PAC101

PARTNERSHIP AND CORPORATION ACCOUNTING

Learning Module on PAC101 – PARTNERSHIP AND CORPORATION ACCOUNTING

STUDENT
Name:
Student Number:
Program:
Section:
Home Address:
Email Address:
Contact Number:

PROFESSOR
Name: ANNIELEAH D. DEBASA
Academic Department: DEPARTMENT OF BUSINESS AND ACCOUNTANCY
Consultation Schedule:
Email Address: [email protected]
Contact Number:

Learning Module on PAC101 – PARTNERSHIP AND CORPORATION ACCOUNTING

GENERAL INSTRUCTIONS:

MODE OF STUDY AND ATTENDANCE

For this school year, the City College still adopted a blended study program – a mix of offline and online
instructions. This learning modality entails that there shall be scheduled online classes requiring student
attendance and interaction for the entire semester. There shall be an arranged on-campus attendance requiring
the student to be present. Likewise, in this learning approach, the College still crafted modular materials in three
(3) correlated modules designed for synchronous and asynchronous instructions to be given to the student
through e-Guro--the in-house Learning Management System adopted by the school as main conduit of delivery
of instruction of the college to the student.

LEARNING MATERIALS AND REFERENCES

The inclusive topics of this module shall also be the basic flow of virtual and nonvirtual discussion. The
students are encouraged to read the module before joining the scheduled online/offline interaction. As for study
references and materials, several textbooks are available in the college library, wherein you can collectively or
individually request an electronic/physical copy. Alternatively, you can source related references available in
the web portal. When looking for study resources and materials either offline or across the net, please be
reminded of the so-called law on Data Privacy Act of 2012. The City College of Calamba owns the content of
the modular materials provided to you, henceforth the author of the books, websites, journals/videos content,
etcetera unless tolerable for learning duplication. Please do not upload modular materials provided to you unless
a written consent is course through the college and approved the same for learning purposes. You shall be
mindful and practice due diligence in dealing with exclusive rights issues, especially our modular materials, to
avoid mishaps on your part.

GRADING SYSTEM
The student's learning progress will be measured through output activities in the form of enrichment and
assessment. These activities are pre-formatted designed by your respective instructor, which can be given to the
student synchronously or asynchronously. You can expect a combination of fill-in-the-blank, true-or-false,
traditional multiple-choice, analytical illustrations, and essays in a time-bounded manner. The outputs, including
the virtual performance, shall be the basis for your grade. The grading scheme for these activities shall be 40%
for quizzes, task reporting, and seat works, 40% for assessment/major examinations, and 20% for virtual
performance and attendance, and the grades shall be uploaded per activity per student and can be viewed
through the LMS or other convenient mode to inform the student with their ranking performance. For final grade
merit, the following are the weight of each Module: Module 1, 30%; Module 2, 30%; and 40% for Module 3.

A student who cannot complete and pass the abovementioned evaluation activities given during the
term in the prescribed manner by the professor with or without a valid reason will be marked as failed. Likewise,
the original grading scheme to evaluate the student shall be reverted and take effect without reservations.

COMMITMENT OF INTEGRITY
As an enrolled student in this institution, you shall always uphold and perform your task with utmost honesty
and integrity. The City College will NOT tolerate any misconduct or misbehavior, especially any protocol violation
in the implemented learning modality. Whoever is found guilty of these shall be given sanctions written in your
student's manual.

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LEARNING MODULE INFORMATION

I. Course Code PAC101
II. Course Title PARTNERSHIP AND CORPORATION ACCOUNTING
III. Module Number 3 (Finals)
IV. Module Title Corporation: Share Capital and Retained Earnings
V. Overview of the Module The Module has three (3) lessons that shall discuss the corporation
formation and subsequent transactions such as but not limited to
Share Capital and Retained Earnings transactions. Lesson 1 will
cover the theories for corporation formation as well as issuance of
shares and subscriptions. Lesson 2 is a special topic for treasury
shares and donations affecting shareholders' equity. Lesson 3 is
devoted for retained earnings emphasizing the following topics:
transactions for income or loss from operations, dividends,
appropriations and reversal of appropriation, and computation of
earnings and book value per share.
VI. Module Outcomes The related entries in the corporation formation and its subsequent
transactions shall be prepared and journalized. The shareholders'
equity section shall be presented in good form. The book value per
share and dividend per share shall be determined for the
shareholders' interest.

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Lesson 1: CORPORATION: PAID-UP CAPITAL

Lesson Objectives

At the end of the lesson, the students are expected to:

❖ Prepare necessary entries involving the formation of corporation, and
❖ Prepare the shareholders' equity section specifically the Share Capital.

Getting Started

After taking up the two kinds of business organization, namely single proprietorship and partnership,
the accounting for corporation will now be discussed.

Discussion

DEFINITION OF COPORATION

Corporation is an artificial being created by operation of law, having right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. (Sec. 2,
Revised Corporation Code)

CHARACTERISTICS OF CORPORATION

1. Separate legal existence,

2. Created by the operation of law,
3. Right of succession,
4. Powers, attributes and properties expressly authorized by law or incident to its existence,
Classification of Corporate powers:
a) Express powers
b) Incidental powers
c) Implied powers
5. Limited liability of shareholders,
6. Corporate Management,
7. Government regulations.

CORPORATE CAPITAL STRUCTURE

The capital structure of a corporation is different from a partnership and single proprietorship. Here
is the typical organizational structure for a corporate set-up.

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SHAREHOLDERS

BOARD OF
DIRECTORS

PRESIDENT

VP FOR VP FOR VP FOR HUMAN

VP FOR FINANCE
MARKETING PRODUCTION RESOURCE

KINDS OF CORPORATION

1. Stock
2. Non-Stock
3. Public
4. Close
5. Open

KINDS OF STOCKS
As to value
▪ Par value stock
▪ No par value stock

As to right
▪ Ordinary share
▪ Preference share

LEGAL CAPITAL

To protect the creditors, the law requires a minimum permanent investment from the shareholders.
The minimum permanent investment called Legal Capital represents minimum assets of the
corporation which cannot be distributed to the shareholders in the lifetime of the corporation.

Note: Investments/shares at the par value represent Legal Capital while all proceeds from the issue of
no par value shares are treated as Legal Capital.

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INCORPORATION REQUIREMENT

✓ With your Articles of Incorporation, the law

permits any number of persons,
partnership, association or corporation,
singly or jointly, from one but shall not be
more than 15 to organize a private
corporation.
✓ The incorporator(s) must be of legal age
and willfully bind to form the organization.
✓ As provided in the Revised Corporation
Code, no minimum capitalization is
required to form a corporation unless
otherwise mandated by special law
requiring minimum capitalization like
banks, insurance and other financial
intermediaries, etcetera. However, at least 25% of the authorized capital stock must be subscribed
and at least 25% of the subscriptions must be paid in the event of amending Authorized Capital
Stock.

