CHAPTER 16

EQUITY INVESTMENTS
Dividends, share split and share right
H

TECHNICAL IQVOWLEDGE

Tb determine the formsof equity investments.

To understand the recognition of cash dividend, property

dividend, share dividend and liquidating dividend.

,Tounderstand other issuesrelated to equity investments,

such as share Split, special assessment,redemption
of shares and share right.
 Acquisition of equity investments

The Application Guidanceof PFRS 9 provicieathat wheat

Iinancial asset is recognizedinitially, aii entity shall meas
it at fair value plus transaction costs, that are directly
attributable to the acquisition.

The fair value is usually the firansaction price, meaning,

the fair value of the consideration given.

As a rule, transaction costs that are directly attributable to

the acquisition of the financial asset shall be capitalized a6
cost of the financial asset. '

However, transaction costs directly attributable to the

acquisition of financial asset held for trading or financial
assetat fair value throughprofit or loss Shall be éxpensed
immediately

Acquisition by exchange .9

If the equity securities are acquired in an exchange, the

acquisition cost is determined by reference to the following
in the order of priority:
I

. Fair value of asset given

. Fair value of asset received
Carrying amount of asset given

Lump sum acquisition

, If two or more equity securities are acquired at a single
cost or lump sum, the single cost is allocated to the securities
'
acquired on the basis of their fair value.

If only one security has a known market value, an amount is

allocated to the security with a known market value equal
to its market value.

The remainder of the single cost is then allocated to thgother

purity withm known market value.
 Investment categories
Investments.in equity securities are accountedfor as one
of the followmg categories:
Tradingsecurities at fair valuethrough
or iinancialassets
g, prom or loss
, Financial assets at fair value through other comprehensive
income .
. Investmeht in associate
. Investment in subsidiary
Investmentin unquotedequityinstruments
9
Trading equity securities and financial assets at fair value
through other comprehensive income are already dlscussed
exhaustively in Chapter 15.

in assoéiate
Investment EnChapter17 and
is discussed
investment in subsidiary is taken up in an advanced accounting
-
course.

in unquoted equity instruments -

investment
Under the Application Guidance B5.4.14 of PFRS 9, all
investments in equity instruments shall be measured at
fair value. ,

However, investmentsjn unquoted equity instrumentstt

- are measured at cost 1f the fair value cannot be measured
reliably.

§ale of equity shares3

PFRS 9, paragraph 3.2. 12, provides that on derecogm'tion of a
iinancial asset measured at fair value through profit or loss,
the difference between the consideration received and the
carrying amount of the financial asset shall be recognized in
profit or 10384

When equity shares are of the same class acquiredon different

dates at different costs, a problem will arise as to the
determination of costmf shares sold when only a portion is
subsequently sold.

In sucha case,the entity shall determine the costof the shares

Bold using either the QIFO or average cost approach.
Cash dividends

If the equity securitiesare measured at fair value through profit

or loss, or at fair value through other comprehensive income or
at cost, dividends earned are considered as income.

a. When the cash dividends are earned but not received:

Dividends receivable x x
Dividend income I: x

b. When the cash dividends are subsequently received:

Cash xx
Dividends receivable xx

The cash dividendsdo not affth the investment account.

When are dividends considered earned?

a; Date of declaration This is the date on which the payment

of dividends is approved by the Board of Directors.

12.,Dateofrecord Thisis the dateon whichthe stockand

transfer book of the corporation is closed for registration.

Only those shareholders registered as of this date are

entitled to receive dividends.

a. Date Thisisthedateonwhich
ofpayment thedividends
declared shall be paid. -

Between the date of declaration and the record date, the shares
are selling jglividendon.
(

This means that when shares are sold after the date of
declaration but prior to record date, they carry with them the
right to receive dividends.

Between the date of record and the date of payment, the shame
are selling fex-dividend which means that the shares can be
sold,and still the original shareholderhas the-right to receive
the dividends on payment date.
Example of a formal dividend declaration

The Board of Directors at their meetingon November152020,

declared an annual dividend on ordinary share of P5 payable
on January 30,2021, to shareholders of r9007'd at the close of
business on January 15, 2021.

