CORPORATION ACCOUNTING

Share Capital Transactions

Basic Share Capital Transactions
There are 5 basic share capital transactions:
1. Authorization records the maximum number of shares a
corporation is authorized to issue.
2. Sale a shareholder buys stocks and pays immediately in full.
Stock certifcate is issued to the shareholder.
3. Subscription a subscriber enters into a contract to buy shares.
4. Collection a subscriber pays his subscription.
5. Issuance of certifcate if a subscription is fully paid, a stock
certifcate is issued to the subscriber.
Share Capital
Share capital may be paid by the shareholder or subscriber in the form
of
1. cash
2. property record the value of the property usin the follo!in
amounts:
a. fair value of the property received
b. fair value of the shares, !hichever is clearly determinable"
c. par value of the shares
3. labor or services record the cost of the labor or services usin
the fair value of the services rendered.
Share capital may be issued
1. at par
2. at a premium at an amount more than the par value
Share capital cannot be issued at a discount or an amount less
than par.
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#hen the value assined to the asset received is overstated, the share
issued is called watered shares. The overstatement is done to
comply !ith the re$uirement of the la! that the share should not be
issued at less than its par value.
International Accounting Standards (IAS) Terms
%elo! is a table sho!in the elements of a shareholders& e$uity !ith
their e$uivalent '(S terms:
Old Terms New IAS Terms
)apital stock Share capital
Subscribed capital stock Subscribed share capital
)ommon stock *rdinary share capital
+referred stock +reference share capital
(dditional paid in capital Share premium
,etained earnins -defcit. (ccumulated profts -losses.
,etained earnins appropriated (ppropriation reserve
,evaluation surplus ,evaluation reserve
Treasury stock Treasury share
Stock dividends %onus issue
Accountin !ethods to Record Share Capital
Transactions
1. /emo entry method
2. 0ournal entry method
Pro"#orma $ntries % Par &alue Share Subscribed or
Sold at Par
Transaction Memo Entry Method Journal Entry Method
(uthorization (uthorized to issue 11111 shares !ith
a par value of +111.
2nissued share capital xxx
(uthorized share capital xxx
Sale )ash xxx
Share capital xxx
)ash xxx
2nissued share capital
xxx
Subscription Subscriptions receivable xxx Subscriptions receivable xxx
2
Subscribed share capital xxx Subscribed share capital xxx
)ollection )ash xxx
Subscriptions receivable xxx
)ash xxx
Subscriptions receivable xxx
'ssuance of certifcate Subscribed share capital xxx
Share capital xxx
Subscribed share capital xxx
2nissued share capital
xxx
Classroom $'ercise
0ournalize the follo!in transactions under the memo entry method and the
3ournal entry method.
1. (%) )orporation is authorized to issue 4,555 shares !ith a par
value of +655.
2. ,eceived subscription for 6,555 shares at par.
3. )ollected the subscription in full.
4. 'ssued stock certifcate for 6,555 shares.
5. ,eceived subscription for 7,555 shares at par.
6. ,eceived partial payment on the above subscription, +655,555.
7. Sold 555 shares at par.
Pro"#orma $ntries % Par &alue Share Subscribed or
Sold at a Premium
Transaction Memo Entry Method Journal Entry Method
(uthorization (uthorized to issue 11111 shares !ith
a par value of +111.
2nissued share capital xxx
(uthorized share capital xxx
Sale )ash xxx
Share capital xxx
Share premium xxx
)ash xxx
2nissued share capital xxx
Share premium xxx
Subscription Subscriptions receivable xxx
Subscribed share capital xxx
Share premium xxx
Subscriptions receivable xxx
Subscribed share capital xxx
Share premium xxx
)ollection )ash xxx
Subscriptions receivable xxx
)ash xxx
Subscriptions receivable xxx
'ssuance of certifcate Subscribed share capital xxx
Share capital xxx
Subscribed share capital xxx
2nissued share capital
xxx
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Special Notes
1. 2nder sale and subscription, the debit to subscriptions receivable
and cash is computed as follo!s:
Subscriptions recei(able ) subscribed shares '
subscription price
Cash ) sold shares ' sellin price.
2. Subscribed Share )apital is al!ays credited at par.
3. Share )apital is al!ays credited at par.
Classroom $'ercise
0ournalize the follo!in transactions under the memo entry method and the
3ournal entry method.
1. (%) )orporation is authorized to issue 655,555 shares !ith a par
value of +65 per share.
2. ,eceived subscriptions for 6,555 shares at +67 per share.
3. ,eceived partial payment on the subscription, +5,555.
4. Sold 7,555 shares at + 66 per share.
5. )ollected the subscription in full.
Accountin #or Two Classes o# Shares
1. The t!o classes of shares are common or ordinary shares and
preferred or preference shares.
2. *rdinary shares entitle the holder to the four basic rihts of a
shareholder.
3. +reference share is enerally issued !ith par value and !ith a
dividend rate.
4. 8otin riht is fre$uently iven exclusively to ordinary shareholders.
5. The pro9forma entries to record share capital transactions for t!o
classes of shares are the same. :o!ever, the account titles must
be labeled as to !hether it is ordinary or preference.
6. The follo!in account titles may be used.
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Ordinary Preference
Subscriptions receivable 9 ordinary Subscriptions receivable
preference
Subscribed share capital 9 ordinary Subscribed share capital
preference
Share premium9 ordinary Share premium9 preference
Share capital 9 ordinary Share capital 9 preference
Accountin #or No Par Shares
1. ;o par shares do not have a defnite or fxed value.
2. ;o par shares are recorded usin the memo entry method only.
3. The entire consideration received by the corporation for its no
par value shares shall be treated as capital and shall not be
liable for distribution as dividends.
4. +reference shares !hich are preferred as to assets can be issued
only !ith par value.
5. %anks, trust companies, public utilities, buildins and loan
associations, insurance companies cannot issue no9par shares.
6. ;o par value shares may not be issued at an amount less than
+5 per share.
7. #hile no par value shares do not carry a nominal value in the
certifcate, a sellin price may be assined. This value is called
stated value. Stated value should not be less than +5 per
share.
Pro"#orma $ntries* No Par &alue Shares +!emo $ntr,
!ethod onl,-
Transaction o Stated !alue "ith Stated !alue
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(uthorization (uthorized to issue 11111 shares, no
par.
(uthorized to issue 11111 shares,
no par !ith a stated value of +111.
Sale )ash xxx
Share capital, no par xxx

