05 corporate nature and formation part ii

Authorized Share CapitalAuthorized Shares•the maximum number of shares that ordinary and preference share may issue

Authorized Share Capital•when the authorized share is being multiplied by PAR VALUE or STATED VALUE

Memorandum Entry and Journal Entry Methods

Two Methods in Accounting for Share Capital:

•Memorandum Entry Method•Journal Entry Method

Memorandum Entry and Journal Entry MethodsTransactions MEMO ENTRY METHOD JOURNAL ENTRY METHOD

Authorized to issue 8% of Preference shares, 5,000 shares at P100 par and 20,000 shares at P50 par value share

8% Preference Share Capital ___________________________________

Authorized to issue 8% preference share5,000 with par value, P100

Ordinary Share Capital ___________________________________Authorized to issue 20,000 share

with par value, P50

Unissued Pref. Share 500,000 Authorized Pref. Share 500,000

Unissued Ord. Share1,000,000 Authorize Ord. Share 1,000,000

25% of Authorized Share Capital for both Pref. and Ordinary are subscribed

Subscription Receivable-P 125TSubscription Receivable-O 250T Subscribed Share Capital-P 125T Subscribed Share Capital-O 250T

Subscription Receivable-P 125TSubscription Receivable-O 250T Subscribed Share Capital-P 125T Subscribed Share Capital-O 250T

25% of Subscribed Share Capital was Paid-up

Cash 93,750 Subscription Receivable-P 31,250 Subscription Receivable-O 62,500


Full payment of subscription



Issuance of Shares Subscribed Share Capital-P 125TSubscribed Share Capital-O 250T Share Capital- P 125T Share Capital- O 250T

Subscribed Share Capital-P 125TSubscribed Share Capital-O 250T Unissued Share Capital- P 125T Unissued Share Capital- O 250T

ACCOUNTING FOR PAR VALUE SHARES(Subscription Basis)Illustration:

SheRock Corporation has authorized share capital of P100,000 at P50 par value per share.

Case 1- at Par Value (100 shares were subscribed at par, 30% down payment and the remaining were paid in full)

Upon Subscription:

Subscription Rec’l 5,000 Subscribed Share Capital 5,000

Upon Partial Payment:Cash 1,500 Subscription Rec’l 1,500

Upon Full Payment:Cash 3,500 Subscription Rec’l 3,500

Upon Issuance of CertificateSubscribed Share Capital 5,000 Share Capital 5,000



Case 2- Above Par Value (100 shares were subscribed at P60 per share, 30% down payment and the remaining were paid in full)

Upon Subscription:

Subscription Rec’l 6,000 Subscribed Share Capital 5,000 Additional Paid-in 1,000






Case 3- Below Par Value (100 shares were subscribed at P40 per share, 30% down payment and the remaining were paid in full)

Upon Subscription:

Subscription Rec’l 4,000Discount on Share Capital 1,000 Subscribed Share Capital 5,000




ACCOUNTING FOR PAR VALUE SHARES(Subscription Basis)

Illustration:SheRock Corporation has authorized share capital of P100,000 at P50 par value per share.

Case 4- Sold for Cash

At Par Value

Cash 5,000 Share Capital 5,000

Above Par Value (P60 per share)Cash 6,000 Share Capital 5,000 Additional Paid-In 1,000

Below Par Value (P40 per share)Cash 4,000Discount on Share Capital 1,000 Share Capital 5,000

Accounting on Stock Issued for Non-cash Consideration

Rules:1.If issued for tangible, intangible

properties and servicesa) FMV of Non-Cash consideration receivedb) FMV of the Share Capital issuedc) Par Value of the share capital

2.If issued for outstanding liabilitya) Recorded at the amount equal to the liability set off.

3.If issued in exchange of other equity securitiesa) FMV of equity receivedb) FMV of share capital issuedc) Par Value of the share capital issued

Accounting on Stock Issued for Non-cash Consideration

Illustration:1. SheRock Corp. issued 1,000 shares with par value

P100 per share in exchange of land with FMV of 130,000. The FMV per share is P110.

Entry:Land 130,000

Share Capital 100,000APIC-Excess par 30,000

2. SheRock Corp. issued 1,000 shares with par value P100 per share. The outstanding obligation amounts to 120,000.

Entry:Loans Payable 120,000

Share Capital 100,000APIC 20,000

Share Issuance Expense

Includes the following:1.Professional Fees- Accountant’s and attorney’s fees2.Underwriting fees or Commission3.Cost of printing share certificates4.Filing fees with SEC5.Cost of advertising the issuance6.Doc stamp tax

Accounting for No Par Value Shares

Same treatment as with Par Value shares, just

replace the account titles to “Stated Value”

Ex: Additional Paid-in Capital in Excess of Stated Value

Accounting for Delinquent Subscription

Delinquent shares•Subscription that was not paid in full •No collection was made after 30 days from the date of subscription.

Illustration:Pao subscribes 100 ordinary shares at par value of P10 per share in SheRock Corp and made a down payment equal to 30% of the subscription

Accounting for Delinquent Subscription

Illustration:Pao subscribes 100 ordinary shares at par value of P10 per share in SheRock Corp and made a down payment equal to 30% of the subscription.

Entry:Subscription Receivable- Ordinary 1,000

Subscribed Share Cap-Ordinary 1,000

Cash 300Subscription Receivable 300

05 corporate nature and formation part ii

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