CORPORATION

REPUBLIC ACT NO. 11232

“REVISED CORPORATION CODE OF 2019”
• A 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.”
 Philippine Term
Capital Stock
Subscribed capital stock
Common stock
Preferred stock
Additional paid-in capital
Retained earnings (deficit)
Retained earning appropriated
Revaluation surplus
Treasury stock
IAS Term
Share Capital
Subscribed share capital
Ordinary share capital
Preference share capital
Share premium
Accumulated profits (losses)
Appropriation reserve
Revaluation reserve
Treasury share
 Share capital may be par value share
or no-par value share.

• PAR VALUE SHARE

• Is one with specific value fixed in the articles of incorporation and appearing on
the share certificate. The purpose of the par value is to fix the minimum issue
price of the share.

• NO-PAR VALUE SHARE

• Is one without any value appearing on the face of the share certificate.
• But a no-par share has always an issued value or stated value based on the
consideration for which it is issued.
• The minimum consideration or issue price for no-par share as provided for in the
Revised Corporation Code is P5.

In other words, a no-par share cannot be issued for less than P5.
 LEGAL CAPITAL
Portion of the paid in capital arising from the issuance of share capital which
cannot be returned to the shareholders in any form during the lifetime of the
corporation.
The amount of legal capital is determined as:
• In the case of par value share, legal capital is the aggregate par value of
the shares issued and subscribed.

• In the case of no-par value share, legal capital is the total consideration
received from shareholders including the excess over the stated value.
 ACCOUNTING FOR SHARE CAPITAL
2 Methods:
• Memorandum Entry
• Journal Entry

(if the problem is silent of what method will be used, it’s

memorandum entry method)
 TAKE NOTE!
Share certificates are issued only upon full payment of
subscription or issuance of shares by payment of cash,
exchange of non-cash assets, services rendered, liability
incurred, or equity securities of other corporation.

NO FULL PAYMENT, NO CERTIFICATE IS ISSUED.

 SHARE CAPITAL ISSUED IN
EXCHANGE FOR NONCASH ASSETS
• Order of Priority:
1. Fair value of the property received
2. Fair value of the share capital issued
3. Par value of the share capital
 SHARE CAPITAL ISSUED IN
EXCHANGE FOR NONCASH ASSETS
• Example:
• An entity issued 10,000 ordinary shares of P100 par value in exchange for land
with a fair value of P1,500,000. The fair value of the shares issued is P180 per share
or a total of P1,800,000.
1. If the fair value of land is used, the journal entry is: 3. If the par value of shares is used, the journal
entry is:
Land 1,500,000
Ordinary share capital 1,000,000 Land 1,000,000
Share premium 500,000 Ordinary share capital 1,000,000

2. If the fair value of shares is used, the journal entry

is:
Land 1,800,000
Ordinary share capital 1,000,000
Share premium 800,000
 SHARE CAPITAL ISSUED IN EXCHANGE
FOR SERVICES RENDERED
• Shares may be issued for services as long as the services are already
rendered.
• Order of Priority:
1. Fair value of the services rendered
2. Fair value of the share capital issued
3. Par value of the share capital
 SHARE CAPITAL ISSUED IN EXCHANGE
FOR SERVICES RENDERED
• Example:
• MM Corp. issued 500 shares to Atty. Opinion at P100 par value per share in
payment of legal services rendered which has a fair market value of P75,000. The
fair market value of the share is P120.
1. If the fair value of services is used, the journal entry 3. If the par value of shares is used, the journal
is: entry is:
Organization Expense 75,000 Organization Expense 50,000
Ordinary share capital 50,000 Ordinary share capital 50,000
Share premium 25,000

2. If the fair value of shares is used, the journal entry

is:
Organization Expense 60,000
Ordinary share capital 50,000
Share premium 10,000
 SHARE CAPITAL ISSUED IN EXCHANGE
FOR EQUITY SECURITIES
• Shares may be issued for services as long as the services are already
rendered.
• Order of Priority:
1. Fair value of the equity share
2. Par value of the share capital
 DEFAULTED SUBSCRIPTIONS
• Section 66 of the Revised Corporation Code of the Philippines, provides that:

“if within thirty (30) days from the said date (call dates), no payments made,
all stocks covered by said subscription shall thereupon become delinquent
and shall be subjected to sale ….”