Date Of declaration November 15, 2020

Date of record January 15, 2021
Date of payment January 30, 2021

A question arises as when to recognizethe dividends on the

part .of the shareholders, whether on the date of declaration,
November15, 2020 or date of record,J anu'ary 15, 2021 or datg
of payment, J anuary 30, 2021:

When to recognize dividends as income

Dividends shall be recognized as revenue when the shareholder's

right to receive payment is established.

thedividends
Accordingly, shall
berecognized
asrevenue
on
the date of declaration.

The reason is that when dividends are declared, the shareholder

has already acquired the right thereto so much so that if the
shares are subsequently sold, the sale price normally includes
the accrued dividends.

Once a dividend has been declaredga legal liability binding on

the corporation is created.

When shares are sold dividend-on and the dividend accrued is

specificallyincluded in the sale price, that portion of the sale price
pertaining to the accrued dividend should be credited to dividend
income

Only the remainder of the sale price should be used as basis fog,
detemiining {am or loss on the sale of the investment.
Illustration
A shareholder owns 1,000 shares éosting P100,000.
Subsequently, the shareholder r ceives notice of dividend
ofP5pershare
declaration orP5030
If prior to record date, the shareholder sells the investment for
P150,000 which includes the dividend of P5,000, the journal
entry to record the sale is:
Cash 150,000
Investmentin shares 100,000
Dividend income 5,000
Gain on sale of investment 45,000

{Property dividends
Property dividends or dividends in kind are dividends in the
EM of property or noncash assets

Property arealsoconsidered
dividends asincome
andrecorded
at fair value} ,

Noncash assets x x
Dividend income I x

For example, X Company distributes its holding of 10, 000 shares

in Y Company as property dividend The shares of Y Company
have a market value of P100 per share.
A shareholder receives 500 shares of Y Company as property
dividend from X Company.

isrecorded
dividend
Theproperty asfollows:
Investment (500x
inshares 50,000
Dividend income 100) 50,000

Another example of a property dividend is when an entity

declaresP100 worth of merchandisefor every one share.
If a shareholder owns 500 shares, the dividend in the form of
merchandise would be P50,000.
The journal entry to record the property dividend is:
Merchandise inventory 50,000
Dividendincome .50,000
pquidating dividends
Liquidatina dwidenda mpmunt return of invented capntal. and
therefore,ave not mcamg.The payment be in the bra: of
push or nonmeh am: {my
The hqmdatmg dwidend a recognized u follow-
Caeh or other appmpnete amount I 1
Investment at sham x x

Normally, liquidating diwdenda m paxd when the corporation

:5 dissolved and hquidated.
However, in the case of wasting asset corporation or mmmg
entity liquidating dividends maybe paid even before dmoolutmn'
and liquidation.

Accordingly, when dividends are received from a wasting asset

corporation, the dividends are designated as partly income and'
partly return of capital. That portion repreeehting a liquidatmg
dividend should be credited to the investment account.

For example, a shareholder receives a P100,000 dividend,

designated as income, P60,000 and liquidating, P40,000.

The journal entry to record the dividend is:

-
Cash 100,000
'
Dividend income 60,000
Investment in shares 40,000

When liquidating dividends exceedthe cost of investment, the

difference is credited to gain on investment.

0n the other hand, when liquidation is completed and the

carrying amount of the investment is not fully recovered, the
balance is written off as a loss.

ahare dividends or stock dividends

Share dividends are in the form of the issuing entitys own
shares. The IAS term for share dividend is "bonus issue".

Sharesof anotherentitydeclaredas dividendsarepot share

dividendebut property dividends.
 Kinds of share dividends
Share dividends may be the same as those held or different from
those held.

Share dividends whether of the same class or different ar

not income. The reason is that there 18 no d1$tribution of the
assets of the entity.
The assets of the entity are the same before and after the
issuance of the share dividends.

The shareholder receives additional shares but still has the

same proportwnate equity interest in the entity. The shareholder
may have more shares but at reduced market value.
Share dividends of same elass
Share dividends of the same class are recorded only be means of
a memorandum entry on the part of the shareholder. An example
of a memorandmentry for the receiptof share dividendsis:
Received 2,000 shares representing 20% share dividend on
10,000 original shares held. Shares now held, 12,000 sharest
Share dividends do not affect the total cost of the investment
but reduce the cost of the investment per share.
The original cost after the share dividend will now applyto
a greater number of shares, original shares plus those
received as share dividends. .
'
owns10,000 sharescostingP120
For example,a shareholder
each or a total cost of P1, 200,000.

