05 corporate nature and formation part ii
DESCRIPTION
Accounting for CorporationTRANSCRIPT
Copyright © by Houghton Miffin Company. All rights reserved. 1
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
Cash 93,750 Subscription Receivable-P 31,250 Subscription Receivable-O 62,500
Full payment of subscription
Cash 281,250 Subscription Receivable-P 93,750 Subscription Receivable-O 164,500
Cash 281,250 Subscription Receivable-P 93,750 Subscription Receivable-O 164,500
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
ACCOUNTING FOR PAR VALUE SHARES(Subscription Basis)Illustration:
SheRock Corporation has authorized share capital of P100,000 at P50 par value per share.
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
Upon Partial Payment:Cash 1,800 Subscription Rec’l 1,800
Upon Full Payment:Cash 4,200 Subscription Rec’l 4,200
Upon Issuance of CertificateSubscribed Share Capital 5,000 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 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
Upon Partial Payment:Cash 1,200 Subscription Rec’l 1,200
Upon Full Payment:Cash 2,800 Subscription Rec’l 2,800
Upon Issuance of CertificateSubscribed Share Capital 5,000 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
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