FINACT2-Handout No. 5 2019.pdf - FAR EASTERN UNIVERSITY...

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Page 1 of 6 FAR EASTERN UNIVERSITY INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE FINANCIAL ACCOUNTING AND REPORTING PART 2 HANDOUNT NO. 5 Shareholders’ Equity – Contributed Capital LECTURE 1. 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. 2. Articles of Incorporation and By-Laws The Articles of Incorporation contains the charter of the corporation. It states the corpora tion’s authorized share capital, which is the maximum number of shares that the corporation can issue. By-Laws contain the agreement among the shareholders. 3. Shareholders’ Equity Shareholders’ equity is the residual interest in the assets of a corporation after deducting its liabilities. Usual components of shareholders’ equity include the following: Ordinary share capital Preference share capital Subscribed share capital less subscription receivable Share premium Retained earnings Other reserves Treasury shares 4. Accounting for Share Capital a) Memorandum method only a memorandum entry is made upon authorization of a corporation’s shares. Subsequent issuances are credited to share capital account. b) Journal entry method the authorized capitalization is recorded by debiting “unissued share capital” and crediting “authorized share capital.” Subsequently, issuance of share capital is credited to unissued share capital. 5. Subscription a contract between the purchaser of shares (i.e. the subscriber) and the corporation (the issuer) in which the subscriber promises to acquire shares of the corporation. 6. Subscribed share capital represents the portion of the authorized share capital that is subscribed but not yet issued. 7. Subscription receivable represents the unpaid portion of the subscription price. If the collection is indefinite, subscription receivable is presented as a deduction from the related subscribed share capital (contra equity). If subscription is collectible currently, it is not considered in computation of shareholders’ equity but presented as other receivables under current asset section of the statement of financial position. 8. Share Capital represents the portion of the authorized share capital that is already issued evidenced by a share certificate . 9. Par value of shares nominal or arbitrary amount assigned to each share of stock fixed in the corporation s articles of incorporation. A par value share cannot be issued below its par value. A share issued below its par is considered watered share / stock which creates an obligation on the part of the subscriber to pay to the corporation for the difference between the issue price of the share and its par value.
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Financial Accounting and Reporting Part 2 Page 2 of 6 10. No-par value shares A share without a peso value fixed in the articles of incorporation. However, it shall be assigned a stated value instead which can be fixed by the board of directors. No-par value shares can not be issued for a
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  • Spring '19
  • cayanan

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