Delinquent Shares Treasury shares

- All stocks unpaid within 30 days from specified date or call - Corporation’s own shares of stock which have been originally issued and paid but
- Subject to sale by public auction, sold to the highest bidder subsequently reacquired by purchase, redemption, donation or some other
- Offer price = Unpaid subscription + interest accrued on subscription, expenses of lawful manner.
ads and other costs of sale - Some reasons for repurchasing a corporation’s own shares
- When there are no bidders, the corporation purchases its own shares (Treasury o To obtain shares for executive stock options and other compensation
shares) programs
o To improve per share earnings by reducing the number of shares outstanding
Callable preference share and to increase debt to equity ratio
- Can be called in or retired at a specified price at the option of the corporation o To support the market price of the stock and to invest idle cash temporarily
- An equity instrument o To increase the rate of dividend per share since it is not entitled to dividend
- When reacquired for retirement, ALL share capital accounts and premiums - Requisites:
relating to specific shares are removed from the accounts. o Shares must be the entity’s own shares
- Loss charged to Retained earnings o Shares have been issued originally
- Gains recorded as Share premium - Retirement of Preference shares o Reacquired but not canceled
- Can be reissued at a discount
Redeemable preference share - Shares can be reacquired only to the extent of retained earnings balance
- Has a mandatory redemption date and redeemed at the option of the holder - Methods: Cost method and Par value or stated value method
- An equity instrument but meets the definition of financial liability, PAS 32 - Cost method
provides classifying shares as current or noncurrent liability o Treasury shares are always recorded at cost
- Dividends paid are recorded as interest expense  Cash = cash paid
- Gain or loss from redemption recognized in the Income Statement  Noncash = CV of asset given / surrendered
o Reissuance
Convertible preference share  At more than cost: excess = share premium - TS
- Gives the holder the right to exchange the holdings into other securities: bonds  Below cost: loss = 1) share premium - TS 2) Retained earnings
or ordinary shares. o Retirement
- All related capital accounts are removed or closed from the accounts and any loss  DR Share Capital @par or stated value
is charged to Retained earnings, any resulting gain is recorded in the Share  CR Treasury shares @cost
premium – ordinary (conversion of PS)  Gains: CR Share premium – TS
 Loss: DR
Stock Split 1. Share premium from original issuance
- A change in the number of shares and the par value or stated value but not in the  Prorated in the absence of specific amount identified with
amount of the share capital of the entity. the treasury shares
- Forms: 2. Share premium from treasury shares
o Split up or share split proper 3. Retained earnings
o Split down or reverse share split o Presentation: Deduction from Total Shareholders’ Equity
- Only a memorandum entry is required
Dividends Cash Dividend
- Distribution of earnings or capital to the shareholders in proportion to their - Most common type of dividend and paid out of cash of the entity
shareholdings. - Can be expressed as:
- Classification: o A certain amount of peso per share: P5 per share
o Dividends out of earnings o A certain percent of the par or stated value: 7% dividend (Par 200 x 7% =
o Dividends out of capital P14/share)
- Shares entitled to dividends:
o All issued certificate of stocks Property Dividend
o All approved subscribed share capital even when not fully paid - Dividends in kind and paid in the form of corporate assets other than cash
- Shares not entitled to receive dividends - Basis: FMV of the asset to be distributed
o Unissued shares - Any difference between the carrying amount of the dividend payable and the
o Subscribed no-par value shares carrying amount of the asset distributed shall be recognized in profit or loss upon
o Treasury shares distribution.
- Dividends out of earnings - PFRS 5A, an entity shall measure a noncurrent asset classified for distribution to
o Declared only from retained earnings (legal) owners at the lower of carrying amount and fair value less cost to distribute at
o Stock dividends may be declared from premium on par value share. the end of the reporting period, the difference is accounted as impairment loss.
o Essential dates:
 Date of declaration, recognition date Choice of either cash or noncash dividend
 DR Retained Earnings - An entity shall estimate the dividend payable by considering both the fair value
 CR Dividends payable of each alternative and the associated probabilities of owners selecting each
 Date of record, no entry only a list of entitled shareholders alternative.
 Date of payment - The entity shall adjust the dividend payable based on the alternative chosen
 DR Dividends payable through equity or retained earnings at the end of each reporting period and at
 CR Cash or Non-cash asset / Share Capital the date of the settlement.
o Forms:
 Cash dividends Scrip dividend and Bond Dividend
 Property dividends - Also called liability dividends
 Liability dividends, Bond and Scrip - Normally in the form of promissory note (scrip) or bonds with interest issued to
 Stock dividends or bonus issue stockholder payable in money when matured.
- Dividends out of capital
o Liquidating dividend, a return of capital Stock Dividend
o A violation of trust fund doctrine - Paid out of the unissued shares of stock of the corporation
o Applicability: Wasting assets corporation - Does not affect the assets and total ownership of a corporation, it is a mere
o Any declaration in excess of retained earnings recorded as “ capital liquidated” transfer from Retained earnings to Share capital and Share premium accounts.
account, a deduction from shareholders’ equity. - Kinds: Ordinary and Special stock dividends
- Small Stock dividend
o Dividend declared < 20% of outstanding share capital
 o Issued at FMV of the stocks to be distributed on date of declaration, but FMV
should not be lower than Par or Stated value, in which case the Par or stated
value shall be used
- Large Stock dividend
o Dividend declared >/= 20% of outstanding share capital
o Issued at par value or stated value of the stocks to be distributed
- Presentation: when not yet issued, addition to Shareholders’ equity in the Total
Share capital

Fractional stock dividend

- Two ways to resolve or account for fractional stock dividend:
o The entity may issue warrants for the fractional shares and give the holders
enough time to accumulate sufficient warrants for a full share. “Fractional
warrants outstanding” shall be a part of share premium. OR
o The entity may pay cash in lieu of fractional share. Possible only if the source
of stock dividends is retained earnings. If the source is share premium, cash
payment is illegal.

Treasury shares as stock dividend

- Cost of shares shall be charged to retained earnings
- Considered as property dividend under the Philippine corporation code but are
accounted as Stock dividend in view of PAS 32: TS shares are a component of
shareholders’ equity and not a financial asset.

Special Cases on Stock Dividend

Dividends out of capital

Dividends as expense