XPARCOAC – CORPORATION ACCOUNTING – FINAL TERM

is an artificial being created by operation of law, having the right of

Corporation
succession and the powers, attributes and properties expressly
Accounting
authorized by law or incident to its existence.
CLASSES OF CORPORATION

Corporations which have share capital divided into shares and are
1. Stock
authorized to distribute to the holders of such shares, dividends or
Corporation
allotments of the surplus profits based on the shares held.

2. Non-stock is one where no part of its income is distributable as dividends to its

Corporation members, trustees or officers.

OTHER CLASSIFICATION OF CORPORATION

1. ACCORDING TO NUMBER OF PERSONS
a. Corporation
A corporation consisting of more than one corporator.
Aggregate

b. Corporation A corporation which consists of only one member or corporator and his
Sole successor such as a bishop.

2. ACCORDING TO NATIONALITY
a. Domestic
A corporation organized under Philippine laws.
Corporation

A corporation formed, organized or existing under laws other than

b. Foreign
Philippines’ and whose laws allow Filipino citizens and corporations to do
Corporation
business in its own country or State.
3. ACCORDING TO WHETHER PUBLIC OR PRIVATE PURPOSE
a. Public A corporation formed or organized for the government of a portion of the
Corporation state.
b. Private
A corporation created for private aim, benefit, or purpose.
Corporation
4. ACCORDING TO WHETHER CHARITABLE PURPOSE OR NOT
a. Ecclesiastical
Organized for religious purposes
Corporation
b. Eleemosynary
Established for public charity
Corporation

c. Civil Established for business or profit

5. ACCORDING TO THEIR LEGAL RIGHTS TO CORPORATE EXISTENCE
A corporation existing in fact and in law. It is organized in strict conformity
a. De Jure
with the law.

b. De Facto A corporation existing in fact but not in law.

 6. ACCORDING TO DEGREE OF PUBLIC PARTICIPATION WITH REGARDS TO SHARE
OWNERSHIP

a. Close A corporation whose share ownership is limited to selected persons or

Corporation members of a family not exceeding 20 persons.

b. Open A corporation where the share is available for subscription or purchase by

Corporation any person.

A corporation with a class of equity securities listed on an exchange or

c. Publicly held with assets more than P50,000,000 and having 200 or more holders, at
Corporation least 200 of which are holding at least 100 shares of a class of its equity
securities.
7. ACCORDING TO RELATION TO ANOTHER PERSON
A corporation that is related to another corporation that it has the power to
a. Parent/Holding either directly or indirectly elect most of the directors of a subsidiary
corporation.

A corporation controlled by another corporation known as a parent

b. Subsidiary
corporation.
COMPONENTS OF A CORPORATION
those who compose a corporation whether as stockholders or
CORPORATORS shareholders in a stock corporation or as members in a nonstock
corporation.

those stockholders or members mentioned in the Articles of Incorporation

INCORPORATORS (AOI) as originally forming and composing the corporation and who are
signatories to said articles of incorporation.

SHAREHOLDERS are corporators in a stock corporation. May be natural or juridical persons.

MEMBERS are corporators of a non-stock corporation.

are persons who have agreed to take and pay for original, unissued
SUBSCRIBERS
shares of a corporation formed or to be formed.

person who is acting alone with others, takes initiative in founding and
PROMOTERS
organizing the corporation and receives consideration therefor.
 are usually investment bankers who have:
o Agreed, alone or with others, to buy at stated terms an entire or a
substantial part of an issue of securities.
o Guaranteed the sale of an issue by agreement to buy from the
issuing corporation any unsold portion at a stated price: or
UNDERWRITES
o Agreed to use his best efforts to market all or part of an issue; or
o Offered for sale shares he has purchased from a controlling
stockholder.
o Offered for sale shares he has purchased from a controlling
stockholder.

a person who, apart from shareholdings and fees received from

corporation, is independent of management and free from any business
INDEPENDENT
or other relationship which could, or could reasonably be perceived to,
DIRECTOR
materially interfere with the exercise of independent judgement in carrying
out the responsibilities as a director.

is the value per share as stated in the Article of Incorporation and share
PAR VALUE
certificate.

