Podcast
Questions and Answers
What is the minimum consecutive period a corporation must be inoperative before the Commission may place it under delinquent status?
What is the minimum consecutive period a corporation must be inoperative before the Commission may place it under delinquent status?
How long does a delinquent corporation have to resume operations and comply with the requirements to have its delinquent status lifted?
How long does a delinquent corporation have to resume operations and comply with the requirements to have its delinquent status lifted?
What is the consequence if a corporation fails to resume operations within the period given by the Commission after being declared delinquent?
What is the consequence if a corporation fails to resume operations within the period given by the Commission after being declared delinquent?
Within what timeframe must a corporation's by-laws be adopted and filed with the Securities and Exchange Commission after its incorporation?
Within what timeframe must a corporation's by-laws be adopted and filed with the Securities and Exchange Commission after its incorporation?
Signup and view all the answers
What is the penalty if a corporation fails to adopt and file its by-laws within the required time?
What is the penalty if a corporation fails to adopt and file its by-laws within the required time?
Signup and view all the answers
What is the amount of retained earnings before closing the net profit for the year?
What is the amount of retained earnings before closing the net profit for the year?
Signup and view all the answers
What is the amount of share premium for preference shares as of December 31, 2020?
What is the amount of share premium for preference shares as of December 31, 2020?
Signup and view all the answers
The total shareholders' equity as of December 31, 2020, is computed as:
The total shareholders' equity as of December 31, 2020, is computed as:
Signup and view all the answers
Which of the following is NOT a correct way to compute the cost of treasury shares?
Which of the following is NOT a correct way to compute the cost of treasury shares?
Signup and view all the answers
What is the total amount of dividends declared for ordinary shareholders?
What is the total amount of dividends declared for ordinary shareholders?
Signup and view all the answers
According to the provided content, what must a corporation specify if it has multiple stated purposes?
According to the provided content, what must a corporation specify if it has multiple stated purposes?
Signup and view all the answers
What is a restriction regarding the purpose of a nonstock corporation, based on the text?
What is a restriction regarding the purpose of a nonstock corporation, based on the text?
Signup and view all the answers
Where must a corporation's principal office be located?
Where must a corporation's principal office be located?
Signup and view all the answers
If a corporation does not elect perpetual existence, what information must be included in its articles of incorporation?
If a corporation does not elect perpetual existence, what information must be included in its articles of incorporation?
Signup and view all the answers
What is the maximum number of directors a corporation can have?
What is the maximum number of directors a corporation can have?
Signup and view all the answers
What information about the initial board of directors or trustees must be included in the articles of incorporation?
What information about the initial board of directors or trustees must be included in the articles of incorporation?
Signup and view all the answers
In the case of a stock corporation, what detail about subscribed shares needs to be included in the articles of incorporation?
In the case of a stock corporation, what detail about subscribed shares needs to be included in the articles of incorporation?
Signup and view all the answers
What is the basic distinction between shareholders and directors, as described in the text?
What is the basic distinction between shareholders and directors, as described in the text?
Signup and view all the answers
When a company reacquires its own shares and there is no share premium associated with the issue, how are the share issue costs recorded?
When a company reacquires its own shares and there is no share premium associated with the issue, how are the share issue costs recorded?
Signup and view all the answers
Which of the following is NOT a common reason for a company to reacquire its own shares?
Which of the following is NOT a common reason for a company to reacquire its own shares?
Signup and view all the answers
When shares are reacquired and immediately retired, what is the debit to the Share Capital account equal to?
When shares are reacquired and immediately retired, what is the debit to the Share Capital account equal to?
Signup and view all the answers
If the retirement price of shares is less than their original issue price, where is the difference credited?
If the retirement price of shares is less than their original issue price, where is the difference credited?
Signup and view all the answers
If the retirement price of shares exceeds their original issue price, what is the first account used to absorb the excess?
If the retirement price of shares exceeds their original issue price, what is the first account used to absorb the excess?
Signup and view all the answers
A company reacquires 1,000 of its own shares with a par value of $100, originally issued at $110. If the retirement price is $105 per share, what is the total credit to the 'Paid in Capital from Retirement of Preference Share' account?
