Corporation
An artificial being created by
operation of law having the
right of succession and the
powers, attributes and
properties expressly
authorized by law or incident
to its existence
Advantages
Disadvantages
1. Limited liability of
shareholders
1. Complicated in
formation
2. Transferability of
shares
2. Greater degree of
government control
and supervision
3. Continued life
existence
3. Centralized
management
4. Greater source of
funds
4. Heavier income
tax
Kinds of Corporation
 Stock Corporations
 Non-Stock Corporations
Components of Corporation
1.Incorporators
2.Corporators
3.Shareholders or members
4.Subscribers
 Articles of Incorporation – basic
instrument by which a corporation is
formed under the corporation statutes,
executed by several persons as
incorporators.
 By- Laws – the regulations, ordinances,
rules or laws adopted by any association
or corporation for its government.
 Stock certificate or share certificate –
evidence of the shareholder’s ownership
interest in a corporation.
1.Owners
Corp.
Partner
ship
Sole
Proprietor
ship
Several
(at least
5)
2 or more one
2.
Sharehold Partners’ Owner’s
Ownership er’s
capital
capital
Account
Equity
Corp.
Partner Sole
ship
Proprietor
ship
3. Equity
section of
Balance
Sheet
Shareholder’s Partners Owner’s
equity
’ equity equity
4. Income
Summary
close to
Accum.Profits Partners Owner’s
/Losses
’ capital capital
(Retained
Earnings)
Share Capital (Capital Stock)
1.Share Capital
2.Subscribed Share Capital
(subscribed capital stock)
3.Subscriptions Receivable
4.Treasury Share
Major Classifications of Share
Capital
1.Ordinary Share (Common
Stock)
2.Preference Share (Preferred
Stock)
Classifications of Preference
Share Capital
1. Cumulative preference shares
2. Noncumulative preference shares
3. Participating preference shares
4. Nonparticipating preference shares
5. Convertible preference shares
6. Redeemable or callable preference
shares
Accounting for Share Capital
Transactions
1)Authorization
2)Subscription
3)Issuance
4)Reacquisition
5)Retirement
Illustrations:
1.) Assume that Thai Co. was
authorized to issue 10,000
equity shares at par value of
P100 per share
Share Capital
Debit
The company was
Acc. No. 300
Credit
Authorized to issue
P1,000,000 number Shares at par value
of P100 per share
2.) Assuming that the
incorporators of Thai Co.
subscribed to the 25% of the
total authorized share capital
of P1,000,000 at par of P100
per share and paid 25% of the
subscribed share capital.
3.) Assume further that all of the
P250,000 total subscribed
share capital is fully paid.
4.) Additional 1000 equity shares
were subscribed at par of P100
per share and paid 30% of the
subscribed share capital.
5.) Assume that additional 500
equity shares are issued for
cash of P120 per share
6.) Total net income for the year
is P50,000
Thai Co
Shareholders’ Equity
As of January 31, 20xx
Share capital, P100 par,
10,000 shares authorized,
issued 3,000 shares
P300,000
Subscribed share capital,
1,000 shares
P100,000
Less: Subscription Rec.
70,000
30,000
Share premium
10,000
Accumulated Profits
50,000
Total
P390,000
Issuance of Share Capital for
Noncash consideration
1.Tangible or intangible property
2.Services rendered
3.Equity shares issued by the other
corporation
4.Unpaid liabilities of the issuing
corporation
Note for a non-cash
consideration received
in order of priority:
1. Fair market value of non cash
consideration received
2. Fair market value of share capital issued
3. Par value of share capital
*If exchange of liability, the basis for the
value of the share capital issued is the
amount of liability set off.
Illustration:
A Co. issued its 1,000
shares with a par value of P100
per share for a parcel of land.
Assuming that the equity share
has a fair market value of P120
per share and the land has a
fair market value of P150,000.
Illustration 2:
Assume that the 1,000
shares at P100 par with fair
market value of P130 per share
are issued as compensation of
services rendered by the
corporate consultant.