CLASSES OF SHARES
One in which a specific amount is fixed in the articles of incorporation and
PAR VALUE SHARE appearing on the certificate stock. The par value is the minimum issue
price of the shares.
One without any value appearing on the face of the certificate of stock. A
NO PAR VALUE no-par value share may have a stated value which may be fixed in the
SHARES articles of incorporation or by the board of directors or by the
shareholders.
MINIMUM STATED VALUE: 5.00 PESOS
VOTING SHARES Those issued with right to vote.
NON-VOTING
Those issued without the right to vote.
SHARES
AUTHORIZED
Maximum number of shares the corporation can issue.
SHARE

ISSUED SHARE sold and paid in full.

SUBSCRIBED Portion pf authorized shares that have been subscribed but not yet fully
SHARE CAPITAL paid.
These shares entitle the holder to an equal pro-rata division of profits
ORDINARY SHARES
without any preference.
PREFERENCE these shares entitle the holder to certain advantages or benefits over the
SHARES holders of ordinary shares.
 may be given certain rights and privileges not enjoyed by the owners of
FOUNDERS’ SHARES
other stocks.
REDEEMABLE may be issued by the corporation when expressly provided in the articles
SHARES of incorporation.

stock that has been issued by the corporation as fully paid and later
TREASURY SHARES
reacquired but not retired.

those issued to promoters as compensation in promoting the

PROMOTION
incorporation of a corporation, on for services rendered in launching or
SHARES
promoting the welfare of the corporation.

CONVERTIBLE
stock which is convertible or changeable from one class to another class.
SHARES

It is the shares to be subscribed and paid in or secured to be paid in by

the shareholders, either in money, property, or services, at the time of
SHARE CAPITAL organization of the corporation or afterwards, and upon which it is to
conduct its operations. The share, contributed or paid-in capital is further
divided into the following:

o LEGAL Capital contributed by shareholders comes from the sale of shares of

CAPITAL stock.

o SHARE It is the portion of the paid-in capital representing amounts paid by

PREMIUM shareholders more than par.

o ORDINARY
This represents the basic ownership class of the corporation.
SHARE

o PREFERENCE This share gives its owners certain advantages over ordinary
SHARE shareholders.
TERMS RELATED TO SHARE CAPITAL
The number of authorized shares indicates the maximum number of
AUTHORIZED
shares the corporation can issue as specifies in the article of
SHARE CAPITAL
incorporation.

ISSUED SHARE These are shares which have been sold and paid for in full. Issued shares
CAPITAL may include treasury shares.

SUBSCRIBED It is the portion of the authorized share capital that has been subscribed
SHARE CAPITAL but not yet fully paid.

OUTSTANDING
These are issued shares, which are in the hands of the shareholders.
SHARE CAPITAL
 These are issued shares acquired by the corporation but not retired and
TREASURY STOCK
therefore, awaiting to be reissued later.

RETAINED Component of shareholders’ equity arising from the retention of assets

EARNINGS generated from profit-directed activities of the corporation.

Portion of paid-in capital representing amounts paid by shareholders

SHARE PREMIUM
more than par.

ACCOUNTING FOR ISSUANCE OF SHARE CAPITAL

When shares with par value are sold, the proceeds should be credited to
WITH PAR the share capital account to the extent of the par value of the shares,
with any excess being reflected as share premium.

When shares without par are sold, the proceeds should be credited to
the share capital account. If no-par stock has stated value, the excess
WITHOUT PAR
proceeds overstated value may alternatively be credited to share
premium.

SHARE ISSUANCE FOR CASH

ISSUING SHARE CAPITAL AT PAR

Illustration. Narsan Holdings is authorized to issue P1,000,000 ordinary shares divided into
10,000 shares, with a par value of P100 per share. The diversified corporation issued on cash
basis 2,000 shares at par. The share issuance entry will be:

Cash 200,000
Ordinary Shares 200,000

The amount of P200,000 invested in the corporation is called paid-in capital or contributed capital.
The credit to Ordinary Shares increases the share capital of the corporation.

