Equity – Contributed

Capital
(FAR.2635)

R. R. Ocampo
Relevant Standards
Financial Instruments Standards
• PAS 32 – Presentation
• PFRS 7 – Disclosures

Other Standards
• PFRS 2 – Share-based payment
• PAS 1 – Presentation of FS

Interpretations
• IFRIC 2 – Members’ Shares in Co-operative
Entities and Similar Instruments
• PIC Q&A No. 2011-4 – Costs of Public
Offering of Shares
Straight Problem
+
-
+
-
+ (SP)

+ (SP)
+ (SP)
+ (SP)
+(ARE)
+(ARE)

-
+

+
-
 Authorized share capital P4,000,000
Unissued share capital ( 800,000)
Issued share capital 3,200,000
Subscribed share capital
(net of SR of P120,000) 360,000
1) Share premium 1,400,000
2) Contributed capital 4,960,000
Retained earnings
Appropriated - SF P400,000
Appropriated - TS 144,000
3) Total 544,000
Unappropriated 576,000 1,120,000
Revaluation surplus 800,000
Unrealized loss-FA@FVTOCI ( 96,000)
Treasury shares ( 144,000)
4) Total equity P6,640,000
 Authorized share capital P4,000,000
Unissued share capital ( 800,000)
Issued share capital 3,200,000
Subscribed share capital
(net of SR of P120,000) 360,000
1) Share premium 1,400,000
2) Contributed capital 4,960,000
Retained earnings
Issued share capital P3,200,000
Appropriated - SF P400,000
Subscribed share
Appropriated - TS capital
144,000 480,000
3) Total
Legal capital 544,000
P3,680,000
Unappropriated 576,000 1,120,000
Revaluation surplus 800,000
Unrealized loss-FA@FVTOCI ( 96,000)
Treasury shares ( 144,000)
4) Total equity P6,640,000
Problem No. 1 Answer is letter D

January 4 P -
April 8 (100T x P2) 200,000
June 9 (30T x P5) 150,000
July 29 -
December 31 (50T x P4) 200,000
Share premium, 12/31 P550,000
Problem No. 2 Answer is letter B

Current assets P160,000

Equipment 210,000
Liabilities ( 70,000)
Net assets 300,000
Par value (5,000 x P10) ( 50,000)
Share premium P250,000
Problem No. 3 Answer is letter B

FV of PS (20T x P150) P3M

FV of OS (60T x P100) 6M
Total P9M

Allocated to PS
(P7.5M x 3/9) P2.5M
Problem No. 4 Answer is letter B

Total issue proceeds P11.0M

Fair value of bonds ( 4.0M)
Equity component 7.0M
Share capital (100T x 5) ( .5M)
Share premium P 6.5M
Problem No. 5 Answer is letter B

Total proceeds P25M

FV of warrants (200T x P15) ( 3M)
Allocated to PS P22M

Package Issuance Allocation Summary

Instruments Allocation
Equity/Equity Pro rata
based on fair value
Liability/Equity Equity - residual
Problem No. 6 Answer is letter D

Memo entry approach:

Received 2,000 shares from a shareholder as

donation.

Journal entry approach:

Treasury shares (2,000 x P35) P70,000

Share premium-Donated capital P70,000
Problem No. 7 Answer is letter B

Contributed capital, 1/1

(18,000 x P24) P432,000
January 16 (1,300 x P25) 32,500
March 21 (12,000 x P27) 324,000
May 7 -
July1 (1,000 x P28) 28,000
Sept. 20 [500 x (P29-P26)] 1,500
Contributed capital, 12/31 P818,000
Problem No. 8 Answer is letter B

Equity, 1/1 P6,350,000

PS retirement (5T x P11) ( 55,000)
TS acquisition (5T x P12) ( 60,000)
Share split -
TS re-issuance (2T x P8) 16,000
Profit for the year 300,000
Equity, 12/31 P6,551,000
Problem No. 9 Answer is letter B

Proceeds from issuance

(200,000 x P1.8) P360,000
Share issue costs, net
(P40,000 x .7) ( 28,000)
Net increase in equity P332,000
Problem No. 10 Answer is letter B
Equity
Joint
Joint
Equity
P/L
Joint

