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 receivedB. Fair value of the shares issuedC. 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 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

tenSAI notes

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 11,000,0000Less: Market value of bonds payable (4,000,000)Residual amount allocated to ordinary shares 7,000,000Less: Par value of ordinary shares (10,000 x 50) (500,000)Share Premium 6,500,000

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) 500,000Share premium - issuance (5,000 x 40) 200,000

Cash (5,000 x 110) 550,000Share 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 15 Sold 30,000 shares at P150 per share.February 14 Issued 2,000 shares for legal services with a fair value of P300,000. The shares on this date

are quoted at P160 per share.March 27 Purchased 5,000 treasury shares at a cost of P12 per shareOctober 31 Issued P4,000,000 convertible bonds at 110. The bonds are quoted at 97 without the

convertible feature.November 5 Declared a 2-for-1 share split when the market value of the share was P160.December 17 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) 1,500,000Feb. 14 (300,000 - 200,000) 100,000Mar. 27 -Oct. 31 (4,400,000 - 3,880,000) 520,000Nov. 5 -Dec. 17 (10,000 x 25) 250,000

Total share premium 2,370,000On 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.