ARTICLES OF INCORPORATION
CORPORATE BY LAWS
SHARE CAPITAL

This represents the amount paid in by the

shareholders whether in cash, property and
service and for which a certificate of stock is issued
as evidence of stock ownership.

ORGANIZATION EXPENSES

In organizing a corporation, certain costs have

to be incurred such professional fees of lawyers,
accountants and promoters, licenses, printing
costs, registration, and the like. These are called
organization costs or pre-registration costs and to
be recorded as organization expenses.

SHAREHOLDERS' EQUITY

The shareholders' equity represents the residual interest of shareholders in the net assets of the
corporation. It is divided into two parts:
1. Contributed Capital or paid in Capital represents total contributions made by the shareholders.
2. Retained Earnings represents accumulated profits earned or losses incurred in the operation of
the business.

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METHODS OF ACCOUNTING FOR STOCKS

1. Memorandum entry method. The authorized shares is recorded using a memorandum entry only
and when shares are issued.
2. Journal entry method. The authorized Capital is recorded by debiting Unissued Share Capital
and crediting Authorized Share Capital. Every time shares are issued; the Unissued Share Capital
is decreased by a credit entry.

Application

The following illustrations showcase the accounting for issuances, subscription and delinquent stocks
and its related journal entries using memorandum method and prepare the statement of stockholders’
equity upon formation.

Case 1: ISSUANCE OF SHARES FOR CASH, PROPERTY AND SERVICE AT PAR AND MORE THAN PAR VALUE

Shares may be issued for cash, property and service. Considerations received may be equal to the
total par value of shares issued or may be more than the par value.

Assume on April 1, current year, the following are the transaction to the formation of ABC
Corporation.
a. The corporation was authorized to issue:
Preference Shares, P100 par value, 10,000 shares
Ordinary Shares, P100 par value, 20,000 shares

Apr 1 Authorize to issue, 10,000 Preference Shares @P100 par and 20,000 Ordinary
Shares @P100 par value.

b. Incorporators subscribed at par and fully paid which is equivalent to 25% of ordinary shares.
Apr. 1 Cash 5 0 0 0 0 0
Ordinary shares 5 0 0 0 0 0
To record issuance of ordinary shares
Analysis: (20,000 shares x P100 par) = P2,000,000 Authorized amount of Capital for Ordinary
(20,000 shares x 25%) = 5,000 Number of Ordinary shares issued
(5,000 shares x P100) = P500,000 Cost of Ordinary shares issued

c. Several investors paid P120 per share for ordinary shares 1,000 shares.
Apr. 1 Cash 1 2 0 0 0 0
Ordinary shares 1 0 0 0 0 0
Share Premium-Ordinary 2 0 0 0 0
To record issuance of 1,000 ordinary shares
Analysis: Share premium is the excess of cash received over par or stated value,
(1,000 shares x P120 per share) = P120,000 Cash/consideration received
(1,000 shares x P100 par) = P100,000 Cost of ordinary shares issued
(1,000 shares x P20 excess par) = P 20,000 Share Premium-Ordinary

d. Mr. Reyes paid P100 per share for 1,000 preference shares.

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April.1 Cash 1 0 0 0 0 0
Preference shares 1 0 0 0 0 0
To record issuance of 1,000 perference shares to Mr. Reyes
Analysis: (1,000 shares x P100 par value) = P100,000 Cost of Preference shares issued

e. Mr. Santos gave merchandise costing P100,000 with fair value of P120,000 for equivalent ordinary
shares.

April.1 M erchandise Inventory 1 2 0 0 0 0

Ordinary shares 1 2 0 0 0 0
To record issuance of 1,200 ordinary shares in lieu of merchandise
Analysis: Noncash assets shall be recorded at fair value. Thus, the equivalent common shares of
P120,000 merchandise to be issued to Mr. Santos is, (120,000 / P100 par) = 1,200 common shares

f. Atty. Roxas received 500 preference shares for his professional service amounting to P60,000.
April.1 Organization expense 6 0 0 0 0
Preference shares 5 0 0 0 0
Share Premium-Preference 1 0 0 0 0
To record issuance of 500 preference shares to Atty. Roxas
Analysis: Organization cost is treated as expense in the year of occurrence, this normally includes
professional fees who initiated and organized to form a corporation,
Cost of service = P60,000 Consideration received
(500 shares x P100 par) = P50,000 Cost of Preference shares issued
(P60,000 – P50,000) = P10,000 Share Premium–Preference

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ABC Corporation
Statement of Financial Position (In Peso)
asof
as ofApril
April1,1,2022
2022

ASSETS
Current Assets
Cash 720,000
Merchandise 120,000
Total Assets 840,000
SHAREFOLDERS' EQUITY
Sharesholders' Equity
Contributed capital:
Preference shares, P100 par value, 10,000 authorized,
1,500 shares issued and outstanding at par 150,000
Share Premium - Preference 10,000 160,000
Common shares, P100 par value, 20,000 authorized,
7,200 shares issued and outstanding at par 720,000
Share Premium - Common 20,000 740,000
Total contributed capital 900,000
Less: Organization expense 60,000
Total Sharesholders' Equity 840,000

Case 2: ISSUANCE FOR SHARES AT SUBSCRIPTION

Stock/Share subscription is an agreement to purchase shares of stock and states the number of
shares being subscribed, the subscription price, and the terms of payment and call dates. In the
absence of call dates, the payment is made upon the call of the board of directors.

The Subscription Receivable is to be presented in the statement of financial position as Current

Asset if collectible within a year otherwise it is a deduction from the Subscribed Capital Share of the
shareholders’ equity section.

Assume the following transactions related to the formation of ABC Corporation:

a. The corporation was authorized to issue, Ordinary Shares, P100 par value, 20,000 shares.

Apr 1 MEMO: Authorize to issue 20,000 Ordinary shares with P100 par value.

b. On April 1, 2021, all incorporators subscribed at par equivalent to 25% of ordinary shares but paid
only 25%.

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April.1 Cash 1 2 5 0 0 0
Subscription Receivable 3 7 5 0 0 0
Subscribed Ordinary shares 5 0 0 0 0 0
To record subscription of 5,000 shares at par
Analysis: (20,000 shares x 25%) = 5,000 shares as Subscribed Capital
(5,000 shares x P100) = P500,000 Total amount of subscribed capital
(P500,000 x 25%) = P125,000 Initial Cash payment
(P500,000 x 75%) = P375,000 Subscription Receivable
Note: Certificate of stocks may be issued only when shares are fully paid.

c. On April 30, all incorporators paid 50% of the subscription balance.

