Accounting for

Share Issuance

Joy Anne P. Vicente

Share Issuance
- activity done by the corporation to increase capitalization
- all proceeds becomes part of Contributed Capital
- shares’ status changes from being unissued to issued
- may be done in exchange for
Cash
Non Cash Assets
Services from outsider
Services of employees
Through subscription
Share Issuance for Cash

Per Share Basis

Bridging Corporation issued 200 P50 par value ordinary shares for P72 each.
Cash P 14, 400
Ordinary Share Capital P 10, 000
Share Premium-OS 4, 400

Bridging Corporation issued 250 P10 par value ordinary shares for P18 each.
Cash P 4, 500
1
2
3
4
5 Ordinary Share Capital P 2, 500
Share Premium-OS 2, 000
Share Issuance for Cash

Per Share Basis

Bridging Corporation sold 1500 P5 par value ordinary shares for P12 each.
Cash P 18, 000
1
2
3
4
5 Ordinary Share Capital P 7, 500
Share Premium-OS 10, 500

Bridging Corporation issued 600 P25 par value ordinary shares for P32 each.
Cash P 19, 200
1
2
3
4
5 Ordinary Share Capital P 15, 000
Share Premium-OS 4, 200
Share Issuance for Cash

Per Class Basis

Bridging Corporation sold 1500 P5 par value ordinary shares for P 9, 000.
Cash P 9, 000
Ordinary Share Capital P 7, 500
Share Premium-OS 1, 500

Bridging Corporation issued 600 P25 par value ordinary shares for P22, 000 .
Cash P 22, 000
1
2
3
4
5 Ordinary Share Capital P 15, 000
Share Premium-OS 7, 000
Share Issuance for Cash

Per Class Basis

Bridging Corporation sold 1500 P5 par value preference shares for P 15, 000.
Cash P 15, 000
1
2
3
4
5 Preference Share Capital P 7, 500
Share Premium-OS 7, 500

Bridging Corporation issued 600 P25 par value ordinary shares for P 18, 000.
Cash P 18, 000
1
2
3
4
5 Ordinary Share Capital P 15, 000
Share Premium-OS 3, 000
Conclusion

Issue Price should ALWAYS BE EQUAL

or
GREATER THAN par value.
x WATERED STOCK
ILLEGAL
Share Issuance for Cash

Lump Sum for two classes

General Rule:
Transactions involving purchase or sale through lump sum price shall be
accounted for using either PRO-RATA approach or RESIDUAL approach.

PRO RATA APPROACH

- Lump sum price is allocated between accounts using TOTAL RELATIVE
FAIR MARKET VALUE
- used when accounts are under single element of financial statements
Assets and Assets
Liabilities and Liabilities
Equity and Equity
RESIDUAL APPROACH
- Lump sum price is allocated between accounts by deducting a
preferred accounts’ fair value from the total lump sum price
LUMP SUM PRICE
(FAIR VALUE OF LIABILITY)
VALUE ALLOCATED TO EQUITY
- used when accounts are under different elements of financial
statements
LIABILTY AND EQUITY
Share Issuance for Cash
Bridging Corporation sold 1000, P5 par value ordinary shares and 200, P20 par
value preference shares for P15, 000. Fair value of OS and PS are P7.5 and P25
respectively.
Step 1. Accounts to be allocated: Equity and Equity
Step 2. Approach to be used: Pro-rata
Step 3. Solution: Cash P 9, 000
Total relative fair values Ordinary Share Capital P 5, 000
OS (1000 x 7.5)= P7, 500 Share Premium-OS 4, 000
PS (200 x 25)= 5, 000
Total P 12, 500 Cash P 6, 000
Allocation: Pref Share Capital P 4, 000
OS 7.5/12.5 x P15, 000 = P9, 000 Share Premium-PS 2, 000
PS 5/12.5 x P 15, 000 = P 6, 000
Share Issuance for Cash
Bridging Corporation sold 4000, P10 par value ordinary shares and 1500, P50
par value preference shares for P150, 000. Fair value of OS and PS are P15 and
P75 respectively.
Step 1. Accounts to be allocated: Equity and Equity
Step 2. Approach to be used: Pro-rata
Step 3. Solution: Cash P52, 174
Total relative fair values Ordinary Share Capital P 40, 000
OS (4000 x 15)= P60, 000 Share Premium-OS 12, 174
PS (1500 x 75)= 112, 500
Total P172, 500 Cash P97, 826
Pref Share Capital P 75, 000
Allocation:
Share Premium-PS 27, 826
OS 60/172.5 x P150, 000 = P52, 174
PS 112.5/172.5 x P 150, 000 = P97, 826
Share Issuance for Non-Cash Asset

