FAR -Theory Shareholders’ Equity

• Represents the total par value or stated value of issued shares. This can be classified as either pertaining to ordinary shared or preference shares.

  Share Capital
• Additional Paid-in Capital – Represents any excess amounts received over the par value of an issue, such as premium on common stock or additional capital contributed by preferred shareholders.
• Retained Earnings (Net Income) – The portion of net income that has not been distributed to shareholders but retained within the business.
• Are shares that were fully paid by shareholders in the company.

  Issued Shares
• Are those with general shareholder rights and are entitled to vote in important matters. 


  Ordinary Shares
• Priority in receiving dividends or in terms of profit, normally cannot vote on corporate matters


  Preference shares
• is the nominal minimum value assigned to each share.

  Par value
• it cannot be issued for a consideration below the issued share’s total par value.


  Par value shares
• is the nominal value assigned no-par value shares


  Stated value
• shall be paid immediately and not allowed to be paid in installment.


  no-par value shares
• minimum stated value is set at?

  P5.00 per share
• Represents the total par value of shares that were subscribed but not yet fully paid.

  Subscribed share capital
• Represents the amount os subscription price not yet paid by the subscribers. This is normally presented as a deduction from shareholder’s equity.


  Subscription receivable
• if the balance of this account is collectible within 12 months, this will be presented as part of current assets. 


  subscription receivable
• Total earnings of the entity less total dividends declared cumulatively from the entity’s inception.


  Retained earnings
• Issued shares that were subsequently bought back from shareholder. Presented as deduction from shareholder’ equity.


  Treasury shares
• If there is a cumulative loss or debit balance, it is presented as a deduction from equity, while if there is a cumulative gain or credit balance, it is presented as addition to equity


  Cumulative or OCI amounts
• Represents the amounts contributed bt the shareholders to the entity. 


  Contributed capital
• Formula for Computing Net Contributed Capital.

  Share Capital ——— Pxxx

  Share Premium——- xxx

  Subscribed SC ——- xxx

  Less: SR —————— (xxx)

  TS —————- (xxx)

  Net CC ——————- Pxxx


  Net Contributed Capital
• a.Subscription receivable is deducted in computing for capital since this amount is yet to be actually contributed by the subscribers
• Treasury shares are deducted in computing contributed capital since this represent the amount paid (returned) to shareholder.
• Is the portion of equity that a corporation cannot legally distribute to its shareholder. This is based on the trust fund doctrine which provides that the capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of corporate creditors. 


  Legal capital
• Components of Legal Capital

  par value share - Total par value of issued and subscribed shares [excluding share premium]

  no-par value share - Total proceeds from issuance, including subscription [stated value plus share premium]
• Cash as Proceeds - Shareholders equity will increase by the same amount of cash received. Share premium to be recognized is equal to the cash proceeds less aggregate par value of issued shares.
• The amount of noncash asset shall be measured using the following hierarchy [PFRS 2.10].

  1. Fair value of noncash asset received
  2. Fair value of shares issued
  3. Par value of shares issued
• The services provided by professional outsiders (lawyers, consultant, etc.) shall be valued using the following hierarchy [PFRS 2.10].

  1. Fair value of services
  2. Fair value of shares issued
  3. Par value of shares issued
• is not necessarily equal to the fair value of services since it is subject to negotiation.


  billing price
• Measured by reference to the fair value of shares or other equity instruments issued. [PFRS 2.11].

  The reason is that it is not possible to estimate reliably the fair value of the services received from employees.


  services-provided by employees
• A corporate entity may issue a certain number of its ordinary shares and a certain number of its preference shares in a single transaction at a basket issue price.
• 1. If both fair values of each class of shares are determinable, allocate the basket issue price based on the relative total fair values of the shares
• 2. Otherwise, allocate the basket issue price to the extent of the determinable fair value of a class of shares. Any excess basket issue price shall be attributed to the class of share with no determinable fair value.
• A corporation may also issue its shares to shareholders on an installment basis (subscription basis). There’s a 25%-25% rule on the pre-incorporation subscription was already repealed under the Revised Corporation Code (RCC).
• It is only when the shares are fully paid that the related share certificate will be issued to the subscriber. A share certificate is a legal document that serves as the proof of ownership of shares in a particular corporation.
• pending the full payment of the subscription price, a non-delinquent subscriber is considered as a shareholder and shall have the same rights as fully paid shareholders, except the right to the share certificate.
• Subscription receivable is equal to subscription price times the number of shares subscribe. This is reduced by the amount of down payment.

  If there’s any, it should also be noted that the share premium is recognized as early as the date of subscription ( not when the full payment was received)
• The transfer shall be made equal to the par value of the fully paid shares not at the amount of final payment.
• is the one who is willing to pay the unpaid subscription balance, interest, and other cost/expense.

  highest bidder
• If there are any, for the smallest number of shares. In effect, the highest pertains to the highest bid amount per share ( lower divisor will result to higher quotient).
• When there are no bidders, all delinquent shares shall be issued in the name of the corporation and will be considered as treasury shares. The previous amounts paid by the subscriber shall be forfeited (recorded as share premium)
• A corporation may purchase shares and immediately retire them for good (may not be resold), which decrease the shareholders equity.