Subsequently,the shareholder receives 20% share dividend or

2,000 shares.The effect of this share dividend may be shown as
follows:

_ pershare'Totalcost
Shares Co'st
Original shares 10,000 120 1,200,000
Sharedividends M _:_ ______.:I .
12,000 1 200 000
£00
The total costof P1,200,000 applies now to 12,000 shares with
anadjusted costpershare 13reduced
ofP100.Thecost share
from P120 to P100. per
Share dividends different from those held

A shareholder may receive a share dividend which is different

from the original shares.

Again,sharedividendsof differentclassare not income.

However, the original cost of the investment is apportioned
between the original shares and the share dividends on the
basis of market value of each at the date of receipt.

a shareholder
Forexample, owns10,000ordinaryshares
coeting
P800, 000.

Subsequently, the shareholder receives 10% share dividend in

the form of preference shares.

Themarketvalue(if ordinaryshareis P150,andthe market

value of preference share is P100. ,

The original cost of P800,000 is allocated as follows:

Market value Fraction Allocated cost

Ordinary shares ,
(10,000 shares X 150) 1,500,000 15/ 16 750,000 '
Preferenceshares
(1,000 shares x 100) 100,000 1 l 16 50,000
1,600,000 800,000

The fractions are developedfrom the 'market value of the

shares and multiplied by the original cost of P800,000 to
arrive at the allocated cost. .

Thus, 15 / 16 X P800, 000 equals P 750, 000, and 1 / 16 X P800,000

equals P50,000.

The receipt of the preference shares as share dividend on the

ordinary share investment is recorded as follows:

Investmentin preferenceshares 50,000

Investment in ordinary shares 50,000
Shares recein in lieu of cash dividends
When cash dividends are declared and received, it is 'withaut
doubt that they are income. A problem will arise when shares
are received in lieu of cash dividends declared.

It is generally accepted that shares received in liew of cash

dividends are income at fair value of the shares received The
reason is that such shares are in eEect property dividends.
- \
In the absence of fair value of the shares received, the incbme
is equal to the cash dividends that would have been received.
I

For example, a shareholder owns 10,000 shares costing

. P1, 000, 000. Subsequently the shareholder receives 1, 000
shares 1n lieu of cash dividend of P10 per share. The market
value per share 1s P150.

The receipt of the 1,000shares is recorded as follows:

-
investment in shares _ 150,000
Dividend income (1,000 x 150) - 150,000

If there is no market value, the journal entry is:

Investmentin shares , 100,000 - _

Dividend income (10,000 x 10) *
100,000

Cash received in lieu of share dividends

When share dividends are declared and received,

unquestionably, they are not income. A problem will arise when
cash is received in lieu of share dividends.

For example, a shareholder owns 10,000 shares costing

Pl,100,000. Subsequently, the shareholder receives P150,000
cash in lieu of 1,000 shares originally declared as 10% share
k
dividend.

The as if approach is followed. This means that the share

dividendsare assumedto be receivedand subsequentlysold at the
cash received.Therefore,a gainor lossmay be recognized
As if approach

The original cost of P1,100,000 applies now to 11,000 sham

which is the sum of the original 10,000 shares and the 1,000
shares assumed to be received as share dividends. The cow
would then be P 100.
pershare
IIhe 1,000 shares representing share dividends are assumed to
be sold for the cash received.
Cash 150,000
Investment in shares
(1,000 shares x 100) 100.000
Gain on investment , 50.000

BIR approach.
Under the ruling of the Bureau of Internal Revenue, all cash
received, whether originally designated as cash dividend or
share dividend, is recognized as income.

Thus,underthe BIR approach, of P150,000

thecashreceived
is simply debited to cash and credited to dividend income.

theas if approach
However, istheoretically
sound
andshould
be followed for fmancial accounting purposes.

Sharesplit
A corporation may restructure its capital by effecting a change
in the number of shares without capitalizing retained earnings
or changingthe amount of its legal capital. This restructuring
is known as share split.

Share split may be split up or split down.

Split up is a transaction whereby the outstanding shares are

called in and replaced by a larger number, accompaniedby a
reduction in the par or stated value of each share.

