tenSAI notes

Authorized Shares = Unissued Shares + Issued Shares

Issued Shares = Issued Shares (this is not reduced by treasury shares or subscription
receivable)
Outstanding Shares = Issued Shares - Treasury Shares
[With Par] Legal capital = Par Value of all shares issued and subscribed*
[No-Par] Legal capital = Stated value of shares issued & subscribed PLUS ANY EXCESS
OVER STATED VALUE*
Contributed Capital = Legal Capital + Share Premium (this is not reduced by treasury
shares)*
*Subscription Receivable is deducted only if it is not collectible within 1 year

Subscription receivable (not collectible within 1 year) is a deduction from the related
subscribed share capital.
But, if subscription receivable is collectible within 1 year, it is shown as
CURRENT ASSET.

Priority basis for measuring shares issued for Services / Noncash Consideration:
A. Fair Value of the services/noncash consideration received
B. Fair value of the shares issued
C. Par Value of the shares issued
Note: For services, the normal/usual billing rate is not necessarily the fair value of the
services

Donated Shares not retired are recorded by means of a memorandum entry only
and therefore do not affect the total shareholders equity.
Donated shares not retired are actually treasury shares without acquisition costs.
However, upon its reissuance, it is credited to Donated Capital (which is part of
Share Premium)
Contributions from shareholders are recorded at FAIR VALUE
It is credited to Donated Capital (which is part of Share Premium)

Retirements of shares
The share capital is debited by its par value
If retirement cost exceeds par value, the balance is debited to the following
according to priority:
A. Share Premium from original issuance (prorated)
B. Share Premium from treasury shares (prorated)
C. Retained earnings
If par value exceeds retirement cost, the balance is credited to Share Premium
When par value exceeds retirement cost, it is usually expressed as a gain, but the gain
is credited to Share Premium

Treasury Shares

tenSAI notes

Cost Method - Treasury Shares is debited at cost (cash payment or carrying amount
of noncash surrendered)
Par Value Method
o Treasury Shares is debited at par and the related share premium is
canceled (debited)
o The excess of the par + related share premium over the cost is credited to Share
Premium - Treasury Shares

Retirement of treasury shares affect the elements of shareholders equity but no

longer affects the TOTAL AMOUNT of shareholders equity. This is because the
change in the value of the affected elements is an offset to the cost of treasury shares

Convertible Preference Shares

The preference share capital and the related share premium is canceled (debited)
Ordinary share capital is credited at par with the excess going to share premium

Quick Note:
Related Share Premium is canceled (debited) in full under:
Acquisition of Treasury Shares - Par Value Method
Conversion of Convertible Preference Shares
Recapitalization (only when it is Change from par to no-par / no-par to par
Related Share Premium is debited AS A BALANCING FIGURE under:
Retirement of Shares (see above for priority)
Reissuance of treasury shares below cost (only share premium from treasury
shares)

tenSAI notes

At the beginning of the current year, Cove Company, a closely-held entity, issued 6% bonds
with a maturity value of P6,000,000 together with 10,000 ordinary shares of P50 par value,
for a combined cash amount of P11,000,000. If the bonds were issued separately, they
would have sold for P4,000,000 on an 8% yield to maturity basis. What amount should be
reported for share premium on the issuance of the ordinary shares? 6,500,000
Cash Received
Less: Market value of bonds payable
Residual amount allocated to ordinary
shares
Less: Par value of ordinary shares
(10,000 x 50)
Share Premium

11,000,00
00
(4,000,000
)
7,000,000
(500,000)
6,500,00
0

Vicar Company was organized on January 1, 2015 with 100,000 authorized shares of P100
par value. On January 5, the entity issued 75,000 shares at P140 per share and on December
31, the entity purchased 5,000 shares at P110 per share. The entity used the par value
method to record the purchase of the treasury shares. What is the balance of the share
premium from treasury shares on December 31, 2015? 150,000
Treasury shares (5,000 x 100)
Share premium - issuance (5,000 x 40)
Cash (5,000 x 110)

500,000
200,000
550,000

Share premium - treasury shares

(balancing)

150,000

Juan Company was organized on January 1, 2015 with 100,000 authorized shares of P100
par value. The following transactions occurred during the year:
January
1 Sold 30,000 shares at P150 per share.
5
Februar
1 Issued 2,000 shares for legal services with a fair value of P300,000. The
y
4 shares on this date are quoted at P160 per share.
March
2 Purchased 5,000 treasury shares at a cost of P12 per share
7
October
3 Issued P4,000,000 convertible bonds at 110. The bonds are quoted at 97
1 without the convertible feature.
Novemb
5 Declared a 2-for-1 share split when the market value of the share was

tenSAI notes
er
Decemb
er

1
7

P160.
Sold 10,000 shares at P75 per share.

What total amount should be recognized as share premium on December 31,

2015? 2,370,000
Jan.

15

(30,000 x 5)

1,500,0
00
Feb. 14 (300,000 100,00
200,000)
0
Mar. 27
Oct. 31 (4,400,000 520,00
3,880,000)
0
Nov. 5
Dec. 17 (10,000 x 25)
250,00
0
Total share
2,370,0
premium
00
On November 5, the par value was reduced from P100 to P50 because of the share split.
Thus, the issuance on December 17 resulted in a share premium of P25 [P75 - P50 (new
par)] per share.