Measurement Rule: Assets acquired through issuance of shares must

be recorded using the fair value of the asset* or fair value of the share
whichever is more clearly determinable.

Bridging Corporation issued 2500 P100 par value ordinary shares in exchange
for a used van with a book value of P400, 000 and a fair value of P 290, 000.
Bridging Corp.’s share is selling at P102 each on the date of exchange.

Service Vehicle P 290, 000

Ordinary Share Capital P 250, 000
Share Premium-OS 40, 000
Share Issuance for Non-Cash Asset

Bridging Corporation issued 2500 P100 par value ordinary shares in exchange
for a used van with a book value of P400, 000 but fair value is undetermined as
of date. Bridging Corp.’s share is selling at P102 each on the date of exchange.

Service Vehicle P 255, 000 (2500 x 102)

Ordinary Share Capital P 250, 000
Share Premium-OS 15, 000
Share Issuance for Non-Cash Asset

Bridging Corporation issued 2500 P100 par value ordinary shares in exchange
for a used van with a book value of P400, 000 and a fair value of P 200, 000.
Bridging Corp.’s share is selling at P102 each on the date of exchange.

Service Vehicle P 255, 000 (2500 x 102)

Ordinary Share Capital P 250, 000
Share Premium-OS 15, 000

The fair value of the service vehicle cannot be used because it is lower than the aggregate par
value of shares issued and when used, it will render the stocks watered.
Share Issuance for Non-Cash Asset

Bridging Corporation issued 2500 P100 par value ordinary shares in exchange
for a used van with a book value of P400, 000. No data on fair market values of
both asset and shares were determinable

Service Vehicle P 250, 000

Ordinary Share Capital P 250, 000

If both fair values are not given, the asset must be recorded using the PAR/STATED value of
the shares.
Conclusion

Shares issued for non-cash consideration shall be recorded using

these measurements in the order of priority:
1. Fair Value of the asset received
2. Fair value of the shares issued
3. Par/Stated Value of the share issued
Share Issuance for Services

Measurement Rule: Shares issued in exchange for services must be

accounted for using the fair value of the services received.
Exception: (PFRS2) Equity instruments issued in exchange for
services of employees must be recorded using the fair value of the
instrument issued.
Bridging Corporation issued 500 P20 par value ordinary shares in exchange for
a lawyer’s service. The fair value of the service would have been P 15, 000 if
paid in cash.

Legal Fees P 15, 000

Ordinary Share Capital P 10, 000
Share Premium-OS 5, 000
Share Issuance for Services

Bridging Corporation issued 700 P50 par value ordinary shares in exchange for
plumbing services for the company building. The work was done in 10 days and
the daily rate of the plumbing team amounts to P5, 000.

Repairs and maintenance Expense P 50, 000

Ordinary Share Capital P 35, 000
Share Premium-OS 15, 000
Share Issuance for Services

Bridging Corporation issued 1000 P20 par value shares to each of the five vice
presidents of the company as a remuneration for their service and loyalty. The
services earned the company P 5, 000, 000 for the year and boost the
company’s share to P 75 market price.
Compensation/Salaries Expense P 375, 000
Ordinary Share Capital P 200, 000
Share Premium-OS 175, 000

5 officers x 1000 shs = 5000 shs x 75 market price = 375, 000