For example, if a shareholder owns 10,000 shares and the share

is split up 5-for-1, the shareholder receives 50,000 new shares
in exchange for the 10,000 original shares.
Split down is the reverse of the split up. Split down is a
transactionwhereby the outstanding shares are called in and
replaced by smaller number, accompanied by an increase in
the par or stated value.
if ashareholder
Forexample, owns andtheshare
l0,000shares
is split down 5-for-1, the shareholder receives 2,000 new shares
in exchange for the 10,000 old shares.

Share split doesnot affectthe total costof investment. But there

is a decrease or an increase in the cost per share because the
total costnow-will apply to a larger or smaller number of shares.

Only a memorandum entry is made to recordthe receipt of new

shares by virtue of share split.

For example, a shareholder owns 10,000 shares costing

P2,000,000. Subsequently, the shareholder receives notice that
share is split 2-for-1. The receipt of new shares is recorded as
follows:

fReceived20, 000 new shares as a result of a 2- or-I split of 10, 000

original shares.
The total cost of P2,000,000 will now apply to 20,000 shares or a
cost per share of P100. Such cost would then be the basis for
subsequent transactions.

Special assessments
are additional capital contribution of the
Specialassessments
shareholders.

On the part of the shareholders,special assessmentsare recorded

as additional costof the investment.

For example, a shareholderowns 10,000 shares costing P500,000.

Subsequently, the directors pass a resolution to the ehect that

the shareholders shall contribute P5 for each share held to 'the
corporation.

0n the part of the shareholder,the payment of the assessment

16 recorded as follows:
Investment in shares (10,000 x 5) , 50,000
Cash 50,000

446
Redemption of Ibarel

Shares, particularly preference shawl, may be called in for

redemption and cancelatlon by the entity tuning them.

On the part of the shareholder, the redemption o! «hare 10

recorded in the same manner an aule of share. The redemption
price is treated as the sale price. O

For example, if a shareholder acquires 10,000 preference shares

for P100 per share, the entry 13:

Investment in preference shares 1.000.000

Cash 1,000,000

If subsequently, the preference shares are called in by the

issuing entity at P110 per share, the entry to record the
redemption is:

Cash (10,000 shares 1 110) 1,100,000

Investment in preference shares 1.000.000
Gain on investment 100,000

Share right or stock right

A share right or preemptive right is a legal right granted to
shareholders to subscribe for new shares issued by a corporation
at a specified price during a definite period,

The IAS term for share right is "right issue".

A share right is inherent in every share. A shareholder receives

one right for every share owned.

Thus, if a shareholder owns 10,000 shares, the shareholder will

receive 10,000 share rights.

A share right is valuable to a shareholder because the price at

Wthh the new shares are sold 15generally below the prevailing
market price.

The purpose of the share nght 19to give the shareholders the
Chanceto preserve then eqmty interest m the corporation.

The ownershipof share nghte is ewdencedby matrumente01

oortxticetes called share warrants
Accounting for share rights

PFRS9 doesnot addressthis accountingissueeategoriéany.

But unquestionably, a share right is a form of a financial asset.

In this regard, there is a divergence of opinion amohg

academicians and theoreticians.

There are two schoolsof thought on the matter, namely:

1. Share rights are accounted for separately.

2. Share rights are not accounted for separately.

Accounted for separately

Under the Application Guidance B5.4.14 of PFRS 9, Jail

investments in equity instruments and contracts on those
instruments must be measured at fair value.

sharerights are a form of eduity instrument

Undoubtedly,
and therefore shall be measured initially at fair value.

In other words, a portion of the carrying amount of the

original investment in equity shares is allocated to the share
rights at an amount equal to the fair value of the share rights
at the time of acquisition. . . ,,-

Thereasonfor suchan allocationis that sharerights 31:6

independent of the original shares from which they are
derived. . . .

When share rights are issued, the investor is now the owner
of two financial assets, namely the original shares and the
related share rights.

Sharerights are normallyclassifiedas current assets if the

rights are accountedfor separately..
Not accounted for separately
Share rights are recognized as embedded derivative but
not a "stand-alone" derivative.

