ILLUSTRATION

Metro Marketing Corporation has Authorized Share Capital of P100,000 at P50 par value per
share. MEMO ENTRY is used in recording transaction:

CASE 1 - SUBSCRIBED AT PAR VALUE

Assume: 100 shares were subscribed at par value. Collected 30% down payment and balance
paid in full 10 days after

Subscription Receivable 5,000

Subscribed Share Capital 5,000

Cash 1,500
Subscription Receivable 1,500

Cash 3,500
Subscription Receivable 3,500

Subscribed Share Capital 5,000

Share Capital 5,000

CASE 2 - SUBSCRIBED AT P60.00 per share (Above Par Value)

Assume: 100 shares were subscribed at P60.00 per share. Collected 30% down payment and
balance paid in full 10 days after

Subscription Receivable 6,000

Subscribed Share Capital 5,000
Share Premium 1,000

Cash 1,800
Subscription Receivable 1,800

Cash 4,200
Subscription Receivable 4,200

Subscribed Share Capital 5,000

Share Capital 5,000

CASE 4 - SALE OF SHARES FOR CASH

Assume: 100 shares were acquired for cash at par value.

Cash 5,000
Share Capital 5,000

Assume: 100 shares were acquired for cash at P60 value.

Cash 6,000
 Share Capital 5,000
Share Premium 1,000

Assume: 100 shares were acquired for cash at P40 value.

Cash 4,000
Discount on Share Capital 1,000
Share Capital 5,000
CASE 3 - SUBSCRIBED AT P40.00 per share (Below Par Value)
Assume: 100 shares were subscribed at P40.00 per share. Collected 30% down payment and balance
paid in full 10 days after

Subscription Receivable 4,000

Discount on Share Capital 1,000
Subscribed Share Capital

Cash 1,200
Subscription Receivable

Cash 2,800
Subscription Receivable

Subscribed Share Capital 5,000

Share Capital
ayment and balance

5,000

1,200

2,800

5,000
The following rules should be observed when share capital is issued for non-cash consideration:

Rule 1 - If issued for tangible, intangible property and services, the recorded at an amount equal to the following
order of priority:
a) Fair market value of the non-cash consideration received
b) Fair market value of the share capital issued
c) Par Value of the share capital issued

Illustration
Mango Corporation issued its 1,000 shares with a par value of P100 per share in exchange for a parcel of land with
a fair market value of P130,000. The fair market value per share is P110. The entry to record the issuance of share
capital is:

Land 130,000
Share Capital 100,000
Share Premium 30,000

Rule 2 - If issued for outstanding liability, the share capital is recorded at an amount equal to the liability set off
Illustration
Mango Corporation issued its 1,000 shares with a par value of P100. The outstanding obligation amounts to P120,0

Loans Payable 120,000

Share Capital 100,000
Share Premium 20,000

Rule 3 - If issued in exchange for other equity securities, the measurement is equal to the following order of
priority.
a) Fair market value of the other equity securities received
b) Fair market value of the share capital issued
c) Par value of the share capital issued
Illustration
Mango Corporation issued its 1,000 shares at par value of P100 in exchange for Orange, Inc., 1,000 equity shares
The fair market value of Mango Corp , share is P120 while that of Orange, Inc. is P110.

Investment in Stock - Orange, Inc. 110,000

Share Capital 100,000
Share Premium 10,000

Rule 4 - If issued in exchange of services, the measurement is equal to the value of services.
Illustration
Atty. Valeriano Ipong, Jr. was given 60 shares of Mango Corporation's shares which has a par value of P100 and a
fair market value of P130 for the services rendered in the process of organization.

Legal Fees 7,800

Share Capital 6,000
Share Premium 1,800
 consideration:

n amount equal to the following

exchange for a parcel of land with

ry to record the issuance of share

unt equal to the liability set off

ding obligation amounts to P120,000

al to the following order of

Orange, Inc., 1,000 equity shares

P110.

ich has a par value of P100 and a

.
SHARE ISSUANCE EXPENSE
Share issuance expense direct cost to sell share capital which normally includes the following:
1. professional fees - accountants and attorney's fees
2. underwriting fees or commission
3. cost of printing share certificates
4. filing fees with Securities and Exchange Commission
5. cost of advertising the issuance
6. documentary stamp tax
The Accounting Standards provides that the expenses relative to share capital shall be charged to
Share Premium depending on what stage they are incurred.

1. if incurred during the organizational stage, it shall be first charged against Premium. If the
Share Premium is not sufficient, then the excess shall be charged to "Organizational Expense
Account".

Illustration
Manhattan Corporation is authorized to issue 10,000 shares at a P100 per share. After complying
with the SEC requirement and "Articles of Incorporation", a day after, two (2) shareholders
acquired 1,500 shares at P130 per share.