)ash xxx
Share capital , no par
xxx
Share premium9stated value
xxx
Subscription Subscriptions receivable xxx
Subscribed share capital xxx
Subscriptions receivable xxx
Subscribed share capital
xxx
Share premium stated value
xxx
)ollection )ash xxx
Subscriptions receivable xxx
)ash xxx
Subscriptions receivable
xxx
'ssuance of certifcate Subscribed share capital xxx
Share capital, no par xxx
Subscribed share capital xxx
Share capital, no par
xxx
Classroom $'ercise
0ournalize the follo!in transactions assumin -a. there is no stated
value" -b. there is a stated value of +65.
1. (%) )orporation !as authorized to issue 655,555 shares, no par.
2. ,eceived subscriptions for <5,555 shares at +67 per share.
3. ,eceived full collection on the above subscription.
4. 'ssued stock certifcates.
5. Sold for cash 65,555 shares at +66 per share.
#egal $a%ital
=eal capital is that portion of the paid in capital arisin from issuance
of share capital !hich cannot be returned to the shareholders in any
form durin the lifetime of the corporation.
The amount of leal capital is determined as follo!s:
'n the case of par value shares, leal capital is the areate par
value of the shares issued and subscribed.
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'n the case of no par value shares, leal capital is the total
consideration received from shareholders includin the excess
over the stated value.
$ontri&uted $a%ital

)ontributed capital represents the amount invested or contributed by
o!ners. 't is also kno!n as paid in capital. This amount is composed
of
Share capital
,epresents the contribution e$ual to the par value or
stated value of the shares purchased by the shareholders
or
The total contribution by the shareholders in case of no par
share, no stated value share capital
Share premium
,epresents contribution in excess of the par or stated value
of the share capital
(rises also from various share capital transactions and
other transactions !ith shareholders
Treasury shares
Stock dividends
>onated shares
0uly 7564
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