April.30 Cash 1 8 7 5 0 0
Subscription Receivable 1 8 7 5 0 0
To record partial payment on subscription
Analysis: (P375,000 balance x 50%) = P187,500 Partial collection on subscription

d. May 15, all incorporators paid the balance in full and were issued the corresponding stock
certificates.
M ay.15 Cash 1 8 7 5 0 0
Subscription Receivable 1 8 7 5 0 0
To record full payment of subscribed capital

Subscribed Ordinary shares 5 0 0 0 0 0

Ordinary shares 5 0 0 0 0 0
To record issuance of 5,000 ordinary shares
Analysis: (P500,000 - P125,000 - P187,500) = P187,500 Cash received for full payment

Case 3: ISSUANCE FOR DELINQUENT SHARES

When stock/share subscription is NOT PAID on call date or on the date fixed by the board, then it is
said to be delinquent. The law provides for a 30-day period from subscription date or from call date to
pay the whole subscription amount before declaring delinquent. The unpaid subscription may be sold
in public auction to the highest bidder. The highest bidder is one who is willing to pay for the least
number of shares. Payment includes the full amount of unpaid subscription plus accrued interest,
advertising and selling cost of delinquent shares. Excess shares shall be issued to the defaulting
subscriber.

Using Case 2 data, assume on May 15, Mr. Lopez, one of the five incorporators was declared
delinquent and the shares were offered for sale at a public auction.

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May.15 Cash 1 5 0 0 0 0
Subscription Receivable 1 5 0 0 0 0
To record full payment of 4 incorporators' subscriptions

Subscribed Ordinary shares 4 0 0 0 0 0

Ordinary shares 4 0 0 0 0 0
To record issuance of 4,000 ordinary shares
Analysis: (P187,500 / 5 incorporators) = P37,500 Mr. Lopez amount of delinquent shares
(P37,500 / P100 par) = 375 delinquent shares for auctioned
(P37,500 / 50% / 75%) = P100,000 Total amount of subscription each
(P100,000 / P100 par) = 1,000 Subscribed shares per incorporators
(P37,500 x 4 incorporators) = P150,000 Total cash received for full payment
(P100,000 x 4 incorporators) = P400,000 Amount of Ordinary shares issued
(1,000 shs x 4 incorporators) = 4,000 Number of Ordinary shares issued

Then, Mr. Mallari as highest bidder offered to pay the amount due plus P1,000 interests charge on
the unpaid subscription.
M ay.15 Receivable from highest bidder 3 7 5 0 0
Subscription Receivable 3 7 5 0 0
To record transfer of M r. Lopez subscribed balance to the highest bidder

On May 30, collected all the amounts due from the highest bidder and stock certificates were issued
accordingly.
May.30 Cash 3 8 5 0 0
Receivable from highest bidder 3 7 5 0 0
Interest Income 1 0 0 0
To record collection of subscribed balance due to the highest bidder

Subscribed Ordinary shares 1 0 0 0 0 0

Ordinary shares 1 0 0 0 0 0
To record issuance of 1,000 shares to Mr. Lopez and highest bidder
Analysis: (P100,000 / P100 par) = 1,000 Subscribed common shares
(P37,500 / P100 par) = 375 Issued shares to highest bidder, Mr. Mallari
(62,500 / 100 par) = 625 Issued shares to Mr. Lopez

Summary of the Lesson

❖ Corporation is an artificial being created by operation of law, having right of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence.
❖ The owners of the stock corporation are the shareholders or stockholders. They elect the Board of
directors among themselves. The corporators are called members in a nonstock corporation and
they elect the Board of trustees. The founders of a corporation are called incorporators and these
are the original shareholders written in the articles of incorporation.

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❖ The board of directors is responsible for the overall supervision of the firm. They have the final
authority on policy making and control of corporate activities.
❖ The President (Chief Executive Officer) and the other officers are responsible for the operations of
the firm, implement the policies set up and plans drawn by the Board of Directors. Next to the
president are the Vice presidents who are given specific areas of responsibility as managers.
❖ Kinds of Corporation
➢ Stock Corporation is one which is privately owned by individuals and by some non-government
units and is organized for profit which is distributed as dividends to the owners.
➢ Non-Stock Corporation such as a religious sect or a religious school is nonprofit in nature therefore
no shares of stock are distributed nor dividend distribution.
➢ Public Corporation is a government corporation organized for accomplishment of the public
functions such as the national government, provincial, city or municipal government.
➢ Close Corporation is a family corporation in which stock is held by a selected few and not open
to any person. It is also called a privately held corporation.
➢ Open Corporation is one where the stock is listed in the stock market available for purchase by
any one person or entity. It is also called a publicly held corporation.
❖ Kinds of Stocks
As to value
➢ Par value stock is one in which a fixed value is stated in the certificate of stock and in the articles
of incorporation. This serves as a minimum basis for the amount of contribution of a shareholder.
It means that the stock can be issued at par and above par but not below par value.
➢ No par value stock is one without a designated value stated in the stock certificate but it cannot
be sold at less than P5.00 as provided in the Revised Corporation Code of the Philippines. Further,
the law allows the Board of Directors or shareholders to fix value at some later date. The stock is
then called no par value but with an issued value or stated value.
As to right
➢ Ordinary share is an ordinary stock issued by a corporation which entitles the owner to a pro rata
dividend without any priority or preference over any other stockholders. If only one kind of stock
is issued by the corporation, it is presumed to be a common stock or ordinary share.
➢ Preference share is a class of stock with preferential rights or claims over the common stock. The
most common preferential right is its priority claim over dividend distribution. Preference share is
usually issued at par and the dividend rate is expressed as percentage of the par value.
❖ Legal Capital is a minimum permanent investment from the shareholders which cannot be
distributed to the shareholders in the lifetime of the corporation. Investments at the par value
represent legal Capital. On the other hand, all proceeds from the issue of no par value shares are
treated as legal Capital
❖ The law permits any number of persons, partnership, association or corporation, singly or jointly, from
one but shall not be more than 15, may organize a private corporation.
❖ Articles of Incorporation - A corporation should file its Articles of Incorporation with the SEC, duly
signed and acknowledge by all incorporators and containing substantial information regarding the
corporation.
❖ Corporate By-Laws. Within a month after the SEC issues a certificate of incorporation, Corporate By-
Laws must be adopted and also filed with the SEC. By-Laws are rules of actions concerning internal
administration of the corporation.