A company reacquires 1,000 of its own shares with a par value of $100, originally issued at $110. If the retirement price is $105 per share, what is the total credit to the 'Paid in Capital from Retirement of Preference Share' account?
Signup and view all the answers
When a company reacquires its own shares and records it in the statement of changes in equity, what is disclosed separately?
When a company reacquires its own shares and records it in the statement of changes in equity, what is disclosed separately?
Signup and view all the answers
Assuming a company's reacquisition price for shares is higher than the original price, what would be debited last in the adjustment?
Assuming a company's reacquisition price for shares is higher than the original price, what would be debited last in the adjustment?
Signup and view all the answers
When a company reacquires its own shares, what are these shares called?
When a company reacquires its own shares, what are these shares called?
Signup and view all the answers
Which of the following best describes how treasury shares are presented in a company's financial statements?
Which of the following best describes how treasury shares are presented in a company's financial statements?
Signup and view all the answers
At what value are treasury shares recorded at the time of reacquisition?
At what value are treasury shares recorded at the time of reacquisition?
Signup and view all the answers
What is the effect of selling treasury shares at a price greater than their cost?
What is the effect of selling treasury shares at a price greater than their cost?
Signup and view all the answers
What is the effect of selling treasury shares at a price less than their cost, assuming sufficient share premium from treasury share transactions exists?
What is the effect of selling treasury shares at a price less than their cost, assuming sufficient share premium from treasury share transactions exists?
Signup and view all the answers
When preference shares are retired for more than the original issued value, where is the deficiency charged?
When preference shares are retired for more than the original issued value, where is the deficiency charged?
Signup and view all the answers
Which of the following rights does a holder of treasury shares NOT possess?
Which of the following rights does a holder of treasury shares NOT possess?
Signup and view all the answers
Which account is credited when treasury shares are reissued?
Which account is credited when treasury shares are reissued?
Signup and view all the answers
What is the total amount recorded for the Due from Highest Bidder after auction-related expenses are accounted for?
What is the total amount recorded for the Due from Highest Bidder after auction-related expenses are accounted for?
Signup and view all the answers
What happens to the company’s financial statements if it cannot reacquire shares due to lack of funds?
What happens to the company’s financial statements if it cannot reacquire shares due to lack of funds?
Signup and view all the answers
What is the par value of ordinary shares after the 2-for-1 share split?
What is the par value of ordinary shares after the 2-for-1 share split?
Signup and view all the answers
What is the total cash received when 6,000 treasury shares are reissued at P45 each?
What is the total cash received when 6,000 treasury shares are reissued at P45 each?
Signup and view all the answers
What is the effect on Share Premium when shareholders donate 4,000 ordinary shares valued at the market price?
What is the effect on Share Premium when shareholders donate 4,000 ordinary shares valued at the market price?
Signup and view all the answers
What is the effect on the Retained Earnings after the company declares annual dividends on preference shares?
What is the effect on the Retained Earnings after the company declares annual dividends on preference shares?
Signup and view all the answers
What is the total liability recorded for Deferred Income when the company receives a government grant of $500,000?
What is the total liability recorded for Deferred Income when the company receives a government grant of $500,000?
Signup and view all the answers
What is the nominal value of 8,000 ordinary shares purchased at P80 each?
What is the nominal value of 8,000 ordinary shares purchased at P80 each?
Signup and view all the answers
Study Notes
Module 1 - Shareholders' Equity (Issuance and Reacquisition of Stocks)
-
Learning Outcomes:
- Identify different sources of corporate capital
- Describe features of different classes of share capital
- Accurately record share capital subscriptions and issuance
- Accurately record treasury share transactions and share capital retirement
- Accurately record dividend transactions
- Allocate cash dividends between preference and ordinary shares
-
Core Value/Biblical Principles:
- Shareholders' equity represents shareholder investments
- Management responsibility to safeguard this wealth to build investor trust
- A biblical principle to consider: "Wealth gained hastily will dwindle, but whoever gathers little by little will increase it." (Proverbs 13:11)
-
Key Considerations (Stop and Think):
- Accounting for stock issuance: corporations account for stock issuance by issuing stock certificates and recording the number of shares held by shareholders.