ISSUING SHARE CAPITAL ABOVE PAR

Illustration. Suppose the 2,000 shares were sold at P150 per share, the entry follows:

Cash 300,000
Ordinary Shares 200,000
Share Premium 100,000

This sale of shares increases the corporation’s contributed capital by P300,000. When the shares
with par value are sold, the proceeds should be credited to the Ordinary Shares account to the
extent of the par value – in this case, P200,000; with any excess to be reflected in the Share
Premium account. The excess of P100,000 is not a “gain”. The corporation can neither earn a profit
nor incur a loss when it issues shares to or acquires shares from its shareholders.
 ISSUING NO-PAR SHARE CAPITAL

Illustration. Morning Star Travel is a domestic corporation engaged in the business of organizing
tour packages for Asian and European visitors to the Philippines. The entity which is located at J.
Bacobo St., Manila, has two classes of shares – preference shares and no-par ordinary shares.
5,000 ordinary shares were issued for P85,000. The entry to record the issue of these no-par
shares will be:

Cash 85,000
Ordinary Shares 85,000

When shares without par value are sold, the proceeds should be credited to the Ordinary Shares
account. Accounting for issuance of preference shares is basically the same as that of Ordinary
shares. Note, however, That Section 6 of the RCCP prohibits the issue of no-par value preference
shares.

ISSUING NO-PAR SHARE CAPITAL WITH STATED VALUE

Illustration. Suppose that Morning Start Travel’s no-par ordinary shares have a stated value of
P20. The entity issued 5,000 shares at P25 per share. The entry will be:

Cash 125,000
Ordinary Shares 125,000

When shares without par value are sold, the proceeds should be credited to the Ordinary Shares
account. If no-par stock has a stated value, the excess proceeds overstated value—in this case, P5
per share, may alternatively be credited to share premium.

Cash 125,000
Ordinary Shares 100,000
Share Premium 25,000

ORDINARY AND PREFERENCE SHARE

ORDINARY SHARES basic ownership class in the corporation.

Illustrate. Issued 1,000 shares with par value of P40 to a lawyer in exchange for legal services
pertaining to incorporation costing 50,000.

Organizational Expense 50,000

Ordinary Share Capital 40,000
Share Premium - Ordinary 10,000

PREFERENCE SHARES gives certain advantages over ordinary shares.

TYPES OF PREFERENCE SHARE

CALLABLE PREFERENCE Is one which can be called in for redemption at a specified price at
SHARE the option of the corporation.
 o No specified redemption dates.
o Equity Instrument

ACCOUNTING ISSUES:
Illustrate.
A. Issuance
Cash xxx
Preference Share xxx
Share Premium - Preference

B. Call
B.1. If higher than issue price
Preference Share xxx
Share Premium xxx
Retained Earnings xxx
Cash xxx

B.2. If lower than issue price

Preference Share
Cash
Share Premium - Preference

• Mandatory redemption by the issuer for fixed or

determinable future time.
• Gives the issuer the right to reacquire the issuer to redeem
the instrument for fixed or determinable future time.
REDEEMABLE
• Debt instrument
PREFERENCE SHARE
• Current or non-current liability depending on redemption
date.
• Gain or loss may arise on redemption date.
• Interest is recognized.

Illustrate.
A. Issuance
Cash xxx
Redeemable Preference Share xxx

B. Dividends/Implicit Interest
Interest Expense xxx
Cash / Accumulated Interest xxx

C. Redemption
Redeemable Preference Share xxx
Loss on Redemption xxx
Cash xxx
Is one which gives the holder the right to exchange the holding for
CONVERTIBLE
other securities of the issuing corporation.
PREFERENCE SHARE
Preference Share → Ordinary Share
Illustrate.
B. Conversion
B.1. PV of OS < Value of PS
Preference Share xxx
Share Premium - Preference xxx
Ordinary Share Capital xxx
Share Premium - Ordinary xxx

B.2. PV of OS > Value of PS

Preference Share xxx
Share Premium - Preference xxx
Retained Earnings xxx
Ordinary Share Capital Xxx4

Illustrate. Sold 5,000 shares of preference shares at P100 par value, at P110 for cash.