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❖ Share Capital. This represents the amount paid in by the shareholders whether in cash, property and
service and for which a certificate of stock is issued as evidence of stock ownership. The certificate
of stock is issued upon full payment of the shareholders. This is a written acknowledgement by the
corporation of shareholders' interest in the corporation and its net assets.
❖ Organization Expenses. These costs include professional fees of lawyers, accountants and
promoters, licenses, printing costs, registration, and like. These are called organization costs or pre-
registration costs and to be recorded as organization expenses.
❖ Shareholders' Equity. The shareholders' equity represents the residual interest of shareholders in the
net assets of the corporation. It is divided into two parts:
➢ Contributed Capital of paid in Capital represents total contributions made by the shareholders.
➢ Retained Earnings represents accumulated profits earned or losses incurred in the operation of
the business.
❖ Methods of Accounting for Stocks
➢ Memorandum entry method. The authorized shares is recorded using a memorandum entry only
and when shares are issued.
➢ Journal entry method. The authorized Capital is recorded by debiting Unissued Share Capital and
crediting Authorized Share Capital. Every time shares are issued; the Unissued Share Capital is
decreased by a credit entry.

Suggested Links
1. https://www.google.com/search?rlz=1C1CHBD_enPH821PH821&q=What+included+in+articles+of+
incorporation%3F&sa=X&ved=2ahUKEwia7di1jsfqAhXszYsBHRvyD_gQzmd6BAgQEBc&biw=1745&bi
h=881&dpr=1.1
2. http://accounting-financial-tax.com/2011/08/accounting-for-share-capital-transactions/

References
1. Manuel, Z.V.C, (2019), 21st Century Financial Accounting and Reporting for: Partnership and
Corporation. (2019 Edition) Manila: Zenaida Vera Cruz Manuel.
2. Ballada, W. & Ballada, S. (2019). Partnership and Corporation Accounting: Made Easy. (2019 ed.)
Manila: Dom Dane Pub.: Made Easy Books.
3. Empleo, Robles, German (2016) Fundamentals of Accounting Volume 2 Partnership and Corporation
(2016 Ed.) Mandaluyong City Millennium Books Inc.
4. Frias, Fajardo (2018), Elementary Accounting (Partnership and Corporation) (2018 Ed.), Manila,
Unlimited Books Library Services & Publishing Inc.
5. https://www.officialgazette.gov.ph/downloads/2019/02feb/20190220-RA-11232-RRD.pdf

Lesson 2: CORPORATION: TREASURY STOCKS

Lesson Objectives

At the end of the lesson, the students are expected to:

❖ To journalize accounting for treasury shares, and
❖ Prepare the shareholders' equity section specifically showing treasury shares.

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Discussion
DEFINITION OF TREASURY SHARES

Treasury shares are shares of stock which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation or some other lawful
means. (Sec. 9, Revised Corporation Code)

REASONS WHY A CORPORATION REACQUIRES ITS OWN SHARES

Statement of Financial Position
❖ To invest excess cash temporarily,
❖ To improve earnings per share, ASSETS
❖ To support the market price for the share capital,
❖ To obtain shares for conversion of other securities, and LIABILITIES
❖ To obtain shares for options granted to executives and key employees. SHAREHOLDERS EQUITY
Paid in Capital XX
Cost method is used to account transactions for treasury share. Donated capital XX
Retained Earnings XX
Less: Treasury Shares XX
WAYS TO REACQUIRE TREASURY SHARES
❖ Acquisition by purchase (Case 1)
❖ Acquisition through donation (Case 2)

Entry to record acquisition of treasury shares in the books:

XXXX Treasury shares X X X X

Cash/Donated Share Capital X X X X
To record reacquisition of shares

Application

The following illustrations showcase the accounting for treasury stocks and its related journal entries
under cost method and prepare the statement of stockholders’ equity showing treasury shares.

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Case 1: TREASURY SHARES ACQUIRED BY PURCHASE

1A: Treasury shares transaction at more than cost

On the current year, assume the following capital structure for DBA Corporation:

Ordinary Share, P20 par, 100,000 shares,

all issued and outstanding ₱ 2,000,000
Share Premium 500,000
Retained Earnings 800,000

▪ September 15, 10,000 shares were reacquired at P23.

▪ October 2, 6,000 shares were reissued at P24 per share
▪ November 12, two thousand shares were reissued at P28 per share.
▪ December 31, remaining shares were retired at price of P19 per share.

Sept.15 Treasury shares (P10,000 shares x P23) 2 3 0 0 0 0

Cash 2 3 0 0 0 0
To record reacquisition of shares

Oct.2 Cash (6,000 shares x P24 1 4 4 0 0 0

Treasury shares (6,000 shares x P23) 1 3 8 0 0 0
Share premium - Treasury (P6,000 shares x P1) 6 0 0 0
To record sale of treasury shares

Nov.12 Cash (2,000 shares x P28) 5 6 0 0 0

Treasury shares (2,000 shares x P23) 4 6 0 0 0
Share premium - Treasury (P2,000 shares x P5) 1 0 0 0 0
To record sale of treasury shares

Note: When treasure shares are reissued at more than acquisition cost, the excess is credited to an
Additional Paid in Capital appropriately described, which in this case, Share Premium - Treasury.

Sharesholders' Equity
Contributed capital:
Ordinary Shares, P20 par value, 100,000 authorized,
98,000 shares issued; 2,000 shares in the treasury* ₱ 2,000,000
Share Premium - Ordinary 500,000
Share Premium - Treasury 16,000
Total Contributed capital 2,516,000
Retained Earnings 800,000
Less: Treasury Shares (2,000 shares at Cost) ( 46,000 )
Total Sharesholders' Equity ₱ 3,270,000

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Note: The remaining 2,000 Treasury Shares will be a deduction from the issued shares. Total number of
issued shares to be accounted for is only 98,000 shares upon purchase and resale transactions.

Dec.31 Ordinary Shares (2,000 shares x P20) 4 0 0 0 0

Treasury shares (2,000 shares x P19) 3 8 0 0 0
Share premium - Retirement of Treasury Shares (2,000 shares x P1) 2 0 0 0
To record retirement of treasury shares

Note: Retirement is at gain because the retirement price of P19 is lower than par value and said gain
is charged to Paid in Capital appropriately described like here Share premium – Retirement of TS.

1B: Treasury shares transaction at less than cost

Using Case 1A data scenario except for the following: on November 12, where the two thousand
shares were reissued at P18 per share and the rest is retired at P26 per share on December 31.

