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FINANCIAL ACCOUNTING AND REPORTING

SHAREHOLDERS EQUITY

I. CONTRIBUTED (PAID-IN / INVESTED CAPITAL) CAPITAL

A. Definition: Represent the amount invested or contributed by owners. This is divided into:

1. Capital Share the contributions equal to the par or stated value of the share purchased by
owners; or the total contribution by owners in case of no-par share.

2. Share Premium contribution in excess of the par or stated value, gains from share transactions
and other equity items that are not included in earnings or other comprehensive income.

B. Issuance of Share Capital

1. Issuance for Cash - the face amount of the cash received is credited to equity

a. The issuance is recorded as follows:

Cash xxx
Share Capital (par or stated value) xxx
Share premium (excess over par or stated value) xxx

b. In case of no par share, the entire amount of cash received is credited to Share Capital

2. Share issued with other securities

a. The lump sum price is allocated among the securities issued based on their relative market
value (proportional basis).

b. In cases where market value of all classes of securities is not determinable, the market value
of the securities is used as a basis for those classes that are known and remainder of the
lump sum is allocated to the class for which the market value is not known.

3. Share issued for noncash consideration:

a. The basis for recording is the fair market value of the property or services received.
b. If fair market value of the property or services is not available, the fair market value of the
share issued is used.
c. If the fair market value of the share cannot also be determinable, the par value of the share
issued is used

4. Share sold on subscription basis

a. The subscription contract provides that the subscriber will buy a certain number of shares at
an agreed-upon price with payment spread over a specified time period.
b. The shares of share are not issued until the full subscription price is received, the entry to
record the subscription.

Cash xx
Share Subscription Receivable xx
Subscribed Capital Share (par or stated value) xx
Share Premium (excess over par or stated value) xx

To record collection and issuance of certificate:

Cash xx
Share Subscription Receivable xx

Capital Share Subscribed xx

Capital Share xx

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c. Any balance in the Capital Share Subscribed account is presented in the shareholders equity
section below ordinary or preference share (issued). The Subscription Receivable is reported
as deduction from shareholders equity or shown as current asset if collectible within one
year.

5. Other issues related to share issuance

a. Assessments on shareholders additional contribution by shareholders and treated as

Additional paid-in capital.

b. Share issue cost treated as reduction of share premium or the excess over par value
resulting from issuance. If the said share premium is not sufficient, excess payment Is
debited as stock issue cost and shall be deducted from the following in the order of priority:

1. Total share premium

2. Retained earnings

c. Deposit on subscriptions to a proposed increase in capital share may be shown as part of

shareholders equity as a separate item in the capital section.

C. Acquisition of Shares (Treasury Share)

1. Guidelines on Treasury Share transactions

a. Treasury share is always recorded at cost and it is the cash paid to reacquire such share or
the book value of the noncash asset exchanged.
b. No gain or loss is recognized from the acquisition, reissuance or retirement of treasury
shares.
c. Retained earnings will decrease but never increase.

2. Reasons for acquiring treasury share:

a. To use for share options, share dividends or share conversion.

b. To use in the acquisition of other companies.
c. To thwart take over attempts or to reduce the number of shareholders.
d. To increase equity per share by reducing the shares outstanding.
e. To use excess cash and help maintain the market price of the share

3. Characteristics of Treasury Share:

a. It is not an asset; essentially the same as unissued share

b. It is contra shareholders equity account.
c. It carries no voting or preemptive rights.
d. It cannot ordinarily participate on any type of dividends.
e. It has no rights at liquidation.
f. It participates in share splits.

4. If Treasury Share is reissued at a gain (proceeds greater than cost) or retired at a gain (par value
greater than cost) the difference is credited to share premium from treasury share transactions.

5. If the Treasury Share is reissued at a loss (proceeds less than cost) the difference is debited to
the following in the order of priority:

a. Share premium from treasury share transaction to the extent of previous gains on sale of
retirement of treasury share of same class of share.
b. Retained earnings

6. If the Treasury Share is retired at a loss (par value less than cost) the difference is debited to the
following in the order of priority:

a. Share premium from original issuance of the shares retired

b. Share premium from treasury share transaction (of the same class of share)
c. Retained earnings

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II. RETAINED EARNINGS Accumulated profits and losses that have not been declared as dividends.
Classified into retained earnings that are prohibited from being declared as dividends due to legal
and contractual requirements or upon the decision of the Board of Directors, appropriated and
retained earnings available as dividends to shareholders, unappropriated.

1. Increases Effect of changes in accounting policy and correction of prior period errors, Net
Income and Quasi reorganization.
2. Decreases - Effect of changes in accounting policy and correction of prior period errors,
Dividends, Losses on share transactions like retirement and reissuance of treasury shares,
conversion of preference shares and recapitalization of par value other than share splits.

III. Concept on Dividends - Dividends shall be deducted from retained earnings and recognized as
a liability except for stock dividends at the date of declaration. The following are the 3 types of
dividends and the corresponding deduction from retained earnings:

1. Cash or Script dividends

a) For ordinary shares, the amount of dividend per share shall be multiplied by the number
of outstanding shares. Subscribed shares shall also be entitled to dividends
b) For preference shares, the dividend rate shall be multiplied to the outstanding total par
value of the preference shares

2. Property or noncash dividends

a) Property dividends is now covered by IFRIC 17.
b) The fair value less cost to distribute shall be deducted from retained earnings and shall
be recorded as a liability at the date of declaration.
c) Adjustments to the liability as well as to retained earnings shall be made for the increase
or decrease in fair value less cost to distribute at the balance sheet date and date of
distribution.
d) The difference between the fair value less cost to distribute at the date of distribution and
the carrying amount of the asset shall be recognized in profit or loss.
e) If the property dividend is a noncurrent asset, IFRS 5 shall be applied. The asset shall
be classified as noncurrent asset held for distribution and shall be measured at the
lower of carrying amount and fair value less cost to distribute. Any writedown to fair
value less cost to distribute shall be an impairment loss.

3. Share Dividends
a) Small share dividends which is less than 20% of the outstanding shares shall be
measured at the fair value at the date of declaration unless the fair value is less than the
par value or stated value. At which case the par value or stated value shall be used.
b) Large share dividends which is 20% or more shall be measured at par value or stated
value.
c) Treasury shares declared as dividends shall be deducted from retained earnings at cost.
d) Share dividends payable or distributable shall not be recognized as liability but instead
be part of equity right after share capital.

IV. Other Comprehensive Income - Comprises items of income and expense (including
reclassification adjustments) that are not recognized in profit or loss as required or permitted by
other IFRSs.
4. Unrealized gain or loss on financial assets at fair value (PFRS 9)
5. Unrealized gain or loss on derivatives as cash flow hedges (PFRS 9)
6. Revaluation surplus on Property, plant and equipment and Intangible Assets under the
Revaluation Model
7. Remeasurement gains and losses (PAS 19)
8. Foreign currency translation gains and losses (PAS 21)
9. Gains and losses arising from credit risk on changes in Fair Value of Financial Liabilities At
FVPL

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