Highest Bidder
• Person who is willing to pay the offer price of the delinquent shares for the
smallest number of shares. The offer price normally includes the following:
a. Balance due on the subscription
b. Interest accrued on the subscription date
c. Expenses of advertising and other costs of sale
 DEFAULTED SUBSCRIPTIONS
• In an event wherein there is only one bidder, the board of
directors may or may not accept the bid offered. The
corporation may itself bid for the delinquent shares. The
shares acquired by the corporation are considered as
“Treasury Shares”.
 DEFAULTED SUBSCRIPTIONS
• Refer to Problem
21-7 page 547
 SHARE ISSUANCE COST
• Are direct costs to sell share capital which normally include legal fees, CPA
fees, underwriting fees, commissions, cost of printing certificates,
documentary stamps, filing fees with SEC and costs of advertising and
promotion or newspaper publication fee.

• Order of priority:
a. Share premium from previous share issuance
b. Retained earnings/Current Expense
 ACCUMULATED PROFITS (LOSSES)
OR RETAINED EARNINGS
ACCUMULATED PROFITS (LOSSES)
a) Loss for the period a) Profit for the period
b) Dividends declared b) Reversal of Appropriation
c) Appropriation for plant
expansion, contingencies, etc.

• Accumulated Profits (Losses) may either have a debit or a credit balance at

the end of the given period. The normal balance of this account is credit.
When it registers a debit balance, it is said to be “Deficit”.
 ACCUMULATED PROFITS (LOSSES)
OR RETAINED EARNINGS
• 2 types of Accumulated Profits (Losses):
1. Appropriated or Restricted Accumulated Profits (Losses)
• This is the portion of accumulated profits and losses account appropriated for
purchase of treasury shares, plant expansion and other contingencies. This is not
available for dividend declaration.

2. Unappropriated or Free Accumulated Profits (Losses)

• This is the portion of accumulated profits and losses account which can be declared
as dividends.

“Appropriated Accumulated Profits (Losses) should be clearly distinguished

from Unappropriated Accumulated Profits (Losses).”
 ACCUMULATED PROFITS (LOSSES)
OR RETAINED EARNINGS

• As a legal requirement, the law provides that a corporation should have an

adequate amount of Accumulated Profits (Losses) in order to acquire its own
shares. The corporation, therefore, should appropriate from its Accumulated
Profits (Losses) an amount equal to the cost of the treasury shares acquired.
 PRIOR PERIOD ADJUSTMENTS

• Omissions
• Corrections should be recorded in the year in which the error is discovered.
• If the error resulted in overstatement of profit, debit Accumulated Profit (Loss)
or Retained Earnings, beginning of the period to decrease its balance
• If the error resulted in understatement of profit, credit Accumulated Profit
(Loss) or Retained Earnings, beginning of the period to increase its balance
 PRIOR PERIOD ADJUSTMENTS
Refer to Problem 22-1 page 587

c) Accumulated Depreciation 2,000

Accumulated Profit (Loss) 2,000

d) Accumulated Profit (Loss) 5,000

Prepaid Insurance 5,000
 DIVIDENDS
• Shareholders’ share of the accumulated profits
• Board of Directors – declare dividends through approved resolutions
• Important Dates on Dividend Declaration:
1. Date of Declaration
2. Date of Shareholders of Record
3. Date of Payment
• Outstanding Shares
• Shares entitled to receive dividends
• Issued and fully paid at the time of dividend declaration and still in the
possession of the shareholders
• Issued shares less treasury shares
 DIVIDENDS
• Subscribed par value shares
• Are also entitled to receive dividend, provided they are not delinquent
• They are entitled to vote and receive dividends
• Share dividends shall be withheld from a delinquent shareholder until he pays his
subscription balance in full.
DIVIDENDS
 CASH DIVIDENDS
• Upon declaration
Accumulated Profit (Loss) xx
Cash Dividends Payable xx

• Upon Payment
Cash Dividends Payable xx
Cash xx

• Cash dividends payable – presented as a Current Liability

 CASH DIVIDENDS
• When there are 2 classes of shares:
a. Cumulative and Non-participating
b. Non-cumulative and Non-participating
c. Cumulative and Fully Participating
d. Non-Cumulative and Fully Participating
 SHARE DIVIDENDS
• Upon declaration
Accumulated Profit (Loss) xx
Share Dividends Distributable/Payable xx