Nov.12 Cash (2,000 shares x P18) 3 6 0 0 0

Share premium - Treasury (same class transaction)) 6 0 0 0
Retained Earnings (P46,000-P36,000-P6,000) 4 0 0 0
Treasury shares (2,000 shares x P23) 4 6 0 0 0
To record sale of treasury shares

Sharesholders' Equity
Contributed capital:
Ordinary Shares, P20 par value, 100,000 authorized,
98,000 shares issued; 2,000 shares in the treasury ₱ 2,000,000
Share Premium - Ordinary 500,000
Total Contributed capital 2,500,000
Retained Earnings (P800,000 - P4,000) 796,000
Less: Treasury Shares (2,000 shares at Cost) ( 46,000 )
Total Sharesholders' Equity ₱ 3,250,000
Note: When treasure shares are reissued at less than acquisition cost, the difference is first debited to
previous Paid in Capital arising from treasury share transactions, (if any only), and the remaining
amount is charged to retained earnings account.

Dec.31 Ordinary Shares (2,000 shares x P20) 4 0 0 0 0

Share Premium - Ordinary (2,000 shares x P5*) 1 0 0 0 0
Retained Earnings (2,000 shares x P1**) 2 0 0 0
Treasury shares (2,000 shares x P26) 5 2 0 0 0
To record retirement of treasury shares
* Share premium P500,000/100,000 shares = P25 Selling price of first issuance
( P25 - P20 par value = P5 designated share premium)
**P26 retirement cost- P20 par value - P5 share premium = P1 Retained Earnings)

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Note: "Losses" or excess cost over par value from retirement of treasury shares, are charged in balance
of the following account in this order: (1) Share Premium – 1st issuance (limited to its balance only); (2)
Share Premium from treasury stock (If any); and (3) Retained Earnings. Please take note that the
retained earnings may be debited but never be credited for transactions involving treasury shares.

Case 2: TREASURY SHARES ACQUIRED THROUGH DONATION

On the current year, assume the following capital structure for DBA Corporation:

Ordinary Share, P20 par, 100,000 shares,

all issued and outstanding ₱ 2,000,000
Share Premium 500,000
Retained Earnings 800,000

▪ May 1, when the market value of each ordinary share was P24, all shareholders donated
5% of their holdings to the corporation.
▪ June 30, all of the donated shares were reissued at P26 per share.

M ay.1 Treasury Shares (*5,000 shares x P24) 1 2 0 0 0 0

Donated Share Capital 1 2 0 0 0 0
To record acquisition of treasury shares
*100,000 shares x 5% = 5,000 shares

Note: Acquisition of treasury shares through donation may be recorded using memorandum entry at
cost (fair value) on the day of acceptance.

June.30 Cash (5,000 shares x P26) 1 3 0 0 0 0

Treasury Shares (5,000 shares x P24) 1 2 0 0 0 0
Donated Share Capital (5,000 shares x P2) 1 0 0 0 0
To record sale of donated shares

Note: Treasury shares may be acquired by the corporation through voluntary donation from
shareholders. The total shareholders' equity is increased by P130,000 after receipt and subsequent sale
of the donated shares.

Summary of the Lesson

❖ Treasury shares are those that have been previously issued but are later reacquired for reasons. It is
recorded at cost by purchase or through donation. Upon reissue, any excess from the proceeds of
sales over cost is credited to share premium account. On the other hand, any excess of the cost
over the proceeds from sales is charged to an existing share premium from treasury shares, if any,
and then to retained earnings.
❖ In the retirement of treasury shares, the authorized and issued shares are reduced by its count at par
value. Meaning, the number of shares issued is reduced by the stock retired. Retirement may be
resulted in a gain/loss. In the event of loss (retire price is more than par value), it should be
accounted (debited) in the following order: (1) Share Premium up to its balance only; (2) Share

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Premium from treasury stock; and (3) Retained Earnings. Retained earnings may debited but never
be credited for transactions involving treasury shares
❖ Treasury shares may be acquired by the corporation through voluntary donation from shareholders.
Acquisition of treasury shares by donation may be recorded via memorandum or journal entry. The
total shareholders' equity is increased after receipt and subsequent sale of the donated shares.

Suggested Links
1. http://simplestudies.com/basics_of_accounting_for_treasury_stock_transactions.html
2. https://www.investopedia.com/terms/t/treasurystock.asp
3. https://quizlet.com/85231006/accounting-211-chapter-11-multiple-choice-flash-cards/
4. https://www.coursehero.com/file/33669606/Exam-4-Multiple-Choicedocx/

References
1. Manuel, Z.V.C, (2019), 21st Century Financial Accounting and Reporting for: Partnership and
Corporation. (2019 Edition) Manila: Zenaida Vera Cruz Manuel.
2. Ballada, W. & Ballada, S. (2019). Partnership and Corporation Accounting: Made Easy. (2019 ed.)
Manila: Dom Dane Pub.: Made Easy Books.
3. Empleo, Robles, German (2019) Fundamentals of Accounting Volume 2 Partnership and Corporation
(2016 Ed.) Mandaluyong City Millennium Books Inc.
4. Frias, Fajardo (2018), Elementary Accounting (Partnership and Corporation) (2018 Ed.), Manila,
Unlimited Books Library Services & Publishing Inc.
5. https://www.officialgazette.gov.ph/downloads/2019/02feb/20190220-RA-11232-RRD.pdf

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Lesson 3: CORPORATION: RETAINED EARNINGS

Lesson Objectives:

At the end of the lesson, the students are expected to:

❖ To journalize the accounting for retained earnings,
❖ To compute the different kinds of dividends, and
❖ To prepare statement of changes in shareholders' equity.

Discussion and Application

Retained Earnings (Accumulated Profits) is the component of shareholders’ equity arising from the
retention of assets generated from the profit-directed activities of the corporation.
COMPOSITION OF RETAINED EARNINGS

❖ Profit or Loss (Case 1)

❖ Share capital transactions and restrictions (like treasury stock on the module 2)(Case 2)
❖ Dividends (Case 3)

Case 1: PROFIT OR LOSS

The basic steps in the accounting cycle for a corporation are the same as that of a sole
proprietorship and a partnership type of business. The difference, however, of corporation lies on the
equity section called "Shareholders’ Equity” primarily because it is presented according to source in
the statement of financial position. Likewise, on how to account profits/losses that the entity had made
during the period through the retained earnings. The pro-forma closing entry, if the operations of a
corporation resulted in a profit or loss, would be:

XXXX Income Summary X X X X

Retained Earnings X X X X
To record closing entries (when income)

XXXX Retained Earnings X X X X

Income Summary X X X X
To record closing entries (when loss)

Case 2: SHARE CAPITAL TRANSACTIONS AND RESTRICTIONS

TYPES OF RESTRICTIONS

1. Appropriation for contingencies – it’s a voluntary appropriations approved by the Board to be used
in case of deficit operation, plant & segment expansion, etc.
2. Appropriation for Bonds and Stock Redemption – a contractual appropriations set aside for provision
of redeeming stocks and bonds issued by the company.