Cash 550,000
Preference Share Capital 500,000
Share Premium - Preference 50,000

TREASURY SHARE

shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation either by
TREASURY SHARES purchase, redemption, donation or through other lawful means.
Such shares may again be disposed of for a reasonable price fixed
by the board of directors.

Illustrate. Purchase of ordinary treasury share costing 70,000.

Treasury Share - Ordinary 70,000

Cash 70,000

REISSUANCE
Illustrate. Reissuance of 1,000 treasury share, at P90.

Cash (1,000 x 90) 90,000

Treasury Share - Ordinary 70,000
Share Premium - Treasury 20,000

NOTE! Reissuance of treasury share can be reflected if gain or loss.

DEBIT TO:
LOSS a) Share Premium – Treasury
b) Retained Earnings
REISSUANCE AT LOSS
Illustrate. Reissued the reacquired ordinary treasury shares at P50.

Cash (1,000 x 50) 90,000

Retained Earnings 20,000
Treasury Share - Ordinary 70,000

CREDIT TO:
GAIN
a) Share Premium - Treasury
REISSUANCE AT GAIN
Illustrate. Sold half of the reacquired treasury shares at P100 par.|

Cash (500 x 100) 50,000

Treasury Share – Ordinary (500 x 70) 35,000
Share Premium – Treasury 15,000

Illustrate. Sold half of the reacquired ordinary treasury shares at P65. Par value is at P70.

Cash (500 x 65) 32,500

Share Premium - Treasury 2,500
Treasury Share – Ordinary (500 x 70) 35,000

If Share Premium can still absorb the loss, you still must debit it from its account.

Illustrate. Sold half of the reacquired ordinary treasury shares at P10, par value at P70.

Cash (500 x 10) 5,000

Share Premium - Treasury 15,000
Retained Earnings 15,000
Treasury Share – Ordinary (500 x 70) 35,000

The balance of Share Premium is only at 15,000. Debit to its extent and debit Retained Earnings
for the excess.
RETIREMENT
Illustrate. Original Issuance, P50 at par. Issued 100 shares at P100.
Cash (1,000 x 100) 100,000
Ordinary Share Capital 50,000
Share Premium - Ordinary 50,000

Illustrate. Purchase of Treasury Share. Costing: P70. Repurchased 1000 shares of treasury
shares.
Treasury Share 70,000
Cash 70,000

Illustrate. Retirement of Treasury Share.

Ordinary Share Capital 50,000
Share Premium - Ordinary 20,000
Treasury Share 70,000

ORDER OF PRIORITY
1. Balance of Share Premium – Issuance
IF LOSS 2. Balance of Share Premium – Treasury
3. Retained Earnings
DONATED CAPITAL
TWO TYPES OF DONORS
Outsiders (those who are not part of your business)

o Government
a) EXTERNAL DONORS o Philanthropist
o Other entity

Can give: ASSET

Those who are part of your business.
o Shareholders
b) INTERNAL DONORS
Can donate: A) Asset, B) Shares
JOURNAL ENTRIES UPON DONATION

Outsiders. An outsider donated an Equipment.

Equipment 500,000
Donated Income 500,000

Insider. An insider donated an asset.

Equipment 500,000
Donated Capital 500,000
Date of Donation Share

Memo Entry: Received 1,000 shares as donation.

Illustrate. Sold the donated shares for P50 par value per share.
Cash (1,000 x 50) 50,000
Donated Capital 50,000

RETAINED EARNINGS
Represents the component of the shareholder’s equity arising
RETAINED EARNINGS from the retention or assets generated from profit-directed
activities of the corporation.

IF GAIN:
Income Summary xxx
Retained Earnings xxx

IF LOSS:
Retained Earnings xxx
Income Summary xxx

CLASSES OF RETAINED EARNINGS

1. RE -
Unrestricted (Dividends)
UNAPPROPRIATED
Restricted (Cannot be given as dividends)
o Legal – treasury share → trust fund doctrine.
2. RE- APPROPRIATED o Contractual
o Voluntary

PRO-FORMA ENTRY:

Retained Earnings (unappropriated xxx

Retained Earnings - Appropriated xxx

SHARE SPLIT

Is a transaction whereby the original shares are called in for

SHARE SPLIT cancellation and replaced by a larger/smaller number accompanied
by a reduction/addition in par value or stated value.
Illustrate. SHARE CERTIFICATE: 1,000 shares, P50 par value.

