DONATED CAPITAL
Gifts received by the corporation from nonreciprocal transactions. May come from the following sources:
Donations from shareholders in the form of Cash, Noncash Assets and the corporation’s own shares
Donations from the government >> considered as government grants
Donations from other sources >> recognized as income when:
1. The conditions attached to the donation are fulfilled or reasonably expected to be fulfilled
2. The donation becomes receivable
3. The criteria for asset recognition are met
Donations from Shareholders maybe in the following forms:
a) Cash = recorded at the amount of cash received
b) Noncash assets = recorded at the par value of the noncash assets
c) Entity’s Own shares = initially recorded as a memo entry. Donated Capital is recorded only upon reissuance of
the donated shares.
Presentation of Donated Capital in the FS = Shareholders equity under Share Premium
TREASURY SHARES >>> are the corporation’s own shares that are repurchased but not retired; is allowed only if
There is sufficient balance in the Unappropriated Retained Earnings account.
ACCOUNTING FOR TREASURY SHARES
Reacquisition Reissuance of treasury shares Retirement of treasury shares
Cost method is used At cost Gain = par value is more than cost,
Cash acquisition = cost is amount of At above cost = excess is treated credit Share Premium- Treasury
cash paid as Share Premium – TS Loss = cost is more than the par
Noncash considerations = cost is At below cost = charged in the value.
the carrying amount of the noncash order of priority: In case of a loss on retirement,
asset surrendered. 1. Share Premium – TS same charge the following by priority
class order
2. Retained Earnings 1. Share premium – original
issuance
2. Share premium – treasury
shares
3. Retained Earnings
Presentation of Treasury Shares Disclosure Requirement related to Treasury Shares
PAS 32 provides that the cost of Treasury Shares shall be number of shares held in treasury
deducted from Total Shareholder’s Equity restriction on retained earnings should be equal
to the cost of the Treasury Shares
RIGHTS ISSUE
Right of Preemption or preemptive right = right of existing shareholders to purchase newly issued shares before it is
issued to the general public, meant to protect existing shareholders from
a dilution of control. Preemptive rights are set forth in the corporate
charter.
Stock Rights = issued to existing shareholders in relation to their preemptive rights
Share warrants = or stock warrants are certificates or instruments evidencing ownership over the rights issue
Rights Issue = granted to existing shareholders to enable them to acquire new shares at a specified price during a
Specified time.
Accounting for Stock Rights
Issuance of Rights Expiration of Rights Exercise of Rights
memorandum entry is needed to only a an entry is made only when rights re
indicate number of rights issued and memorandum exercised or recalled
number of shares that can be entry is needed if the stock rights are recalled, the
purchased thru the exercise of rights consideration paid is debited to Share
warrants are issued without Premium.
consideration
Preference Shares with Detachable Warrants
Warrants may be included in the issuance of different types of securities to improve market performance.
When share warrants are issued together with preference shares, there is actually sales of two instruments, the
preference shares and the warrants.
Accounting for the single price receive for the share and warrant will be allocated between their fair market value
Illustrative Example 06: Preference Share with detachable stock warrants
An entity issued 20,000 preference shares of P100 par value for P3,250,000 with 20,000 warrants to acquire 10,000, P50
par value ordinary shares at P60/share.
On the date of issuance, the market values are: Journal Entry to record the issuance of the Preference
Preference share ex warrant P120 Shares and warrants
Warrant 10
Cash 3,250,000
Preference Share Capital (20,000 x 2,000,00
Market Allocated P100) 0
Fractio 1,000,00
Value n Issue Price
Share Premium - PS 0
Preference Share
(20,000 x 120) 2,400,000 24/26 3,000,000
Share Warrants
Outstanding 250,000
Warrants (20,000 x 10) 200,000 2/26 250,000
2,600,000 3,250,000
Assume that the share warrants are exercised requiring issuance of
10,000 ordinary shares, the journal entry will be:
Cash (10,000 x P60) 600,000
Share Warrants Outstanding 250,000
Ordinary Shares Capital (10,000x P50) 500,000
Share Premium 350,000
Note: If the share warrants are not exercised, the share warrants outstanding account is closed and credited to Share
Premium