An embedded derivative is a "component of a hybrid .or

combined contract (host contract) with the effect that some
of the cash flows of the combined contract vary in a way
[similar to a stand-alone derivative".
PFRS 9, paragraph 4. 3. 3, provides that an embedded
deriv_ative shall be separated from the host contract and
accounted for separately under certain conditLons.
'
Paragraph 4.3.3 further provides that if the host contract is
within the 'scope of PFRS 9, the classification requirements
of PFRS 9 are applied to the combined host contract in its
entirety.
This simply means that if the host contract is a financial asset;
the embedded derivative is not separated.

at fair value
if the hostcontractis measured
Moreover,
through profit or loss, the embedded derivative is not
separated. §
Accordingly, the share right as an embedded derivative is
not accounted for separately because the host contract
in
"investment is a financialasset.
equity'instrument"
derivativesare discussed
Embedded more 1n
Chapter 24.
extensively. '

Approach to be followed
Admittedly, this subject matter is not a well-settled issue.
In fact, PFRS 9, paragraph 4.3.4, states ,that this standard
does not address whether an embedded derivative shall be
presented separately in the statement of financial position.

The authors strongly believe that the second approach not

accounted for separately stands on solid and authoritative
ground.

However, stay tuned and let us wait and see what the
Financial Reporting Standards Council and the IASB will
I on this accountingissue.
Example of a formal announcement of share right

The Board of Directors in their meeting on December 15, 2020

approved to issue share rights to the shareholders of record
on January 15, 2021, entitling the shareholders to acquire
one share at P100 par for every five shares held, the right to
expire on March 31, 2021.

Date of declaration is the date on which the issuance of share

rights is approved by the Board of Directors. In the example,
the date of declaration is December 15, 2020.

Date of record is the date on which the stock and transfer

book of the entity will be closed for registration and only
those shareholders registered as of the record date are
entitled to receive share rights.

In the example,the date of recordis January 15, 2021. It is

very important to note that the date of record is also the date
of issuing the share warrants.

dateisthedateuptowhich
Expiration thesharerightsshall
be exercised. After such date, the share rights would be
worthless. In the example, the expiry date is March 31_,2021.

Between the date of declaration and date of record

During this period the _shares are considered to be

selling right-on. This means that the share and the right are
inseparable and are treated as one.

In other words,the sharecannotbe soldwithout also selling

the right or vice versa.

No accounting problem is encountered in this case because

the share rights are not yet received by the shareholder.

Accordingly, in the event of subsequent sale prior to the

record date, the difference between the sale price and the
carrying amount of the investment is simply consideredas
gain or losson sale of investment.
Illustration

A shareholder owns 5,000 shares costing P500,000.

Subsequently, the shareholder receives notice of share rights
to subscribe for 1,000 shares at the par value of P100 per share

Friarto theissuance
of thesharewarrants,
theshareholder
-
sells the investment for P750,000.
' '
Cash 750,000
Investment in shares - - 500,000
_ Gain on sale of investment 250,000
- the date of record and expiration date
Between
On the date of record, the warrants evidencing the share rights
are issued to the shareholders. On or after this date, the shares
are said to be selling ex-right.

Thismeans
thattheshare fromthe
cannowbesoldseparate
right or vice versa.

Illustration Accounted
for separately
A shareholderacquired-,10 sharescostingP1,800,000.
000
theshareholder
Subsequently, received
10,000sharerights
t9 subscribe for new shares at P100 per share for every five
rights held.

The market value of the share 13P150 and the market value
of the right IS P10, -

investment
Original
'
Investment in shares 1,800,000
Cash -
1,800,000

Receipt .of share rights

The share rights received are initially measured and

recorded at fair value.
.

Share rights 100,000

Investmentinshares 100.000
Note that the shareholder received 10,000 share rightg
because the shareholder owned 10,000 shares.

The fair value of share rights is 10.000 rights times P10 or

P100,000.

Note also that the original investment account is credited

when the rights are teceived because the share rights are
"derived from the onginal investment.

Some academicians propose that the fair value of the share

rights should be credited to unrealized gain.

This is another unsettled issue on share rights. Much {lebete

can go on until there is a clear guidance from Pthppme
GAAP and IFRS.

If the share rights do not have a market value, the

theoretical or parity value of the share rights is used in
measuring the fair value of the share rights.

Exercise of share rights

When share rights are exercised, the cost of the new

investment includes the subscription price and the cost of
the share rights exercised.

Since the there are 10,000 share rights and the investor can
acquire one new share for every 5 rights, the investor would
acquire 2,000 new shares at P100 per share or P200,000.

