Chapter 15

Shareholders’ Equity

The residual interest of the owners

in the assets of the corporation

SHE = Assets - Liabilities

 SHAREHOLDERS’ EQUITY
SHARE CAPITAL RETAINED EARNINGS
Contributed Capital (DEFICIT)
Paid-up capital Accumulated Profits (Losses)

LEGAL CAPITAL SHARE PREMIUM

1. PAR VALUE
SHARES
(amount of 1. Excess of par
par) 2. Issuance of TS @ more than cost
3. Donated capital
2. NO-PAR VALUE 4. Etc…
SHARES (Issue
price)
 Legal Capital
• Portion of the paid up capital arising
from issuance of share capital which
must remain untouched and unimpaired
in protection to corporate creditors and
cannot be returned to shareholders in
any form during the lifetime of the
corporation except when liquidation
happens and only after debt have been
paid.
 Legal Capital

Par Value shares

Aggregate par of all issued and

subscribed shares
 Legal Capital

No-Par Value shares

Total consideration received by

its corporation for the issuance
of shares, including the excess
of stated value
 Authorized Share Capital
Maximum amount to be subscribed
and paid-in by the shareholders,
either in money or property, labor or
services at the organization of a
corporation or afterwards upon
which it is to conduct itsAuthorized
operation.
shares
 Subscribed Share Capital

Amount of shares which have been subscribed

but not yet fully paid

subscribed
shares
 Issued Share Capital
• Amount of shares which have been fully paid
and the share (stock) certificates have been
issued

• Share certificate cannot be issued unless the

subscribed shares are paid in full
issued
shares
 Unissued Share Capital
• This represents that part of a corporation
authorized share capital for which share
certificates have not yet been issued but are
available for issuances in the future.

unissued
shares
 Treasury Share
• A corporation’s own share which has been
issued but later reacquired not for the
purpose of cancellation or retirement.
• Issued but not outstanding

treasury
shares
 Outstanding Share Capital
• Issued share capital and still on the hands of
the shareholders
• Issued shares minus treasury shares

outstanding
shares
 Components of SHE
1. Share capital
2. Subscribed Share capital
3. Subscription receivable
4. Additional Paid-in Capital – Share
Premium
5. Revaluation Surplus or Reserve
6. Retained Earnings
7. Treasury Shares
ISSUANCE OF SHARE CAPITAL
 Considerations
• Cash
• Tangible or intangible properties
• Labor or services
• Previously incurred indebtedness
 Share issuances for cash
Issuing share capital at par
• Navarro Holdings is authorized to issue
P1,000,000 ordinary shares divided into
10,000 shares with a par value of P100 per
share.
• On Feb. 4,2018 the company issued 2,000
shares at par.
Cash 200,000
Ordinary Shares 200,000
To record issuance of shares
 Share issuances for cash
Issuing share capital above par
• Navarro Holdings is authorized to issue
P1,000,000 ordinary shares divided into
10,000 shares with a par value of P100 per
share.
• On Feb. 4,2018 the company issued 2,000
shares at P150.
Cash 300,000
Ordinary Shares 200,000
Share Premium 100,000
To record issuance of shares
 Share issuances for cash
Issuing no-par share capital
• Navarro Holdings is authorized to issue
P1,000,000 ordinary shares divided into
10,000 shares without a par value.
• On Feb. 4,2018 the company issued 2,000
shares at P150.

Cash 300,000
Ordinary Shares 300,000
To record issuance of shares
 Share issuances for cash
Issuing no-par share capital with stated value
• Navarro Holdings is authorized to issue P1,000,000
ordinary shares divided into 10,000 shares with a stated
value of 100.
• On
CashFeb. 4,2018 the company issued 2,000 shares at P150.
300,000
Ordinary Shares 300,000
To record issuance of shares
Cash 300,000
Ordinary Shares 200,000
Share premium 100,000
To record issuance of shares
Share issuances for noncash assets
• Fair value if can be determined objectively
• If none, the acquisition cost of the noncash
asset.
 Share issuances for noncash
Issuing share capital
• Navarro Holdings is authorized to issue
P1,000,000 ordinary shares divided into 10,000
shares with a par value of P100 per share.
• On Feb. 4,2018 the company issued 2,000 shares
in exchange of Land. The land cost P250,000 but
with a fair market value of P500,000
Land 500,000
Ordinary Shares 200,000
Share Premium 300,000
To record issuance of shares
 Share issuances for services
Issuing share capital
• Navarro Holdings is authorized to issue P1,000,000
ordinary shares divided into 10,000 shares with a par
value of P100 per share.
• On Feb. 4,2018 the company issued 2,000 shares to the
lawyers for legal services made in organizing the
corporation. The fair market value of the service is
P250,000
Organization Expense 250,000
Ordinary Shares 200,000
Share Premium 50,000
To record issuance of shares
 Share issuances for outstanding liabilities