SPLIT UP: 2,000 shares, P25 par value.

“Issued 2,000 share with P25.00 par value in exchange for 2 for 1 split of 1,000 shares with P50
par value.

SPLIT DOWN: 500 shares, P100 par value.

“Issued too shares with par value of P100 in exchange for 1 for 2 splits down of 1,000 shares with
par value of P100 par value.”

DIVIDENDS
CASH DIVIDENDS

Distribution to shareholders of cash, property, or stocks from

unrestricted retained earnings based on all issued and fully paid
DIVIDENDS
shares, and all subscribed par value shares except treasury
shares.

3 IMPORTANT DATES
1.) Date of Declaration – Ex. February 1: Announced but NOT YET given to shareholders.
Retained Earnings xxx
Cash Dividends Payable xxx

2.) Date of Record – Identifies who is the person to receive the dividends. NO ENTRY.

3.) Date of Payment – Ex. April 1

xxx
Cash Dividends Payable
Cash xxx
PROPERTY DIVIDENDS
o Non-cash Assets
PROPERTY DIVIDENDS
o Dividends in Kind
Illustrate. To distribute Inventories amounting 300,000 with a Fair Market Value of 400,000.
1.) Date of Declaration
Retained Earnings 400,000
Property Dividends Payable 400,000

2.) Date of Record – NO ENTRY.

3.) Date of Payment –

Property Dividends Payable 400,000
Inventories 300,000
Gain on distribution of property dividends 100,000

If the value of the property increased,

Retained Earnings 50,000
Property Dividends Payable 50,000

Property Dividends Payable 450,000

Inventories 300,000
Gain on distribution of property dividends 150,000

If the value of the property decreased,

Retained Earnings 200,000
Property Dividends Payable 200,000

Property Dividends Payable 50,000

Retained Earnings 50,000

Loss on distribution of property dividends 150,000

Property Dividends Payable 150,000
Inventories 300,000

VALUATION 1.) Fair Market Value

STOCK DIVIDENDS
a payment to shareholders that consists of additional shares
STOCK DIVIDENDS
rather than cash.

1.) Date of Declaration

Retained Earnings xxx
Stock Dividends Payable xxx

2.) Date of Record – No Entry

3.) Date of Payment

Stocks Dividends Payable xxx
Ordinary/Preference Share 400,000

STOCK DIVIDENDS PAYABLE This is not a liability but rather an equity account.
 Two kinds of stock dividends:
VALUATION o Small – less than 20% (fair value at declaration date)
o Large – 20% or more (par value)

Example:
Authorized Share – 100,000
Issued Shares – 15,000
Treasury Shares – (5,000)
Outstanding Share – 10,000

Par Value: P50

Fair Value: P75

Declared Dividends: 20%

Date of Declaration
Retained Earnings 100,000
Stocks Dividends Payable 100,000

Date of Record – NO ENTRY

Date of Payment
Stocks Dividends Payable 100,000
Retained Earnings 100,000

Example:
Authorized Share – 100,000
Issued Shares – 15,000
Treasury Shares – (5,000)
Outstanding Share – 10,000

Par Value: P50

Fair Value: P75

Declared Dividends: 10%

Date of Declaration
Retained Earnings 75,000
Stocks Dividends Payable (1,000 x 50) 50,000
Share Premium - Ordinary 25,000

Date of Record – NO ENTRY

Date of Payment
Stocks Dividends Payable 50,000
Ordinary Share Capital 50,000
DIVIDENDS ON PREFERENCE AND ORDINARY SHARE
1. Non-cumulative - Horizontal
PREFERENCE SHARES 2. Cumulative - Horizontal
3. Non-participating - Vertical
 4. Participating - Verticle

1. Non-cumulative and non-participating

KINDS OF PREFERENCE 2. Cumulative and Participating
SHARE 3. Non-cumulative and Participating
4. Cumulative and Non-participating