• Upon Payment
Share Dividends Distributable/Payable xx
Share Capital xx

• Share Dividends Distributable/Payable

• Part of equity
• NOT a liability account
 SHARE DIVIDENDS
• Small Share Dividends
• Share dividend declared is less than 20% of the previously outstanding share
• Capitalized at fair market value upon the date of declaration

• Large Share Dividends

• Share dividend declared is more than 20% of the previously outstanding share
• Capitalized at par value upon the date of declaration
 TREASURY SHARES
• Trust fund doctrine
• Legal capital of the corporation is held intact for the protection of the creditors
• Appropriation from the Unrestricted Accumulated Profits (Losses) is required by
law when Treasury shares are acquired

• Cost Method
• Should be recorded at cost irrespective of these are acquired below or above
par value

• Presentation
• Part of equity
• Treasury Shares are deducted to compute for Shareholders’ Equity
 TREASURY SHARES
ACQUISITION
• Journal Entry:
a. Treasury Shares Pxx
Cash Pxx

a. Accumulated Profit (Loss) Pxx

Accumulated Profit (Loss) – Appropriated for TS Pxx
 TREASURY SHARES
SALE OR REISSUANCE
• Reissuance at cost:
a. Cash Pxx
Treasury Shares Pxx

b. Accumulated Profit (Loss) – Appropriated for TS Pxx

Accumulated Profit (Loss) Pxx

• Reissuance at more than cost:

a. Cash Pxx
Treasury Shares Pxx
Share Premium – Treasury Shares

b. Accumulated Profit (Loss) – Appropriated for TS Pxx

Accumulated Profit (Loss) Pxx
 TREASURY SHARES
SALE OR REISSUANCE
• Reissuance at below cost:
a. Cash Pxx
Share Premium – Treasury Share/Accumulated Profit (Loss)
Treasury Shares Pxx

b. Accumulated Profit (Loss) – Appropriated for TS Pxx

Accumulated Profit (Loss) Pxx

• The excess of the cost over the reissue price is charged to the following in the
order of priority:
a. Share premium from treasury shares of the same class
b. Accumulated Profit (Loss) or Retained Earnings
 TREASURY SHARES
RETIREMENT
• Retirement at a Gain:
a. Share Capital Pxx
Treasury Shares Pxx
Share Premium – Treasury Shares xx

b. Accumulated Profit (Loss) – Appropriated for TS Pxx

Accumulated Profit (Loss) Pxx
 TREASURY SHARES
RETIREMENT
• Retirement at a Loss:
a. Share Capital Pxx
SP-from orig. issuance/SP-TS/Accumulated Profit (Loss) xx
Treasury Shares Pxx

b. Accumulated Profit (Loss) – Appropriated for TS Pxx

Accumulated Profit (Loss) Pxx

• If the retirement results in a loss, meaning, the cost of the treasury shares
exceeds the par value, such loss is debited to the following in the order or
priority:
a. Share premium from original issuance
b. Share premium from treasury shares
c. Retained earnings
 SHARE SPLITS
• SHARE SPLIT-UP
• No. of shares – Increase
• Par value – Decrease

• SHARE SPLIT-DOWN
• No. of shares – Decrease
• Par value - Increase
 SHARE SPLITS
• At the beginning of the current year, Alto Company declared a 5-for-1 share
split, when the market value of the share was P100. Prior to the split, the
entity had 10,000 shares of P10 par value issued and outstanding.
• Before share split: Share Capital: 10,000 shares x P10 = P100,000
• 10,000 shares
• P10 par value

• After share split: 5-for-1 (Share split up)

Share Capital: 50,000 shares x P2 = P100,000
• No. of shares: 10,000 shares x 5 = 50,000 shares
• Par value: P10 / 5 = P2 par value
 SHARE SPLITS
• At the beginning of the current year, Alto Company declared a 1-for-5
reverse share split, when the market value of the share was P100. Prior to the
split, the entity had 10,000 shares of P10 par value issued and outstanding.
• Before share split: Share Capital: 10,000 shares x P10 = P100,000
• 10,000 shares
• P10 par value

• After share split: 1-for-5 (Share split down)

Share Capital: 2,000 shares x P50 = P100,000
• No. of shares: 10,000 shares / 5 = 2,000 shares
• Par value: P10 x 5 = P50 par value