Issuing share capital

• Navarro Holdings is authorized to issue
P1,000,000 ordinary shares divided into 10,000
shares with a par value of P100 per share.
• On Feb. 4,2018 the company issued 2,000 shares
in payment of the loans payable amounting to
P300,000
Loans Payable 300,000
Ordinary Shares 200,000
Share Premium 100,000
To record issuance of shares
Prob. 1
ABC Co. is authorized to issue 100,000 ordinary shares.

• ABC Co. sold the following ordinary shares during

2018:
– Feb. 12 sold 1,000 shares for P100,000
– July 10 sold 5,000 shares for P630,000
– Nov. 5 sold 7,500 shares for P1,050,000

• Prepare the entries assuming:

1. Ordinary shares has a P100 par value
2. Ordinary shares has a P10 stated value
3. Ordinary shares has no-par value or stated value
Prob. 2
DEF Co. is authorized to issue 400,000 shares of P85 par
value ordinary shares.
• Feb 10 – Sold 75,000 shares of ordinary shares
at P86 per share; received cash
• Mar. 27 – Issued 21,500 shares of ordinary
shares in exchange for land with a fair market
value of P920,000 and a building with a fair
market value of P1,087,500
• May 3 – sold 28,000 shares of ordinary shares
at P86.50 per share; received cash
SUBSCRIPTION OF SHARES
 • Navarro Holdings is authorized to issue P1,000,000
ordinary shares divided into 10,000 shares with P100
par value.
• On Feb. 4,2018 the company sold on subscription
2,000 shares at P150 each.
• On March 10, 2018, 50% of the subscription is
collected.
• On May 20, 2018, the remaining 50% of the
subscription is collected.
2/4 Subscription receivable 300,000
Subscribed Ordinary Shares 200,000
Share Premium 100,000
To record subscription
 • Navarro Holdings is authorized to issue P1,000,000
ordinary shares divided into 10,000 shares with P100
par value.
• On Feb. 4,2018 the company sold on subscription
2,000 shares at P150 each.
• On March 10, 2018, 50% of the subscription is
collected.
• On May 20, 2018, the remaining 50% of the
subscription is collected.

3/10 Cash 150,000

Subscription receivable 150,000
To record partial collection
• Navarro Holdings is authorized to issue P1,000,000
ordinary shares divided into 10,000 shares with P100 par
value.
• On Feb. 4,2018 the company sold on subscription 2,000
shares at P150 each.
• On March 10, 2018, 50% of the subscription is collected.
• On May 20, 2018, the remaining 50% of the subscription
is collected.
5/20 Cash 150,000
Subscription receivable 150,000
To record full collection

5/20 Subscribed Ordinary Shares 200,000

Ordinary Shares 200,000
To record full collection
2/4 Subscription receivable 300,000
Subscribed Ordinary Shares 200,000
Share Premium 100,000
To record subscription

3/10 Cash 150,000

Subscription receivable 150,000
To record partial collection

5/20 Cash 150,000

Subscription receivable 150,000
To record full collection

5/20 Subscribed Ordinary Shares 200,000

Ordinary Shares 200,000
To record the issuance of shares
• Navarro Holdings is authorized to issue P1,000,000 ordinary
shares divided into 10,000 shares with P100 par value.
• On Feb. 4,2018 the company sold on subscription 2,000
shares at P150 each.
• On March 10, 2018, 50% of the subscription is collected.
• On May 20, 2018, the remaining 50% of the subscription was
not collected. After complying with the legal requirements
pertaining to delinquency sale, a public auction was held on
June 1, 2018. The offer price is P170,000 including P5,000
accrued interest and P15,000 expenses of sale.
• Three bidders are willing to pay the offer price as follows:
– Deniece Cornejo 1,500 shares
– Cedric Lee 1,200 shares
– Bernice Lee 1,300 shares
6/1 Receivable from highest bidder 20,000
Interest revenue 5,000
Cash 15,000
To record receivable from HB