Illustration 3:
Assume that A Co. issued
2,000 shares at P20 par with
a market value of P50 per
share as payment of its
outstanding loans payable of
P50,000
Dividends
distributions to stockholders of
corporate earnings in proportion to
the number of shares held by
them. Distributions may take form
of cash, non cash assets, notes or
other evidence of corporate
indebtedness, and shares of the
company’s own stock.
Important Dates:
1.Date of Declaration
2.Date of stockholder’s record
3.Date of payment or distributions
Kinds of Dividends
1.Cash Dividends
2.Property Dividends
3.Stock Dividends
 small share capital dividend – less than
20% @ market value on the date of
declaration or par value whichever is higher.
 large share capital dividend – 20% or more
@ par value of the shares to be issued.
Kinds of Dividends
1.Cash Dividends
Declaration Date:
Accumulated Profits
xxx
Cash Dividends Payable
xxx
Payment:
Cash Dividends Payable
xxx
Cash
xxx
Kinds of Dividends
2.Property Dividends
Declaration Date:
Accumulated Profits
xxx
Property Dividends Payable
xxx
Payment:
Property Dividends Payable
Asset
xxx
xxx
Kinds of Dividends
3. Stock Dividends
Declaration Date:
Accumulated Profits
xxx
Stock Dividends Distributable
Share Premium form Stock Dividends
Payment:
Stock Dividends Distributable
xxx
Share Capital
xxx
xxx
xxx
Illustration:
Assume that on January 15, 2011,
P2.50 cash dividend for each
share holding was declared to
shareholders on record as of
January 31, 2011 payable on
March 15, 2011. The equity of the
GFR Company as of January 31,
2011 was as follows:
Share capital (ordinary shares)
Authorized, 1,000,000
shares at P10 par value
P10,000,000
Unissued shares, 400,000 shares
4,000,000
P 6,000,000
Accumulated Profits
P 1,500,000
Treasury Shares, 200,000 shares
at cost P5
P 1,000,000
Required: Journalize above transactions
Illustration 2:
Assume that on January 15, 2011,
1 share of ordinary share for every
10 share holding was declared as
share capital dividend to
shareholders on record as of
January 31, 2011 payable on March
15, 2011.
The share of GFR Corporation
was selling in the market as:
Dec 31, 2010 - P12/share;
Jan 15, 2011 – P14/share;
Jan 31, 2011 – P15/share;
March 15, 2011 – P13/share
Dividends on Ordinary Share
and Preference Share
Dividend Rights of Preference
Share
Cumulative preference share
– entitled to any dividend in
arrears
Participating preference share
– entitled to receive dividends in
excess of the regular dividends.
1.Noncumulative and
nonparticipating
2.Noncumulative and participating
3.Cumulative and nonparticipating
4.Cumulative and participating
50,000
20,000
30,000
100,000
100,000
20,000
20,000
120,000
120,000
24.00
30,000
30,000
50,000
50,000
120,000 120,000
80,000 120,000 200,000
16.00
24.00
50,000
50,000
250,000 250,000
50,000 250,000 300,000
10.00
50.00
50,000
25,000
75,000
15,000
45,000
30,000
80,000
16.00
40,000 120,000
8.00
50,000
25,000 75,000
125,000 83,333
41,667 125,000
125,000
133,333
26.67
66,667 200,000
13.33
50,000
25,000 75,000
225,000 150,000
75,000 225,000
225,000
200,000 100,000 300,000
40.00
20.00
50,000
20,000
30,000
100,000
100,000
20,000
20,000
120,000
120,000
24.00
30,000
30,000
50,000
50,000
25,000
25,000
95,000 63,333
63,333
95,000
31,667 31,667
143,333 56,667 200,000
28.67
11.33
50,000
50,000
25,000
225,000 150,000
225,000
25,000
150,000
75,000
75,000
200,000 100,000 300,000
40.00
20.00
Accounting for
Treasury Shares
Illustration: The shareholder’s equity of
FED Corp. included the following items:
Ordinary shares, P20 par,
50,000 stocks
P1,000,000
Share Premium in excess
of par (P5 per share)
250,000
Accumulated Profits
500,000
On September 1, 2010, 1,000 shares
were reacquired at P24. On September
30, 700 shares were issued at P30.