Joint costs in profit or loss

(P475,000 x 300,000/1,000,000) P142,500
Listing fee 300,000
Total amount in profit or loss P442,500
Problem No. 10 Answer is letter B
Equity deduction = P557,500 Equity
Joint
Issue price Equity component Joint
Equity
Above par value Share Premium P/L
Joint
At par value Share Issuance Costs,
deducted from:
1.or
Joint costs in profit Share
loss Premium from previous
share issuance
(P475,000 x 300,000/1,000,000) P142,500
Listing fee 2. Retained Earnings with
300,000
appropriate disclosure
Total amount in profit or loss P442,500
Problem No. 11 Answer is letter A

Amount received from issuance:

(10,000 x P2) P20,000

Subsequent changes in the fair value of the

warrants are not recorded by issuer because
they generate gains or losses for the holder
and not the issuer.
Problem No. 12

Answer is letter C

Journal entry:

Cash P90,000
Share premium-CO P90,000
Problem No. 13
Answer is letter C

Journal entry:

Call option P9,000

Cash P9,000
Problem No. 14
FV of Forward (P60,000 x .9091) = 54,546

1.1^-1
Answer is letter B
Journal entries:

January 1
Treasury shares P54,546
Forward contract liability P54,546

December 31
Forward contract liability P54,546
Interest expense 5,454
Cash P60,000
What is a financial liability?
• a contractual obligation
- to deliver cash or another financial asset to another entity;
or
- to exchange financial assets or financial liabilities with
another entity under conditions that are potentially
unfavorable to the entity; or

• a contract that will or may be settled in the entity's own

equity instruments and is
- a non-derivative for which the entity is or may be obliged to
deliver a variable number of the entity's own equity
instruments; or
- a derivative that will or may be settled other than by the
exchange of a fixed amount of cash or another financial
asset for a fixed number of the entity's own equity
instruments.
 Deliver own shares = P1M

Entity Entity
A B
Receive P1,000,000

If the fair value of shares is:

P100/share – Deliver 10,000 shares

P200/share – Deliver 5,000 shares

What is a financial liability?
• a contractual obligation
- to deliver cash or another financial asset to another entity;
or
- to exchange financial assets or financial liabilities with
another entity under conditions that are potentially
unfavorable to the entity; or

• a contract that will or may be settled in the entity's own

equity instruments and is
- a non-derivative for which the entity is or may be obliged to
deliver a variable number of the entity's own equity
instruments; or
- a derivative that will or may be settled other than by the
exchange of a fixed amount of cash or another financial
asset for a fixed number of the entity's own equity
instruments.
Forward to sell shares

Pay FV of 1,000 shares

Entity Entity
A B
Receive P104,000 (P104/sh)

If the fair value of shares on 1/31/x3 is:

Higher than P104 – Pay, net (FL)

Lower than P104 – Receive, net (FA)

What is a financial liability?
• a contractual obligation
- to deliver cash or another financial asset to another entity;
or
- to exchange financial assets or financial liabilities with
another entity under conditions that are potentially
unfavorable to the entity; or

• a contract that will or may be settled in the entity's own

equity instruments and is
- a non-derivative for which the entity is or may be obliged to
deliver a variable number of the entity's own equity
instruments; or
- a derivative that will or may be settled other than by the
exchange of a fixed amount of cash or another financial
asset for a fixed number of the entity's own equity
instruments.
Forward to sell shares

Pay FV of 1,000 shares

Entity Entity
A B
Receive P104,000 (P104/sh)

If the fair value of shares on 1/31/x3 is:

Higher than P104 – Pay, net (FL)

Lower than P104 – Receive, net (FA)

Forward to sell shares

Pay FV of 1,000 shares

Entity Entity
A B
Receive P104,000 (P104/sh)

If the fair value of shares on 1/31/x3 is:

Higher than P104 – Pay, net (FL)

Lower than P104 – Receive, net (FA)

Relevant Standards
Financial Instruments Standards
• PAS 32 – Presentation
• PFRS 7 – Disclosures

Other Standards
• PFRS 2 – Share-based payment
• PAS 1 – Presentation of FS

Interpretations
• IFRIC 2 – Members’ Shares in Co-operative
Entities and Similar Instruments
• PIC Q&A No. 2011-4 – Costs of Public
Offering of Shares
DIY Drill Answers
1. C
2. D
3. C
4. C
5. C
6. C
7. D
8. A
9. B
10. C
 End 