6/1 Cash 170,000

Receivable from highest bidder 20,000
Subscription receivable 150,000
To record sale at public auction

6/1 Subscribed Ordinary Shares 200,000

Ordinary Shares 200,000
To record full collection
2/4 Subscription receivable 300,000
Subscribed Ordinary Shares 200,000
Share Premium 100,000
To record subscription

3/10 Cash 150,000

Subscription receivable 150,000
To record partial collection

6/1 Receivable from highest bidder 20,000

Interest revenue 5,000
Cash 15,000
To record receivable from HB
6/1 Cash 170,000
Receivable from highest bidder 20,000
Subscription receivable 150,000
To record sale at public auction
6/1 Subscribed Ordinary Shares 200,000
Ordinary Shares 200,000
To record the issuance of shares
 If there is no bidder, the corporation may bid for the
delinquent shares and the total amount due shall be credited
as paid in full in the books of the corporation

6/1 Treasury Stock 170,000

Receivable from highest bidder 20,000
Subscription receivable 150,000
To record purchase of own shares

6/1 Subscribed Ordinary Shares 200,000

Ordinary Shares 200,000
To record issuance of shares
 TREASURY STOCKS

Purchase of • Cash = cash payment

• Noncash = recorded amount of the
TS noncash asset given in exchange

Reissuance of • At cost
• Above cost
TS • Below cost

Retirement • With gain

• With loss
of TS
• In 2018, CPA Co. had the following accounts:

Ordinary shares, 10,000 issued shares, P100 par value P1,000,000

Share Premium-Ordinary Shares 500,000

• On Feb. 10, a total of 1,000 shares were purchased @ P300 per share
• On March 10, half of these treasury shares were reissued at cost.
• On April 10, 200 treasury shares were reissued at P310 per share.
• On May 10, 200 treasury shares were reissued at P280 per share
• On June 10, 100 treasury shares were retired
2/10 Treasury Stock (1,000*300) 300,000
Cash 300,000
To record purchase of TS

3/10 Cash 150,000

Treasury Stock (500*300) 150,000
To record reissuance of TS at cost

4/10 Cash (200*310) 62,000

Treasury Stock (200*300) 60,000
Share Premium – TS 2,000
To record reissuance of TS at more than cost

5/10 Cash (200*280) 56,000

Share Premium-TS 2,000
Retained Earnings 2,000
Treasury Stock 60,000
To record reissuance of TS at below than cost

The excess of cost over reissue price of P4,000 (60k -56k) should be debited to share premium-
TS to the extent of its credit balance. Any remainder is debited to retained earnings.
 Retirement of TS

6/10 Ordinary share (100*100) 10,000

Share Premium –OS (100*50) 5,000
Retained Earnings 15,000
Treasury Stock (100*300) 30,000
To record retirement of TS at a loss

Loss on retirement should be debited to the following accounts in order

given:
1. Share Premium-OS to the extent of its credit when shares were issued.
2. Share premium - TS to the extent of its credit balance
3. Any remainder is debited to retained earnings.
 Retirement of TS with gain
If par exceeds the cost of TS
Assume that the par was P350 per share

6/10 Ordinary shares (100*350) 35,000

Treasury Stock (100*300) 30,000
Share Premium – Retirement 5,000
To record retirement of TS with gain
 REISSUE OF TS @ A LOSS RETIREMENT OF TS @ A LOSS
1. Share premium - TS to the 1. Share Premium-OS to the
extent of its credit balance extent of its credit when
2. Any remainder is debited to shares were issued.
retained earnings. 2. Share premium - TS to the
extent of its credit balance
3. Any remainder is debited to
retained earnings.
 SHAREHOLDERS’ EQUITY
SHARE CAPITAL RETAINED EARNINGS
Contributed Capital (DEFICIT)
Paid-up capital Accumulated Profits (Losses)