The journal entry to record the acquisition of the new

investment through the exercise of share rights is:

Investmentin shares '

300,000
Cash 200,000
Share rights 100,000

When an investor is entitled only to a fraction of a share,

the investor may purchase additional rights in order to
acquire one full share.

In such a case, the cost of the new investment includes the

price,costof sharerightsoriginallyownedand
subscription
of sharerightspurchased.
cost
Sale of sharefights
The share rights are financial assets separate from the
original shares. Accordingly, the share rights can be sold
independently of the original investment.

Thus, if 'the share rights are not exercisedbut sold for

P150,000, the journal entry is:

Cash 150,000
Share rights 100,000
' Gain on sale of share
rights 50,000

. Expiration of share rights

Share rights can be exercised only up to a certain date after

Which the rights become worthless.

' Thus, if the rights are not exercisedbut expired, the journal
entry to record the expiration is:

Loss on share rights , 100,000

Share rights . . 100,000

This approach is defended on the philosophy that the original

shares have lost some of their value because the new shares
are offered for sale at a price Which is below the current
market price thereby creating dilution in the value of such
'
shares.

Moreover, such loss is the evidence of the failure of the

shareholder to preserve the original equity interest in the
entity.

Theoretical or parity value of share right

The theoretical or parity value is the assumed fair value of the

right that is derived from the market value of the share.

Twoformulas may be usedin the computationof the theoretical

or parity value of the right.
 right
Whentheshareisselling on
Marketvalueof shareright-on
. .
.
p
minussubscriptionr1 ce .

WM
g Value of one nght
Numberof rightsto purchase
one share plus 1

When share is selling exright

Market value of shareex-right

minue' subscriptionprice . .
. WM ==Valueofoneright
' '
N umber of rights to purchase
~*
one share

Illustration
A shafeholder shares'
10,000
acquired P2,500,.000.
costing
Subsequently,the shareholder received share rights to
subscribe for new shares at P150 per share for every flve
held. - _ a _ v

hghts

The market value of the share is P210 per share. The right has
no known market value. . r

In the.absence
ofthemarket
valueoftheshare
right,the
theoretical or parity value is determined to approximate the
fair value of the right at the time of acquisition.

If the market value of the g

'share of P210 is ri ht "'on th
theoretmal
.
of
valee is
right asfollows:
computed
. 1 e

210 - 150
Valueof oneright 2
5+ 1

H 60

6
2"P10per
right
Allocation of cost

Costof originalinvestment 2,500,000

Theoretical value of share rights
(10,000 1: P10) 100,000
Remaining cost of original investment 2,400,000

Note that the market value of the share is P210 right-on,

meaning, this includes the value of the right of P10.

Therefore, the value of the share "ex-right" or excluding the

right is P200.

If the market value of the share of P210 is ex-right, the

theoretical value of the share right is computed as follows:

210 - 150
Value of one right .
5

'60

. 5

= P12 per right

The cost of P2,500,000 is allocated as follows:

Cost of original investment 2,500,000

Theoretical value of share rights
(10,000 x P12) . - 120,000
costoforiginal
Remaining investment 2,380,000

Illustration .Not accountedfor separately

A shareholder acquired 10,000 shares for Pl,500,000.
Subsequently, the shareholder received 10,000 share rights to
subscribefor new shares at P100 per share for every five rights
held.

andthemarketvalueof
Themarketvaiueoftheshareis P140,
the right is P10. The share rights are all exercised by the
shareholder.
 Journal entries

e. To record the acquisition of the original investment:

Investment in shares 1, 500.000

03811 1.600.000

b. To record the receipt of the share rights:

Memo entry - Received 10,000 share rights to subscribe for new

shares at P100 per share for every five rights held, or a total of
2,000 new shares.

0. To record the exercise of the share rights:

Investment in shares 200,000

Cash (2,000 shares 1: 100) 200,000

If the share rights are not exercised but sold, the sale is
simply recorded by debiting cash and crediting the original
investment account. No gain or loss is recognized from the
sale.

Thus, if the 10,000 rights are_sold for P150,000, the journal

entry is: .

Cash 150,000
Investment in shares 150,000

If the share rights are not exercised but expired, only a

memorandum is necessary to record the expiration.

Any subsequent transactions affecting the shares shall be

accounted for using either the FIFO or average method.