[THEORIES] CONCEPTUAL FRAMEWORK OF ACCOUNTING STANDARDS

Shareholders' equity is the residual interest of owners in the assets of a corporation after deducting its liabilities

TRUE

If the shares are issued for non-cash consideration such as goods and services, the shares are measured at the fair value of the considerations received. If the entity cannot estimate reliably the fair value of the goods and services received, the entity shall measure their value and the corresponding increase in equity indirectly by reference to the fair value of the shares issued.

TRUE

1. If there is only once class of share capital, it is considered as preference shares.

FALSE

Share issuance costs are generally debited to retained earnings upon incurrence

FALSE

Ordinary shareholders have a fixed or specific return on their investment as indicated in their share certificate.

FALSE

Share split is a transaction where the original shares are called in for cancellation and replaced by a larger number accompanied by a reduction in the par or stated value

TRUE

The share capital of a stock corporation is divided into shares evidenced by share certificates.

TRUE

The subscribed share capital is reported as part of shareholders' equity net of the related subscription receivable which are not collectible currently

TRUE

Share premium is the amount fixed in the articles of incorporation that is subscribed and paid in by the shareholders of the corporation.

FALSE

For a no-par share value share, it will instead have an issued value or stated value which will be fixed by the shareholders of the corporation.

FALSE

In the case of par value share, legal capital is the aggregate par value of all shares issued excluding subscribed shares.

FALSE

Share issuance costs are direct costs to sell the shares such as underwriting and commission, accounting and legal fees, printing costs, documentary stamps, filing fees with SEC and costs of advertising the issue.

TRUE

In the case of no-par value share, legal capital is aggregate stated value of shares issued and subscribed including any excess over the stated value

TRUE

If the treasury shares are reissued at less than its cost, the difference is debited against the retained earnings.

FALSE

1. Management salaries and other indirect costs related to issuance of shares are expensed immediately.

TRUE

Treasury shares are entity's own shares that have been issued and then reacquired and canceled.

FALSE

No corporation shall redeem, repurchase, or reacquire its own shares unless it has adequate amount of unrestricted retained earnings

TRUE

Subscribed share capital represents the portion of the authorized share capital that has been subscribed for but not yet fully paid

TRUE

If the treasury shares are reissued at more than its cost, the excess is credited to gain reported in the company's income statement

FALSE

Treasury shares are recorded at cost regardless of whether the shares are acquired below or above the par value or stated value

TRUE

1. When treasury shares are retired instead of being reissued and the cost of the treasury shares is less than the par or the stated value, the difference is credited to share premium from treasury shares.

TRUE

Ordinary shareholders have the same rights and privileges and enjoy no preference over each other.

TRUE

1When shares of stocks are issued in exchange for services, the consideration is measured by

a. The fair value of the services received.

b. Par value of the shares issued.

c. Stated value of the shares issued.

Fair value of the shares issued.

a. The fair value of the services received.

For treasury shares acquired in exchange for non-cash consideration, how much should the treasury shares be measured?

a. Fair value of the non-cash consideration.

b. Book value of the non-cash consideration.

c. Par value or stated value of the shares.

d. Fair value of the shares.

b. Book value of the non-cash consideration.

The total cost of treasury shares is reported as:

a. Investment in the asset section of the statement of financial position.

b. Deduction from the share premium.

c. Deduction from shareholders' equity.

d. Addition to shareholders' equity.

c. Deduction from shareholders' equity.

Subscriptions receivable and other receivables arising from sale of shares that are not collectible currently are presented as

a. Other non-current asset.

b. Not recognized, disclosed only.

c. Deduction from subscribed share capital.

Long term investment.

c. Deduction from subscribed share capital.

How is loss on retirement of treasury shares recorded?

a. Debited to retained earnings.

b. Debited to share premium from treasury shares and then retained earnings.

c. Debited to share premium from treasury shares, share premium from original issuance and then retained earnings.

d. Debited to share premium from original issuance, share premium from treasury shares and then retained earnings.

d. Debited to share premium from original issuance, share premium from treasury shares and then retained earnings.

The excess of the subscription price over the par value of the subscribed share capital, assuming the collectability is reasonably assured, shall be recorded as

a. Part of the subscribed share capital.

b. Share premium when the subscription is collected.

c. Share premium upon the date of subscription.

Share premium on the date the subscribe shares are issued

c. Share premium upon the date of subscription.

An entity acquired its own shares at a price above its par value, and then subsequently reissued it at a price more than its cost. What is the effect on share premium on acquisition of its own shares and reissuance of such shares, respectively?

a. Increase, Increase

b. Decrease, No effect

c. No Effect, Increase

d. No effect, No effect

c. No Effect, Increase

How would a share split affect the share capital and retained earnings, respectively?

a. Increase, Increase

b. Decrease, No effect

c. No Effect, Increase

d. No effect, No effect

d. No effect, No effect

Contributed capital does not include

a. Share premium on ordinary shares.

b. Issuance of ordinary shares at par.

c. Issuing treasury shares at above its cost.

d. Profit for the year.

d. Profit for the year.

involves the issue of additional shares according to the percentage ownership of shareholders

e.g., a 2-for-1 split means that one share with a value of P10 will be exchanged for 2 shares each with a value of P5.

SHARE SPLIT

A share spit results in a reduction in the stated value/par value per share and its total number of share

TRUE

A share split does not affect the balance in shareholders' equity accounts and therefore a formal journal entry is NOT required.

TRUE

A share split does not affect the total equity of the company

TRUE

TWO (2) KINDS OF SHARE SPLIT

1) SPLIT UP

2) SPLIT DOWN/REVERSE STOCK SPLIT

it involves the issue of additional shares according to the percentage ownership of shareholders. This results in a reduction of par or stated value per share. Its purpose is to increase the marketability of the shares by lowering the market price per share

SPLIT UP

Note: A share split is recorded by memorandum entry only

TRUE

Memo Entry: "Issued 400,000 new shares with par value of P25, as a result of 4-for-1 split of 100,000 old shares with par value of P100".

It means that a stockholder would receive 4 shares with a new par value of P25 for each shares held.

[EFFECT] increases the number of issued and outstanding shares to 400,000 shares and the par value is reduced to P25.

it involves the cancellation of original shares issued and replacing it by smaller number of shares which results in an increase in the par or stated value per share.

SPLIT DOWN/REVERSE STOCK SPLIT

A split down is done when the market price of the shares are selling below its desired price

TRUE

Memo Entry: "Issued 25,000 new shares with par value of P400, as a result of 1-for-4 split of 100,000 old shares with par value of P100".

[EFFECT] decreases the number of issued and outstanding shares to 25,000 shares and the par value is increased to P400.

NOTE: Share split does not affect total stockholders' equity of the company. It only affects the issued and outstanding number of shares and its par or stated value.

TRUE