LEGAL CAPITAL SHARE PREMIUM

1. PAR VALUE
SHARES
(amount of 1. Excess of par
par) 2. Issuance of TS @ more than cost
3. Donated capital
2. NO-PAR VALUE 4. Etc…
SHARES (Issue
price)
 Elements of Retained Earnings
• Profits
• Losses
• Dividends
• Prior period errors
• Appropriations
 RETAINED EARNINGS
• Accumulated profits or losses

12/31 Income Summary 100,000

Retained Earnings 100,000
To record profit

12/31 Retained Earnings 30,000

Income Summary 30,000
To record loss
YEAR PROFIT ACCUMULATED
(LOSS) Profit (Loss)
1 (20,000) (20,000) Deficit
2 (30,000) (50,000) Deficit
3 80,000 30,000 Retained Earnings
4 (40,000) (10,000) Deficit
5 60,000 50,000 Retained Earnings
• Retained Earnings is added to share capital to
get the total Shareholders’ Equity
YEAR SHARE ACCUMULATED
CAPITAL Profit (Loss)
1 40,000 (20,000) 20,000 Shareholders’
Equity
2 40,000 (50,000) (10,000) Capital
Deficiency
3 40,000 30,000 70,000 Shareholders’
Equity
4 40,000 (10,000) 30,000 Shareholders’
Equity
5 40,000 50,000 90,000 Shareholders’
Equity
 DIVIDENDS
• Return on investment of the outstanding
shareholders
• Share in the net income which is not retained
by the corporation.
 Who are entitled to received dividends?

Issued shares xxx

Add: Subscribed shares xxx
Less: Treasury shares (xx)
Outstanding shares xxx

Only outstanding shares are entitled to dividends

 3 pertinent dates

Date of • BOD issue a resolution

• Corporation is liable to give dividend as of
declaration this date

Date of • Cut-off date

• Only Shareholders enlisted as of this date
record will receive dividend

Date of • Settlement of liability

• Distribution of dividend
payment
 Kinds of dividends
• Cash
• Property
• Share
• Scrip
 Cash Dividends
E.g. CPA Co. declared P100,000 dividends
• RETAINED EARNINGS 100k
Date of • CASH DIVIDENDS PAYABLE
100k
declaration

Date of • No entry
record

Date of • CASH DIVIDENDS PAYABLE 100k

• CASH
payment 100K
 Property Dividends (non cash)
E.g. CPA Co. declared P100,000 property dividends. The
company will give inventories in payment of the dividend

Date of • RETAINED EARNINGS

• PROPERTY DIVIDENDS PAYABLE
100k
100k
declaration

Date of • No entry
record

Date of • PROPERTY DIVIDENDS PAYABLE

• INVENTORY
100k

payment 100K
 SMALL Share Dividends
E.g. CPA Co. declared 10% dividends on its 10,000
outstanding shares. The shares had a P10 par value and
P12 fair market value at the date of declaration
• RETAINED EARNINGS 12k
Date of • SHARE DIVIDEND DISTRIBUTABLE 10k
• SHARE PREMIUM
declaration 2K

Date of • No entry
record
Date of • SHARE DIVIDEND DISTRIBUTABLE 10k
• ORDINARY SHARES
payment 10K
 Large Share Dividends
E.g. CPA Co. declared 20% dividends on its 10,000
outstanding shares. The shares had a P10 par value and
P12 fair market value at the date of declaration

Date of • RETAINED EARNINGS 20k

• SHARE DIVIDEND DISTRIBUTABLE 20k
declaration

Date of • No entry
record
Date of • SHARE DIVIDEND DISTRIBUTABLE 20k
• ORDINARY SHARES
payment 20K
 Effects of Dividends
Declaration of Payment of Small share Large Share
Cash Dividend Cash Dividend dividends Dividend

Retained Decrease Decrease Decrease

Earnings
Ordinary Increase Increase
shares
Share premium Increase

Total SHE Decrease

Liabilities Increase Decrease

Assets Decrease
No. of Shares Increase Increase
Outstanding
 Statement of Retained Earnings

• Please refer to page 568

 Statement of Changes
in Shareholders’ Equity

• Please refer to page 569

THANK YOU