Stock Issuance Costs
Deduction to:
1. Share Premium in the same class
2. Expensed Immediately
Treasury Stocks
Corp’s own shares that have been issued and reacquired but not
retired/cancelled.
Deduction to our SHE.
Accounting for Treasury Stocks
Accounted for using cost method.
Reissuance of TS:
1. Reissuance Price > Cost
Excess should be credited to Share Premium
2. Reissuance Price < Cost
Deficiency shall be charged in the ff. order of priority:
1. Share Premium in the same class
2. RE
Illustrative Example:
XYZ Corp. acquired 2,000 of its ordinary shares, par value P100) at P150, per share.
Subsequently, all of the treasury shares were issued at P180 per share.
Treasury Shares 300,000
Cash 300,000
Cash 360,000
Treasury Shares 300,000
Share Premium – TS 60,000
Assume instead that the shares were reissued at P140 per share.
Cash 280,000
RE 20,000
Treasury Shares 300,000
Retirement of Share Capital
Cancellation of shares issued.
Will be removed from issued shares.
Retirement Price < Issuance Price
Excess shall be credited to Share Premium Retirement
Retirement Price > Issuance Price
The deficiency shall be charged in the ff. priory:
1. SP from Original Issuance (Pro Rate)
2. SP from TS (same class)
3. RE
Illustrative Example:
OSC, 50,000 shares, P100 Par P5,000,000
SP 250,000
RE 1,000,000
5,000 shares were retired at P90 per share. Issuance price is P110 per share.
Ordinary Share Capital (5,000 X P100) 500,000
Share Premium – Issuance (5,000 x P10) 50,000
Cash (5,000 x P90) 450,000
Share Premium – Retirement 100,000
Average Issue Price:
Par Value 5,000,000
SP 250,000
Total 5,250,000
Divide # of shs issued 50,000
Ave. IP P105
Assume Retirement Price is P110, use the Ave IP.
Ordinary Share Capital (5,000 X P100) 500,000
Share Premium – Original Issuance (5,000 x P5) 25,000
RE 25,000
Cash (5,000 x P110) 550,000
Donated Shares
Shares received by the corp. from shareholders by a way of donation.
Donated Capital – part of SP.
Accounting for Donated Shares:
1. Receipt of donated shares
Memo Entry
2. Reissuance of donated shares
Cash xx
Donated Capital xx
Share Split
Decided by the BODs to increase of decrease the number of shares.
Accounted for as memo entry only.
Forms of Share Split:
1. Split Up
2 for 1 split
Increase the number shares, decrease the par value
2. Split Down
1 for 2 split
Decrease the number of shares, increase the par value
Illustrative Example:
At the beginning of the year, AA Company had 100,000 , P10 par value ordinary shares
outstanding.
Case 1: 2 for 1 split
No. of Shares Amount Par Value
Before Split 100,000 P1,000,000 P10
100,000
After Split 200,000 P1,000,000 P5
Case 2: 1 for 2 split
No. of Shares Amount Par Value
Before Split 100,000 P1,000,000 P10
(50,000)
After Split 50,000 P1,000,000 P20
Share Rights
Granted to existing shareholders to enable them to acquire new shares at a
specified price during a period.
Exercise price is less than the MV of shares.
Accounting for Share Rights:
1. Issuance of Share Rights:
Memo Entry
2. Exercising of rights
Normal Entry, the same with issuance of shares
3. Expiration of rights
Memo Entry
Preference Shares with Share Warrants
Consideration received from issuance of PS with share warrants shall be
allocated between them on the basis of MV Approach.
If the MV of one security is only available, use the residual approach.
Illustrative Example:
ABC Corp. issued 20,000 pref shares of P200 par for P6,500,000. Each pref share has
a share warrant attached to it. Two warrants must be surrendered to acquire one
ordinary share of P50 par value at P60 per share. On the date of issuance, the MV are:
Pre share ex warrant P240
Share Warrant 20
Allocated IP
Pre Shares (20,000 x P240) 4,800,000 6,000,000
Share Warrants (20,000 x P20) 400,000 500,000
5,200,000
Cash 6,500,000
PSC (20,000x P200) 4,000,000
SP – Pref 2,000,000
Share warrants outstanding 500,000
Convertible Preference Shares
Convert PS to OS
Illustrative Example:
During the current year, XYZ Corp issued P220 per share, 15,000 convertible pref
shares of P200 par value. One pref share may be converted into three ordinary shares
of P50 par value at the option of the pref shareholder. At year end, all of the pref shares
were converted into OS. The MV of the OS at the conversion was P80.
Pref Share Capital (15000 x P200) 3,000,000
SP – Pref (15000 x P20) 300,000
OSC (15,000 x 3 X P50) 2,250,000
SP – Ordinary 1,050,000
Assume only 10,000 were converted:
PSC (3M x 10/15) 2,000,000
SP – P (300T x 10/15) 200,000
OSC (10,000 x 3 x P50) 1,500,000
SP – Ordinary 700,000
Recapitalization
Change or modification in a corp’s capital structure.
The old shares are cancelled and new shares are issued.
Change from Par to No Par or vice versa
Reduction of Par or stated value
Illustrative Example:
The SHE of ANC Corp included the ff:
OSC, P10 par P200,000
SP – O 150,000
RE 400,000
Case 1: All shares were cancelled in and 20,000 new shares of no-par but with stated
value of P5 were issued.
OSC 200,000
SP – O 150,000
OSC (20k x P5) 100,000
SP-O 250,000
Case 2: The BOD effected the par value is reduced to P7 per share.
OSC (20,000 x P3) 60,000
SP – O 60,000