[ACTBFAR] Unit 3 (Part 3 & 4): Corporations (Share Capital, Treasury Shares, & Delinquent Subscriptions)

Authorized Share Capital

maximum number of shares fixed in an entity’s articles of incorporation that may be subscribed and issued to shareholders

Unissued Share Capital

the portion of authorized share capital not yet issued and still available for subscription and issuance

Subscribed Share Capital

the portion of the authorized share capital subscribed but not yet issued

Subscriptions Receivable

the unpaid portion of the subscription price

Share Premium

Additional Paid-in Capital; the excess of subscription price over par or stated value

Ordinary Share Capital

the residual ownership interest in a corporation

Preference Share Capital

the class of share that possesses certain preferences or features not available to ordinary shares

Contributed Capital

amount contributed (invested) by the shareholders

Contributed Capital

Share Capital + Share Premium + Share Dividends Distributable

Legal Capital

the portion of contributed capital that cannot be distributed to the owners during the lifetime of the corporation because it will be a violation of the trust fund doctrine

Legal Capital

(for par value shares) the aggregate par value of issued and subscribed shares

Legal Capital

(for no-par value shares) total consideration or proceeds received or receivable from shares issued and subscribed

Trust fund doctrine

the share capital of a corporation is considered as trust fund for the benefit of its creditors

Memorandum entry method

no journal entry is made to record the authorized share capital; Share Capital account is credited each time a share is issued

Journal entry method

Unissued Share Capital account is debited and Authorized Share Capital account is credited to record the authorized share capital; Unissued Share Capital account is credited when shares are issued

Treasury shares

shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means

Treasury shares

shall have no voting rights as long as such shares remain in the Treasury

Accumulated Profits

corporations are legally required to appropriate a portion of this equal to the cost of its treasury shares

plant assets
securities
cash
earnings per share
market price
ratio

6 Reasons for reacquiring treasury shares

Cost method

treasury share reacquisition and subsequent reissuance are recognized and derecognized at cost; amount of treasury shares is treated as a deduction from equity

Par value method

Treasury share account is debited for the par value of the shares reacquired

Purchase

consideration given by the corporation is treated as the “cost” of treasury shares; shares can be purchased from the open market, if publicly-listed or directly from its shareholders on a voluntary basis; reissuance of purchased treasury shares may be at cost, above cost, or below cost

Redemption

consideration given is treated as the “call price;” shareholders are required to sell a portion of their shares for the company to redeem, provided that shareholders are aware that their shares are redeemable or callable

Redeemable Shares

shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation

Donation

corporation receives shares for no consideration; recorded through a memorandum entry; does not affect the entity’s total assets but it affects the number of outstanding shares; credited to the Share Premium – Donated Shares account

Sale of delinquent stock

amount due on each subscription plus all accrued interest and the date, time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent should be specifically stated

Highest bidder

bidder with smallest number of shares