- Repurchasing shares: corporations account for repurchase of issued shares
- Issuing Dividends: Corporations account for dividends issued
- Examples of accounting treatments for such scenarios are presented in the module.
Introduction
- Corporations: characterized by absentee ownership and limited liability
- Separate legal entity from owners
- Funding corporations: involves raising funds from public investors.
- Government regulation: aim to protect the interests of investors
Definition of Terms
- Corporators: those who compose the corporation; shareholders or members, or both
- Incorporators: corporators who originally formed and composed the corporation and mentioned in the articles of incorporation
- Shareholders/Stockholders: share owners in a stock corporation; can be natural or artificial persons. Natural persons can be incorporators but not the only ones
- Members: corporators of a non-stock corporation
- Directors: entitled to exercise corporate powers, conduct business, and control assets; cease to be a director if they no longer own at least one share or cease to be a member of the corporation
- Stock Corporation: has capital stock divided into shares and distributes dividends to shareholders
- Nonstock Corporation: does not have capital stock divided into shares
Contents of Articles of Incorporation
- RA 11232 Section 13: details the required contents for articles of incorporation
- Name of Corporation: must be provided
- Purpose of the Corporation: specific purpose(s), including primary and secondary purposes
- Location of the Principal Office: must be located within the Philippines
- Duration of the Corporation: stated in the article if a perpetual existence is not elected
- Names of the Incorporators: nationality and address included
- Number of Directors: if limited, the number will not exceed 15. If the corporation is a trustee, the number should not exceed 15
- Names and Addresses of Directors/Trustees: required until the first regularly elected directors/trustees have been qualified
- Capital Stock of the Stock Corporation: if the corporation is a stock corporation, the amount of its authorized capital stock, the number of shares, and the par value of each share, will be stipulated
- Contributors of the Nonstock Corporations : if the corporation is a non-stock corporation, the amount of its capital, names, nationalities, and residence addresses of contributors will be present as well as the amount contributed by each
- Other Matters: other important information as determined necessary by the incorporators
When Articles of Incorporation or Amendment May be Disapproved
- RA 11232 Section 16: grounds for disapproval
- Form: must be in the prescribed official language and format
- Purpose: may not be unconstitutional, illegal, immoral, or contrary to government rules
- Certification: regarding subscribed and paid-in capital must be accurate
- Required percentage of Filipino ownership must be met, as per existing laws
Share Capital Issued to Non-Employees
- Priority Considerations: Fair value of property or services received must be recorded accurately.
- Recording Transactions: The method of recording will depend on fair value of the share capital issued relative to the property or services received and will be based on the property or service value.
Share Capital Issued for Cash
- Par Value shares: issued for cash at fair value
- No Par Value shares: shares issued for cash at fair value
Share Issue Costs and Stock Assessments
- Transaction Costs: registration and legal fees are recorded as deductions from equity
- Required Disclosure: share issue costs are disclosed separately in the changes in equity statement
- Reacquisition of Share Capital: corporations may acquire their own shares, may be used for various business purposes
Treasury Shares
- Nature: not an asset but a contra-account to shareholders' equity; holders have no voting or preemptive rights, do not receive cash dividends or any liquidation proceeds
Share Capital Sold Upon Subscription
- Contracts: legally binding agreements between a corporation and a subscriber
- Value: transactions recorded at the values established in agreements.
Treasury Shares Acquired by Purchase
- Nature: corporation's own shares reacquired after being issued and fully paid
Problem 1 in Module 1
- Ordinary Shares:
- Issued
- Unissued
- Preference Shares:
- Issued
- Unissued
- Additional paid in capital for ordinary shares
- Additional paid in capital for preference shares
- Total contributed capital
- Total legal capital Total Shareholders' Equity
Problem 2 in Module 1
- Calculating Legal Capital, given various situations.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge on corporate governance regulations, including inoperative status, bylaws filing requirements, and consequences for non-compliance. This quiz covers essential topics relevant to corporate operations and the responsibilities of corporations to maintain good standing.
