Shareholder's Equity Flashcards
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.
Corporation
A corporation is created by ______.
Operation of law
What law governs the creation of private corporations?
RA 11232 or Revised Corporation Code
True or False
A natural person who are licensed to practice profession and partnership or association organized for the purpose of practicing profession shall be allowed to organize corporation unless otherwise provided by special law.
False
-shall not be allowed
One corporation
A corporation with single shareholder
Stock corporation
Are those which the stock capital divided into shares.
Contents of article of corporation
a. Name of corporation
b. Purpose of the corporation
c. Place of the principle office of the corporation
d. Term of existence
e. Name, nationalities, and residence of the incorporators
f. # of directors (shall not be more than 15)
g. Name, nationalities and residence of person who act as directors until the 1st regular director are elected.
h. Stock corp- amount of authorized capital stock, # of shares which it is divided, par value, names, nationalities and residence of original subscribers, amount subscribed and paid by each on the subscription.
i. Non-stock corp- amount of capital, names, nationalities, and residence of the contributors and amount contributed.
j. Such other matters consistent with law.
Certificate of incorporation
• existence of corporation
• does not mean ready to do business
Bylaws
Rules of action adopted by the corporation for its internal government and for the government of its officers, shareholders or members
True or False
Stock corporation shall not be required to have a minimum capital stock except otherwise specifically provided by special law
True
Components of corporation
a. Corporators
b. Incorporators
c. Shareholders
d. Members
a. Corporators - who compose the corporation whether shareholders or members.
b. Incorporators - corporators mentioned in the articles of incorporation as originally forming the corp.
c. Shareholders- owners of share in a stock corporation.
d. Members - corporators of nonstock corporation
Organization cost
- Legal fees
- Incorporation fees
- Share issuance cost
Note:
Start up cost- recognized as expense
Organization cost- immediately expenses except share issuance costs.
Shareholders equity
Residual interest owners in the net assets of a corporation measured by the excess of assets over liabilities.
Share capital
Portion of the paid in capital representing the total par or stated value of the shares issued.
Subscribed share capital
Portion of authorized share capital that has been subscribed but not yet fully paid and therefore still unissued.
Share premium
Portion of the paid in capital representing excess over the par or stated value.
Sources of share premium
a. Excess over par value or stated value
b. Resale of treasury shares at more than cost
c. Donated capital
d. Issuance of share warrants
e. Distribution of share dividends
f. Quasi-reorgnization and recapitalization
Retained earnings
Represent cumulative balance of periodic earnings, dividend distributions, prior period errors a d other capital adjustments.
Revaluation surplus
Excess of revalued amount over the carrying amount of the revalued asset.
Treasury shares
Corporation’s shares that have been issued and reacquired but not canceled.
Deposits on subscription
Increase in the share capital may be reported as shareholders equity as a separate item in the equity section.
Authorized share capital
Amount fixed in the articles of incorporation
R4 rights of a shareholders
- Share in the earning of the corp
- Vote im the election of directors and determination of certain corporate policies
- Subscribed for additional rights (preemption or share rights)
- Share in net assets of the corp upon liquidation
Share certificates
• document that evidence the ownership of a share.
• Only issue when the subscription is fully paid.
Rights of ordinary shareholders
- Right to vote
- Share in the income
- Share in all assets upon liquidation after satisfying the creditors and preference shareholders.
Rights of preference shareholders
- Dividends
- Net assets in the event of liquidation
Legal capital
Portion of paid in capital arising from issuance of share capital which cannot be returned to the shareholders in any form during the lifetime of the corporation
Legal capital
Case to case basis
A. Par value share
- aggregate par value of the shares issued (preference & ordinary) and subscribed (not deducted to subscription receivables)
B. No par value
- total consideration from shareholders including any excess over the stated value (share premium).
Trust fund doctrine
• it is illegal to return such legal capital to shareholders during the lifetime of the corporation
• exemption: the corporation can pay dividends to shareholders but limited only to the retained earnings.
• exemption: illegal to pay dividends if the entity has deficit.
Accounting for share capital
- Memorandum entry
• memo entry to record authorized share capital
• credited to share capital account when issued or kapag fully paid na. - Journal entry method
• journalized the authorized share capital by
Dr. Unissued share capital
Cr. Authorized capital
• when issued or paid, credited to unissued share capital
True or False
A cash subscription is directly credited to the share capital account.
True
Issuance of share capital
Gen rule: share shall not be issued for a consideration less than the par or stated value.
Exemption: no par or stated value, not less than 5 pesos.
Share issued at discount
• sold the shares at a price lower than the par or stated value.
• prohibits by the law
• not void but thru agreement
• discount is not considered loss but the shareholders must pay for the discount (discount liability)
• account separately
True or false
Treasury shares may be sold or re issued for less than par or stayed value without violating the law.
True
True or False
The RA NO. 11232 provides that shares shall not be issued in exchange for promissory notes or future services
True
Issuance of noncash consideration
- FV of the noncash consideration received
- FV of shares issued
- Par value of shares issued
Issuance of share capital for services
• already rendered.
- FV of services
- FV of shares issued
Share issuance costs
•direct cost to sell share capital (cost of printing, documentary stamps & etc)
• deducted from
1. share premium arising from share issuance
2. Retained earnings
Cost of public offering shares
• cost related to stock market listing
• recorded as expense in the income statement
• cost of listing shares include the ff:
a. Road show presentation
b. Public relations consultants fees
Accounting for callable preference shares
• can be redeemed at a set of price at the entity’s discretion
• classified as equity instrument rather than financial liability
Accounting for redeemable preference shares
• provides mandatory redemption by the issuer for a fixed or determinable amount at a future date.
•consider as financial liability than equity instrument
True or false
Dividends on redeemable preference shares are accounted as accrued interest expense.
False
-Interest expense
Loss on redemption
Redemption price is greater than CA of the liability
Gain on redemption
Redemption price is lower than CA of the liability
Accounting for convertible preference share
• preference share that can be exchanged into other securities.
Accounting for convertible preference shares
Gain on conversion of shares ia credited to _______.
Share premium
Accounting for convertible preference shares
Loss on conversion of shares is debited to _____.
Retained earnings