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3. Appropriation for Treasury shares – an appropriation covered by law or legal appropriations to

sustain amount of shares in the treasury.
The pro-forma entry to restrict and unrestricted the retained earnings would be:

XXXX Retained Earnings X X X X

Appropriation/Reserve for ___________ X X X X
To record appropriated earnings for _______ (when Restricting)

XXXX Appropriation/Reserve for ___________ X X X X

Retained Earnings X X X X
To record release of appropriated earnings for _______ (when UNrestricting)

On January 1 of the current year, assume DBA Corporation had the following capital structure:

Ordinary Share, P20 par, 100,000 shares,

all issued and outstanding ₱ 2,000,000
Share Premium 500,000
Retained Earnings 1,800,000

DBA gained a P280,000 net profit during the year and following are some transactions related to the
restrictions of retained earnings:
➢ February 4, the company reacquired its owns in the amount of P100,000.

Feb.4 Retained Earnings 1 0 0 0 0 0

Appropriation for Treasury Shares 1 0 0 0 0 0
To record appropriated earnings for acquisition of own shares

➢ April 8, DBA company set aside an amount of P400,000 for Bond redemption in year 2025.

Apr.8 Retained Earnings 4 0 0 0 0 0

Appropriation for Bonds 4 0 0 0 0 0
To record appropriated earnings for bond redemption

➢ May 15, the company allocated 200,000 pesos for future purchase of real property.

M ay.15 Retained Earnings 2 0 0 0 0 0

Appropriation for Land 2 0 0 0 0 0
To record appropriated earnings for contingency (Land)

➢ As of December 31, the company has treasury shares amounting to P10,000.

Dec.31 Appropriation for Treasury Shares 9 0 0 0 0

Retained Earnings (P100,000 - P10,000) 9 0 0 0 0
To record unappropriated earnings for treasury shares

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STATEM ENT OF RETAINED EARNINGS

Unappropriated Earnings:
Balance, January 1 ₱ 1,800,000
Add: Net Profit 280,000

Total ₱ 2,080,000
Appropriated Earnings:
Less: Net Loss -
Appropriation for Land ( 200,000 )
Appropriation for Bonds ( 400,000 )
Appropriation for Treasury ( 10,000 )
Total ( 610,000 )
Balance, Dececmber 31 ₱ 1,470,000

Case 3: DIVIDENDS

ENTITLEMENT OF DIVIDENDS
Revised Corporation Code Sec. 42 states that all outstanding capital stock are entitled to dividends. It
means all issued, outstanding and subscribed shares are entitled to dividends except treasury shares.
TWO KINDS OF DIVIDENDS
❖ Ordinary dividends are dividends out of earnings (retained earnings), and
❖ Liquidating dividends are dividends out of Capital (will not discuss here)

COMMON FORMS OF ORDINARY DIVIDENDS

A. Cash dividends, which are distribution of cash to the shareholders;
B. Property dividends, which are distribution of non-cash assets to the shareholders;
C. Liability/Scrip, where promissory notes are distributed to shareholders; and
D. Stock dividends, also known as bonus issue, where shares of the company’s stocks are distributed to
shareholders.

THREE (3) SIGNIFICANT DATES in accounting for dividends

➢ Date of declaration - date when board of directors formally approves and announces the
dividends declaration. Pro-forma entry: debit Retained Earnings, credit Dividend (Asset, Liability
or Equity) Payable.
➢ Date of record – date selected by the board of directors is stated in the declaration. No journal
entry is required on this date.
➢ Date of distribution or payment is date determined by the board of directors and stated in the
declaration. The date of payment usually follows the declaration date by four to six weeks. On
this date, an entry is prepared to record the distribution as follows: debit Dividend (Asset, Liability
or Equity) Payable, credit Asset, Liability or Equity.

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3A: CASH DIVIDENDS

➢ Most common type of dividend usually expressed at a certain amount of peso (e.g. P5 per
share, P10 per share).
➢ Alternatively, can be expressed at a certain percentage of the par value (e.g. 10% is declared
a dividend on a P100 par value share).

Assume that the Board of Directors of DBA Corporation declared a cash dividend of 8% per share
on July 1, 2021 to shareholders of record as of August 15, 2021, payable on September 15, 2021. Total
outstanding and issued shares: 100,000 shares at a par of P100. Journal entries in the books will be:

Date of Declaration
July.1 Retained Earnings 8 0 0 0 0 0
Cash Dividend Payable (100,000 shares x 8% x P100) 8 0 0 0 0 0
To record delaration of dividends

Date of Distribution 8 0 0 0 0 0
Sept.15 Dividend Payable 8 0 0 0 0 0
Cash
To record payment of dividends

3B: PROPERTY DIVIDENDS

➢ Inventories – lower of cost and net realizable value
➢ Trading securities – fair value
➢ PPE – lower of carrying value (cost minus accumulated depreciation) and fair value

Assume that the Board of Directors of DBA Corporation declared a property dividend of one share
of SOP Company ordinary share for ten 10 shares of DBA. SOP Company is held as equity investment
through profit and loss and have a carrying value per share of P50. There are 100,000 DBA ordinary
shares issued and outstanding.

Date of Declaration
July.1 Retained Earnings 5 0 0 0 0 0
Property Dividend Payable (100,000 shares / 10 x P50) 5 0 0 0 0 0
To record delaration of dividends

Date of Distribution 5 0 0 0 0 0
Sept.15 Property Dividend Payable 5 0 0 0 0 0
Equity Investment at fair value through P/L
To record payment of dividends
Note: Non-cash assets like inventories, securities held by the corporation as investment and PPE are
occasionally distribute as property dividends measured at fair value.

3C: SCRIP DIVIDENDS

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➢ A scrip is a written promise to pay certain amount at future date plus interest until date of
payment.

➢ This liability dividends is declared when the corporation has sufficient retained earnings, but no
enough cash balance to pay the dividends.
Assume DBA Corporation declared 10% scrip dividends on May 1, 2021 payable on May 1, 2022 with
interest at the rate of 12%. The total par value of the outstanding shares of DBA is 1M.