Details of Cash
25% x 10,000 xP100x 25% P 62,500
1,500 shares x P100, share capital 150,000
1,500 shares x P 30, 5hare Premium 45,000
Total P 257,000
The corporation incurred the following expenses:
a. attorney's and accountant's fees P 10,000
b. documentary stamps 2,000
c. printing cost of certificates 15,000
d. filing fees w/ SEC 3,000
e. underwriter's shares 50,000
Total P 80,000

Share Premium 45,000

Organizational Expense 35,000
Cash 80,000

2. If incurred during operational stage, it shall be charged against Share Premium. If

the Share Premium is not sufficient then the excess is charge against corporate
income.

Illustration
Manhattan Corporation has incurred a share issuance expense of P15,000 during the second year
of its operation. The corporation was able to issue 300 shares for cash at a premium of P140 per
share (par value is P100).
 Share Premium 12,000
Share Issuance Expense 3,000
Cash 15,000

3. If the cost is requiring or indirect in nature, it shall be charged to corporate income. Examples
are cost of maintaining capital records and administrative salaries.

Salaries XX
Cash XX
ACCOUNTING FOR NO PAR VALUE SHARES

No par value shares are shares without any nominal value printed or appearing in the face of the share
certificate. The Accounting Standards provide that:
shares without par value (NO PAR) may not be issued for a consideration less than the value of five
pesos ( P5.00 ) per share, the entire consideration received by the corporation for its par value shares
shall not be treated as capital and shall not be available for distribution as dividends

Issued for Cash

No Par Value shares may be issued equal, more than or less than its stated value.

Issued for Non-cash Consideration

When shares are issued in exchange of a Non-cash asset, the asset should be recorded at its fair
market value or the fair market value of the share issued whichever is more clearly determinable. If
the market of both non-cash asset and share are not known, an appraisal of the asset must be made,
otherwise, the asset will be recorded at the stated value of the share.
n the face of the share

an the value of five

r its par value shares
nds

corded at its fair

arly determinable. If
asset must be made,
CALL ACCOUNTS
Subscription of shares may be collected in an installment basis based on the respective stated "call
dates". In this regard, call accounts may be set up.

Illustrtion
Assume that on January 2, 20A, subscription of 500 shares at P100 par value per share were
received from Bartolome Pozon. A 20% down payment and the balance is payable in (2) two
monthly installments.

January 2
Cash 10,000
Subscription Receivable 40,000
Subscribed share Capital 50,000

January 31
Cash 20,000
Subscription Receivable 20,000

February 28
Cash 20,000
Subscription Receivable 20,000

Subscribed share Capital 50,000

Share Capital 50,000

ACCOUNTING FOR DELINQUENT SUBSCRIPTION

Subscriptions may be collected in an installment at stated "call dates".When a subscriber cannot
pay the balance of his subscription after calls have been made or several notices have been sent to
him by the corporation, the subscriber is said to be in "default". His total subscribed shares
became "delinquent shares". The board of directors may, by resolution order to sell these
delinquent shares in a "public auction" Section 67 of the Corporation Code of the Philippines
provides that:

if within thirty (30) days from the said date, no payments made, all stocks covered by said
subscription shall thereupon become delinquent and shall be subjected to sale.

The person or the bidder who is willing to pay the unpaid balance of the subscription plus accrued
interest and other expenses incurred to sell these shares of at "least" number of shares is called the
"highest bidder". The highest bidder wins the bidding. Thus, the delinquent shares are sold to
him. Certificates of shares are issued upon receipt of payment from the highest bidder.

Illustration
Nathalyn Alegre subscribes 100 of ordinary share at a par value of P10 per share in Central
Industrial Corporation and made a down payment equal to 30% of the subscription price.
Subscription Receivable 1,000
Subscribed share Capital 1,000

Cash 300
Subscription Receivable 300

Nathalyn Alegre later defaulted. Her total subscription for 100 shares are considered delinquent.

Receivable from the Highest Bidder 700

Subscription Receivable 700

Central Industrial Corporation advertises the auction sale of these delinquent shares and incurs
expenses of P200.

Receivable from the Highest Bidder 200

Cash 200

Few days later, three bids were received. Gerry Guiang is willing to pay the subscription balance
of P700 (P1,000 less P300) plus expenses of P200 in exchange for 96 shares. Rafael Lopez III bids
in exchange for 90 shares while Elsie Olano bids for 94 shares. The highest bidder is Rafael Lopez
III.

Cash 900
Receivable from the Highest Bidder 900

Rafael Lopez III 90 shares

Nathalyn Alegre 10 shares
100 shares

Subscribed share Capital 1,000

Share Capital 1,000

In an event wherein there is only one bidder, the board of directors may or may not accept the bid
offered. The corporation may itself bid for the delinquent shares. The shares acquired by the
corporation under this circumstance are considered as "Treasury Shares"

Treasury Shares 900

Receivable from the Highest Bidder 900

Subscribed share Capital 1,000

Share Capital 1,000