Share Capital

SHARE CAPITAL

  • Definition: Share Capital pertains to the amount of resources received by a corporation due to investments by shareholders, donations, or other transactions involving share capital.

SHAREHOLDERS’ EQUITY

  • The owners' equity section of a corporation’s statement of financial position.

  • Components of Shareholders’ equity:

    • Share Capital (Paid-up Capital): Capital acquired through the issuance of shares to shareholders.

    • Retained Earnings: Accumulated profits or losses retained for future use.

SHARE CAPITAL DETAILS

  • Share Capital Subdivisions:

    • Preference Shares: Par value of P50, 1,000 shares authorized, issued, and outstanding.

    • Ordinary Shares: Par value of P5, 30,000 shares authorized; 20,000 shares issued and outstanding.

    • Share Premium: The amount received by the company over the par value of ordinary shares.

  • Total Share Capital Calculation:

    • Preference Shares: P50,000

    • Ordinary Shares: P100,000

    • Total Share Capital: P150,000

    • Retained Earnings: P80,000

    • Total Shareholders' Equity: P280,000

LEGAL CAPITAL

  • The minimum amount of paid-in capital that must remain in the corporation for creditor protection.

  • Legal Capital Determination:

    • For par value shares: Aggregate par value of issued shares.

    • For no-par shares: Total consideration received.

SHARE PREMIUM (Additional Paid-in Capital)

  • Represents amounts beyond par value paid by shareholders.

  • Can arise from various transactions such as issuance above par, treasury stocks, etc.

TYPES OF SHARES

  • Ordinary Shares:

    • Represents the basic ownership class of a corporation.

    • Holds residual equity.

  • Preference Shares:

    • Privileges in receiving dividends and priority claims during liquidation.

TERMS RELATED TO SHARE CAPITAL

  • Authorized Share Capital: Maximum shares a corporation can issue as per its Articles of Incorporation. Requires SEC approval for changes.

  • Issued Share Capital: Shares sold and fully paid; includes treasury shares.

  • Subscribed Share Capital: Portion of authorized capital that is subscribed but not yet fully paid.

  • Outstanding Share Capital: Shares with shareholders, calculated as issued shares minus treasury shares.

  • Treasury Stock: Issued shares bought back by the corporation, not yet retired.

ACCOUNTING FOR ISSUANCE OF SHARE CAPITAL

  • With Par Value: Credit to share capital account for the par value, excess to share premium.

  • Without Par Value: Credit total proceeds to share capital account.

CONSIDERATION FOR ISSUANCE OF SHARES

  1. Cash payment.

  2. Tangible/intangible property.

  3. Labor/services rendered.

  4. Previously incurred debts.

  5. Amounts from unrestricted retained earnings.

  6. Exchange of outstanding shares.

  7. Shares from another corporation.

  8. Other accepted considerations.

SHARE ISSUANCE FOR CASH

  • Issuing Share Capital At Par:

    • Example: Narsan Holdings issued shares with P100 par eventually recorded as contributed capital.

  • Issuing Share Capital Above Par:

    • Example: 2,000 shares sold at P150 results in cash, share capital, and share premium entries.

SUBSCRIPTION OF SHARES

  • Legally binding sales contract for shares.

  • Subscription above par accounting entries include receivable, subscribed shares, and premiums.

ACCOUNTING FOR SHARE OPTIONS & EMPLOYEE BENEFITS

  • Share-based Payments to Non-Employees: Recorded as fair value of services received.

  • Employee Benefits using Share Options: Valued at grant date; expenses recognized over vesting period, depending on conditions.

TREASURY STOCK

  • Defined as issued stock repurchased by the corporation, can be reissued.

  • Accounting Methods:

    1. Par or Stated Value Method

    2. Cost Method: Recorded at cost, irrespective of whether acquired above or below par.

DONATED CAPITAL

  • Contributions from shareholders recorded at fair market value.

  • Gifts of shares reduce outstanding shares without affecting equity.

PREFERENCE SHARES

  • Callable Shares: Right to retire shares at a specified price.

  • Redeemable Shares: Considered liabilities under certain conditions.

  • Convertible Shares: Can be exchanged for ordinary shares, providing potential for share price gains.

RECAPITALIZATION

  • Changes in corporate capital structure through transitions between par value and no-par value shares.

EFFECTS ON ASSETS, LIABILITIES, AND EQUITY

  • Shares issued increase assets and equity.

  • Purchasing treasury stock results in decreased assets and equity.

  • Reissuing treasury stock can increase assets and equity.