Date of Declaration
M ay.1 Retained Earnings 1 0 0 0 0 0
Scrip Dividend Payable (P1,000,000 shares x 10% ) 1 0 0 0 0 0
To record delaration of dividends
Dec.31 Interest Expense 8 0 0 0
Interest Payable (100,000 x 12% x 8/12) 8 0 0 0
To record interest of scrip dividends

Date of Distribution
M ay.1 Interest Expense 4 0 0 0
Interest Payable 8 0 0 0
Scrip dividend Payable 1 0 0 0 0 0
Cash 1 1 2 0 0 0
To record payment of dividends

3D: STOCK DIVIDENDS

➢ A distribution of the corporation’s own stock from unissued shares.
➢ It is usually expressed at a certain percentage of the shares issued and subscribed.
➢ It is a way of capitalizing the retained earnings of the corporation (increasing Paid in Capital
and decreasing Retained Earnings)

Assume on May 1, current year, DBA Corporation has the following accounts on its equity section:
Ordinary Shares, P100 par value, 50,000 authorized,
10,000 shares issued and outstanding ₱ 1,000,000
Share Premium 200,000
Retained Earnings 550,000

TWO CATEGORY OF STOCK DIVIDENDS:

1. Small stock dividends (less than 20%), charged to retained earnings at the fair value.

A 10% dividend was declared when the market value of the stock was P150 per share.

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Date of Declaration
M ay.1 Retained Earnings(10,000 shares x 10% x P150) 1 0 0 0 0 0
Stock Dividends for distribution (10,000 shares x 10% x P100) 1 0 0 0 0 0
Share Premium (10,000 shares x 10% x P50) 5 0 0 0 0
To record delaration of dividends
Date of Payment
Jul-01 Stock Dividends for distribution 1 5 0 0 0 0
Ordinary Shares 1 5 0 0 0 0
To record payment of dividends

Note: Stock Dividends for distribution has no effect in the financial position of the company. However,
it will become part of Paid in Capital on the date of payment.

2. Large stock dividends (20% or more), should be capitalized to retained earnings at the par value.

A 20% dividend was declared when the market value of the stock was P150 per share.
Date of Declaration
M ay.1 Retained Earnings(10,000 shares x 20% x P100) 1 0 0 0 0 0
Stock Dividends for distribution (10,000 shares x 20% x P100) 1 0 0 0 0 0
To record delaration of dividends

Date of Payment
Jul-01 Stock Dividends for distribution (10,000 shares x 20%
1 0x P100)
0 0 0 0
Ordinary shares 1 0 0 0 0 0
To record payment of dividends

Note: Since the stock declaration was 20%, the retained earnings was debited only at par value and
no share premium is recognized.

TYPES OF PREFERENCE SHARE

1. Non-participating – limit the holders to receive dividends for a specified rate or amount only.
2. Non-cumulative – holders are entitled only to current year declared dividends.
3. Cumulative – entitle the holders to the receipt of dividends not paid in previous year/s.
4. Fully participating – entitle the holders to the additional dividends over the stipulated rate or amount.
5. Partially participating – allow the holders to receive dividends limited to an additional rate specified
on the stock certificate.

Assume on July of the current year, DBA Corporation has the following stock issued and outstanding:
16% Preference shares, par value of P100,
20,000 shares issued and outstanding ₱ 2,000,000
Ordinary Shares, P50 par value, 500,000
10,000 shares issued and outstanding
Retained Earnings 2,450,000

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Preference#1&2: On the same month, the BOD declared cash dividends of P1,200,000. No dividends
were declared for the past two years. Payment month is August.

Preference Ordinary Total

₱ 1,200,000
20,000 shares x 16% x P100 x 1year ₱ 320,000 - 880,000
Remainder to Ordinary share (1.2M -320T) - ₱ 880,000 -
₱ 320,000 ₱ 880,000

Date of Declaration
July Retained Earnings 1 2 0 0 0 0 0
Cash Dividend Payable - Preference 3 2 0 0 0 0
Cash Dividend Payable - Ordinary 8 8 0 0 0 0

Date of Payment
August Cash Dividend Payable - Preference 3 2 0 0 0 0
Cash Dividend Payable - Ordinary 8 8 0 0 0 0
Cash 1 2 0 0 0 0 0

Note: Since preference share is non-cumulative and non-participating, the share in the dividends of
the preferred shareholders is limited only to the year of declaration and its agreed rate.

Preference#2&3: On the same month, the BOD declared cash dividends of P1,200,000. No dividends
were declared for the past two years. Payment month is August.
Preference Ordinary Total
₱ 1,200,000
20,000 shares x 16% x P100 x 3years ₱ 960,000 - 240,000
Remainder to Ordinary share (1.2M -960T) - ₱ 240,000 -
₱ 960,000 ₱ 240,000

Date of Declaration
July Retained Earnings 1 2 0 0 0 0 0
Cash Dividend Payable - Preference 9 6 0 0 0 0
Cash Dividend Payable - Ordinary 2 4 0 0 0 0

Date of Payment
August Cash Dividend Payable - Preference 9 6 0 0 0 0
Cash Dividend Payable - Ordinary 2 4 0 0 0 0
Cash 1 2 0 0 0 0 0

Note: Since preference share is cumulative but non-participating, the preferred shareholders are
entitled to receive dividends not only in the year of declaration but also in the previous years in which

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dividends were not declared. In the example above, preferred shares were given 3 years (1 current +
2 previous years) dividends with its agreed rate.

Preference#3&4 on the same month, the BOD declared cash dividends of 1.2M. No dividends were
declared for the past two years. Payment month is August.
Preference Ordinary Total
₱ 1,200,000
2M x 16% x 3 years ₱ 960,000 240,000
500,000 x 16% x 1 year 80,000 160,000
Remainder to Ordinary share (1.2M -960T) -
Preference (2M /2.5M ) x P160,000 128,000 32,000
Ordinary (2M /2.5M ) x P160,000 - 32,000 -
Total ₱ 1,088,000 ₱ 112,000

Date of Declaration
July Retained Earnings 1 2 0 0 0 0 0
Cash Dividend Payable - Preference 1 0 8 8 0 0 0
Cash Dividend Payable - Ordinary 1 1 2 0 0 0

Date of Payment
August Cash Dividend Payable - Preference 9 6 0 0 0 0
Cash Dividend Payable - Ordinary 2 4 0 0 0 0
Cash 1 2 0 0 0 0 0

Note: Dividends for preference shares are good for 3 years. Use the same dividend rate to distribute
dividends to the ordinary shares. Remaining amount, if any, is distributed to both preferred and ordinary
using their capital ratio.

Preference#5 on the same month, the BOD declared cash dividends of 1.2M. No dividends were
declared for the past two years. Payment month is August.
Preference Ordinary Total
₱ 1,200,000
2M x 16% x 1 year ₱ 320,000 880,000
500,000 x 16% x 1 year 80,000 800,000
2Mx (20% - 16% = 4%) 80,000 720,000
Remainder to Ordinary share -
(1.2M - 320T P80T - P80T) 720,000 -
Total ₱ 400,000 ₱ 800,000

Note: Compute the dividends for both preferred and ordinary use the Preferred's dividends rate. The
20% participating means you must add 4% to preferred (20% - 16% = 4%) based on preferred
capitalization and give the remainder amount to the ordinary shares.

