xx
date modified conditions
i Date goods or Cash xx
e
n services are 2) NOT Beneficial to employees
t
received Decrease in FV of equity instruments 2) FV of equity <
⑥
IGNORE Cash paid
(by increasing exercise price) instruments
Conditions
Immediately fully recognize Decrease in # of equity instruments granted
⑥ Apply prospectively Excess: additional
⑥ Vesting Increasing vesting period or modifying non- salaries expense
recognize within vesting period
⑥
Not immediate IGNORE
market performance condition a. Share options > Payment
1) Ser vice - to remain as employee within vesting period outstanding
Intrinsic Value (IV)
recognize whether target stock price Issue: Options exercisable even after vesting period - close to SHARE PREMIUMS
Market was met or not (no revision)
Intrinsic Value = change in FV of SHARES every year b. Share options < Payment
2) Performance i.e: meet target stock price
outstanding
length of vesting period Unexercised options X IV
}
can be - charge to RETAINED
Non-market number of equity instruments revised Total salaries expense = (using the table formula) EARNINGS
exercise price +
Exercised options X IV
⑥ Non-vesting i.e: meet target earnings (%)
CASH-SETTLED PAYMENTS share appreciation rights (SARs) CASH & SHARE ALTERNATIVE
Measurement
⑥ Non-employees ⑥ Employees - recognize liability every end of reporting 1) Cash alternative subsequently added
1
presumed
I
required
Intrinsic Value = Measurement - apply prospectively
FV of goods or unavailable FV of equity unavailable Market Price
- recognize liability to the extent in
ser vices received instruments granted - Exercise Price Initial: FV at grant date
Subsequent: FV at reporting date which services were rendered
Formula 2) Granted simultaneously
Y1 Y2 Y3 Formula
Y1 Y2 Y3 Equity portion
# of employees X X X
Less: # of employees expected to leave X X X # of employees X X X
Less: # of employees expected to leave X X X FV of share alternative X
X X X Less: FV of cash alternative X
X share options per employee X X X X X X
X SARs per employee X X X Share options (equity) X
X FV or IV of share options X X X / vesting period 3
Total compensation X X X X FV of SARs X X X
Total liability X X X Annual salaries expense - equity X
X ratio, vesting period 1/3 2/3 3/3
Cumulative compensation expense X ratio, vesting period 1/3 2/3 3/3 Liability portion
(share options outstanding) X X X Cumulative compensation expense
Less: prior yr cumulative compensation X X (SARs payable) X X X Computation is AS IS
Current compensation expense Less: prior yr cumulative compensation X X
(increase in share options outstanding) X X X Current compensation expense
(increase in SARs payable) X X X