Scribd
Upload
30 views4 pages

SHE Discuss

The document outlines the concept of shareholder's equity and the structure of corporations in the Philippines, governed by RA 11232. It details the components of a corporation, types of shares, and the accounting treatment for share capital, including legal capital and share issuance costs. Key terms such as authorized share capital, retained earnings, and the trust fund doctrine are defined to clarify the financial responsibilities and rights of shareholders.

Uploaded by

akimahgozon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
30 views4 pages

SHE Discuss

The document outlines the concept of shareholder's equity and the structure of corporations in the Philippines, governed by RA 11232. It details the components of a corporation, types of shares, and the accounting treatment for share capital, including legal capital and share issuance costs. Key terms such as authorized share capital, retained earnings, and the trust fund doctrine are defined to clarify the financial responsibilities and rights of shareholders.

Uploaded by

akimahgozon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Shareholder’s Equity

Corporation- is an artificial being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence.
Operation of law- a corporation cannot come into existence by mere agreement. This requires the
authority and grant from the state.
Governed by RA 11232 of the “Revised Corporation Code of the Philippines”
Single Shareholder- One Person Corporation.
Forms of Corporation:
a. Stock- have capital stock divided into shares.
b. Non-stock- all other corporations.

Certificate of Incorporation- the issuance of the certificate of incorporation calls the corporation to being
but it is not yet ready to do business until it is organized.
Requirements:
a. Articles of Incorporation
b. By-Laws

Components of Corporation:
a. Corporators- compose the corporation whether shareholders or members or both.
b. Incorporators- mentioned in the AOI as originally forming and composing the corporation.
c. Shareholders or stockholders- owners of shares in a stock corporation
d. Members- owners of shares in a nonstock corporation

Organization cost- represents costs incurred in forming or organizing a corporation.


Includes:
a. Legal fees in connection with te incorporation, such as drafting of articles of incorporation and by-laws
and corporation registration.
b. Incorporation fees
c. Share issuance costs, such as printing of share certificates, cost of stock and transfer book, seal of
corporation, underwriting and promotional fees, accounting and legal fees related to share issuance.

Shareholder’s Equity- residual interests of owners in the net assets of a corporation measured by the
excess of assets over liabilities.

Definition of Terms:
1. Authorized Share Capital- amount fixed in the articles of incorporation. The share is divided into
shares evidenced by a share certificate. Share certificate will be issued only when the subscription is fully
paid.
2. Share Capital- is the portion of the paid in capital representing the total par or stated value of the
shares issued.
3. Subscribed share capital- is the portion of the authorized share capital that has neem subscribed but
not yet fully paid and therefore still unissued.
Share premium- is the portion of the paid in capital representing excess over the par or stated value.
Common sources of Share Premium:
a. Excess over par value or stated value
b. Resale of treasury shares at more than cost
c. Donated capital
d. Issuance of share warrants
e. Distribution of share dividends
f. Quasi-reorganization and recapitalization

Retained Earnings- cumulative balance of periodic earnings, dividend distributions, prior period errors
and other capital adjustments.

Revaluation surplus- is the excess of revalue amount over the carrying amount of the revalued asset.

Treasury shares- are the corporation’s own shares that have been issued and then reacquired but not
canceled.

Deposits on subscriptions to a proposed increase in share capital may be reported as part of


shareholder’s equity as a separate item in the equity section.

Share- represents the interest or right of a shareholder in the corporation.


Rights of a shareholder:
a. To share in the earnings of the corporation.
b. To vote in the election of directors and in the determination of certain corporate policies.
c. To subscribe for additional share issues- Preemptive Right, Right of Preemption or Share Right.
d. To share in the net assets of the corporation upon liquidation.

Share capital may be: a.) Par Value Share or b.) No-par Value Share

Par Value- specific value is indicated in the AOI and appearing in the share certificate. Shares cannot be
issued below par. This is the minimum amount of share.

No-par Value- without any value appearing on the face of the share certificate. But has always an issued
value or stated value based on the consideration for which it is issued.

Minimum consideration for no-par is P5.00.

Two Types of Shares:


Voting Dividends Liquidation
Ordinary Share Capital / Excess of declared dividend and Third to the priority
dividends to Preference after the preference.
Preference Share x Priority, with fix amount based on Second to the priority
Capital the rate. High Risk, high return. after paying off the
creditors first.

Legal Capital- is that portion of the paid in capital arising from issuance pf share capital which cannot be
returned to the shareholders in any form during the lifetime of the corporation.
Legal capital is computed as follows:
1. For Par Value Shares- aggregate par value of shares issued and subscribed.
2. For No-par Value Shares- total consideration received or receivable from shares issued or subscribed.
Total consideration refers to the subscription price inclusive of any amount in excess of stated value.

Trust Fund Doctrine- holds that the share capital of a corporation is considered as trust fund for the
protection of creditors. It is illegal to return such legal capital to shareholders during the lifetime of the
corporation.
Dividends can be paid to shareholders but limited only to the retained earnings balance. It is illegal to
pay dividends if the entity has a deficit.

Accounting for share capital:


a. Memorandum method- No entry is made to record the authorized share capital. Only memo entry is
made for the total authorized share capital.
b. Journal entry method- the authorization to issue share capital is recorded by debiting unissued share
capital and crediting authorized share capital. When share capital is issued, it is credited to the unissued
share capital account.

Issuance of Share Capital:


Share capital- will be credited equal to the par value or stated value or issued value

Issuance of share capital for noncash consideration:


Noncash includes:
a. Tangible property
b. Intangible property
c. Services

Share capital is recorded at an amount equal to the following in the order of priority:
a. Fair value of the noncash consideration received
b. Fair value of the shares issued
c. Par value of the shares issued

Share issuance costs


Transaction costs that are directly attributable to the issuance of new shares shall be deducted from
equity, net of any related income tax benefit.
- Share issuance costs shall be debited to share premium arising from the share issuance.
- If share premium is insufficient, excess shall be debited to “share issuance costs” to be reported
as a contra equity account as a deduction from the following in the order of priority:
a. Share premium from previous share issuance
b. Retained earnings

Costs of public offering of shares


Costs relate to stock market listing, or otherwise are not incremental costs directly attributable to the
issuance of new shares, shall be recorded as expense in the income statement.
- The costs of listing are not considered as costs of an equity transaction since no equity
instrument has been issued (expense when incurred).

Costs of listing shares include the following:


a. Road show presentation
b. Public relations consultant’s fees

Joint costs
Costs that relate jointly to the concurrent listing and issuance of new shares, and listing of old existing
shares shall be allocated between the newly issued and listed shares, and the newly listed old existing
shares.
- No further guidance as to what basis of allocation should be followed. However PIC, concluded
that the joint costs shall be allocated prorate on the basis of outstanding newly issued and listed
shares and outstanding newly listed old existing shares.
Example:
a. Audit and other professional advice relating to prospectus
b. Opinion of counsel
c. Tax opinion
d. Fairness opinion and valuation report
e. Prospectus design and printing

Watered share- share capital issued for inadequate or insufficient consideration.

Secret reserve- reverse of watered share. When asset is understated or liability is overstated with a
consequent understatement of capital.
Usually arises from the following:
a. Excessive provision for depreciation, depletion, amortization and doubtful accounts.
b.

You might also like