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Date of Declaration
July Retained Earnings 1 2 0 0 0 0 0
Cash Dividend Payable - Preference 1 0 8 8 0 0 0
Cash Dividend Payable - Ordinary 1 1 2 0 0 0

Date of Payment
August Cash Dividend Payable - Preference 4 0 0 0 0 0
Cash Dividend Payable - Ordinary 8 0 0 0 0 0
Cash 1 2 0 0 0 0 0

Note: In computing dividends for preference share always look out its cumulating, participation and
date of declaration.

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

The statement of changes in shareholders’ equity is one of the statements required to be included
in the financial reports of a company. This is done to support final balances shown in the statement of
financial position. An illustration of one is hereby made below with the assumption of figures. Please
take note the important line items that should be explicitly included in the report are: Paid in Capital or
Contributed Capital, Unappropriated Retained Earnings, Appropriated Retained Earnings, and Treasury
shares.

DBA Corporation
Statement of Changes in Shareholders' Equity
For the year ended December 31, 2021

Share Share Retained Treasury

Reserves Total
Capital Premium Earnings Shares
January 01 ₱ 2,000,000 ₱ 500,000 ₱ 2,450,000 - - ₱ 4,950,000
Issuance 400,000 40,000 440,000
Reacquired ( ₱ 500,000) (500,000)
Appropriated for Treasury shares (500,000) 500,000 -
Unrealized Gain on Land 100,000 100,000
Net Income 650,000 650,000
Dividends (1,200,000) (1,200,000)
December 31 ₱ 2,400,000 ₱ 540,000 ₱ 1,400,000 ₱ 600,000 ( ₱ 500,000) ₱ 4,440,000

Paid in Capital Unappropriated Treasury

Retained Earnings Appropriated shares
RE

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BOOK VALUE PER SHARE

It is the equity or right of every shareholder in the net assets of the company. Also, it is the amount
that would be paid to the shareholders in the event of liquidation.
Assume the following data for DBA Corporation for the current year.

Assets ₱ 8,760,000
Liabilities 1,310,000
Ordinary shares, P50 par value;
100,000 shares issued and outstanding 5,000,000
Retained Earnings 2,450,000

BVPS computation with one kind of shares

Book Value per Share = Net Assets or Shareholders' Equity

Number of Shares Outstanding
= ₱8,760,000 - ₱1,310,000
100,000 shares
= ₱74.50
Note: Shareholders are entitled of P74.50 for every share they held over the net assets of P7,450,000 in
the event the company cease its operations.

EARNING PER SHARE

It is a relevant information for ordinary shareholders in assessing attractiveness of stock. EPS is the
amount income earned for each share held by the shareholders.
Assume the following data for DBA Corporation:

Ordinary shares, P50 par value;

100,000 shares issued and outstanding ₱ 5,000,000
Net Income 2,400,000

EPS computation is

Earnings per Share = Net Income

Ordinary Shares
= ₱2,400,000
100,000 shares
= ₱24.00
Summary of the Lesson
❖ Corporations complete their accounting cycle in a manner similar to that of a single proprietorship
or a partnership, except that the resulting balance of Income Summary in the closing process is
transferred to Retained Earnings.

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❖ Restriction on retained earnings is done to accommodate appropriation for treasury share and other
contingent activities of the company.
❖ There are two kinds of dividends
❖ Ordinary dividends are dividends out of earnings that can be distributed as:
❖ Cash dividends, which are distribution of cash to the shareholders;
❖ Property dividends, which are distribution of non-cash assets to the shareholders;
❖ Liability/Scrip, where promissory notes are distributed to shareholders; and
❖ Stock dividends, also known as bonus issue, where shares of the company’s stocks are distributed to
shareholders.
❖ Liquidating dividends are dividends out of Capital.
❖ Distributions of dividends to shareholders are made in proportion to the number shares held by the
latter. Except for liquidating dividends, dividends are distributions of corporate profits to shareholders
and this would be charged to retained earnings.
❖ Allocation of cash dividends between preferred and ordinary shares depends on the class of
preference shares that the corporation issues. Preference shares may be either cumulative or non-
cumulative and either participating or non-participating.
❖ Statement of Shareholders’ Equity illustrated important line items such as amount for Paid in Capital,
Unappropriated and Appropriated Retained Earnings and Treasury Shares in support to statement
of financial position.
❖ Book value per share and Earnings per share are relevant information for shareholders in assessing
attractiveness of stock. It’s a shareholders’ right to know the value of each share they held against
the Net Assets and Net Income respectively.
Suggested Links
1. https://courses.lumenlearning.com/sac-finaccounting/chapter/retained-earnings-entries-and-
statements/
2. https://www.researchgate.net/publication/333080028_DIVIDEND_THEORIES_AND_POLICIES
3. https://www.bartleby.com/solution-answer/chapter-1-problem-49e-cornerstones-of-financial-
accounting-4th-edition/9781337690881/exercise-1-4-retained-earnings-statement-at-the-end-of-2018-
sherwood-company-had-retained-earnings/a04cf6c8-6a46-11e9-8385-02ee952b546e
4. https://www.coursehero.com/file/14848270/MCQ-for-Mid-Term-Test-Ans/
5. https://openstax.org/books/principles-financial-accounting/pages/14-multiple-choice
6. https://www.accountingcoach.com/financial-statements/quiz

References
1. Manuel, Z.V.C, (2019), 21st Century Financial Accounting and Reporting for: Partnership and
Corporation. (2019 Edition) Manila: Zenaida Vera Cruz Manuel.
2. Ballada, W. & Ballada, S. (2019). Partnership and Corporation Accounting: Made Easy. (2019 ed.)
Manila: Dom Dane Pub.: Made Easy Books.
3. Empleo, Robles, German (2019) Fundamentals of Accounting Volume 2 Partnership and Corporation
(2016 Ed.) Mandaluyong City Millennium Books Inc.
4. Frias, Fajardo (2018), Elementary Accounting (Partnership and Corporation) (2018 Ed.), Manila,
Unlimited Books Library Services & Publishing Inc.
5. https://www.officialgazette.gov.ph/downloads/2019/02feb/20190220-RA-11232-RRD.pdf

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LEARNING MODULE

PAC101: PARTNERSHIP AND CORPORATION ACCOUNTING

FIRST SEMESTER SCHOOL YEAR 2022 – 2023

CHECKED BY

AUREA B. NATIVIDAD HAIDEE B. GONZALES

APPROVED BY

ELLEN C. ALMORO
Director
Department of Business Education

Learning Module on PAC101 – PARTNERSHIP AND CORPORATION ACCOUNTING