Ufr Notes-5

MODULE 1: SHAREHOLDER’S EQUITY TYPES OF SHARES OF STOCK

● In a corporation setting, it is the difference between 1. Ordinary Shares

assets and liabilities as shown on the statement of ➔ Equity securities that GIVE the holder VOTING RIGHTS
financial position in stockholders’ meeting
● Represents the portion of assets that are fully owned ➔ Are entitled to receive dividends if corporation
by the owners of a business declares
● Represents the resources that have been provided by
the company’s owners in the form of capital 2. Preference Shares
contributions (purchases of shares) and earnings ➔ Equity securities that DO NOT GIVE the holder
retained from operations VOTING RIGHTS
➔ Have a preference as to dividends over ordinary
ASSETS - LIABILITIES = SHAREHOLDER’S EQUITY shares (preference shareholders are prioritized in the
distribution of dividends)
SOURCES OF SHAREHOLDER’S EQUITY ➔ Have a preference as to assets in liquidation
1. Contributed Capital: Amount invested by
shareholders SHARE CAPITAL AT PAR VALUE, NO PAR VALUE,
2. Retained Earnings: Amounts earned by corporation OR AT STATED VALUE
3. Accumulated Other Comprehensive Income: Other 1. Par value
gains and losses not included in net income ➔ Also face amount or nominal amount
➔ Amount that is printed on the shares of stock and in
FORMULAS the articles of incorporation
➔ Normally it is the legal capital
Contributed capital xx
+ Retained earnings xx 2. No par value
➔ Shares of stocks that were issued without par value
+/- Accumulated OCI +/- xx ➔ Shares of stocks will be issued at the amount the
- Treasury shares (xx) investors are willing to buy
➔ Based on the Corporation Code:
Shareholder’s equity xx ◆ You can issue NO PAR VALUE shares but
they have a minimum amount of P5.00 (you
Share capital at par value xx can’t issue less than P5.00)
+ Share premium xx 3. Stated value

Contributed capital xx ➔ A no par value shares of stock that is assigned a value
at issuance for accounting purposes
➔ Unrelated to the current market price of a share
Retained Earnings, Beg. xx
+/- Correction of Prior Period Errors +/- xx LEGAL CAPITAL
● Amount of equity that cannot be distributed as
+/- Effect on Change in Acctg. Policy +/- xx
dividends or any other means
- Loss from Retirement of Share Capital/Treasury (xx) ● Creates a reserve that could be accessed by a
Shares company’s creditors in the event of default
- Loss from Reissue of TS (xx) WITH PAR VALUE

+/- Net Income/Loss for the year +/- xx Issued Shares Capital xx
- Dividends declared for the year (xx) Subscribed Shares Capital xx

Share Dividends Payable xx
Retained Earnings, End xx
Legal Capital xx
Accumulated Revaluation Surplus xx

NO PAR VALUE
+/- Accumulated Unrealized G/L from EIFVOCI +/- xx Issued Shares Capital xx
+/- Accumulated Foreign Currency Translation +/- xx Subscribed Shares Capital xx
+/- Accumulated Gain/Loss from Defined Benefit +/- xx Share Dividends Payable xx
Plan
Share premium - excess of SV xx
Accumulated OCI xx Legal Capital xx
1
OTHER TERMINOLOGIES 2) IN EXCHANGE FOR GOODS OR SERVICES
RECEIVED
➔ Common stock can be issued in exchange for noncash
● Authorized shares are the shares that the firm is
assets such as land, buildings, or equipment and for
permitted to issue according to its corporate charter
services (i.e. legal, accounting, consulting)
● Issued and outstanding shares are those presently
➔ Record the transaction:
held by shareholders
★ 1ST: FV of goods/services received
○ ISSUED: Shares of stock that have been sold
★ 2ND: FV of shares issued
to the shareholders
★ 3RD: Par value/stated value of shares
○ OUTSTANDING: Shares of stock that are in
the hands of shareholders
EXAMPLES:
● Treasury shares are shares initially sold to (1) Atasha Company issued 1,000 ordinary shares to its
shareholders that is subsequently bought back by the consultants, which billed the company for P10,000 for the
issuing corporation services provided. The par value of the stock is P1. However,
○ Issued but not outstanding there is no market price for the ordinary shares.
○ Not entitled to receive dividends
Consultancy Fee* 10,000
● Subscribed shares are shares of stocks that are not Ordinary Share Capital 1,000
yet fully paid by the shareholder Share Premium 9,000
○ Installment payment
○ Entitled to receive dividends *Consultancy fee: for the goods/services provided
ISSUANCE OF SHARES
1) FOR CASH CONSIDERATION (2) Atasha Company issued 20,000 P100 par value ordinary
➔ For raising capital shares to acquire a building. The ordinary shares are currently
trading at P150 per share while the building has a carrying value
◆ At par value P2.5M
Ex: Atasha Corporation issued 1,000 ordinary
shares to shareholders at its par value of P5 per Building 3,000,000*
share. Ordinary Share Capital 2,000,000
Share Premium 1,000,000
Cash 5,000
Ordinary Share Capital 5,000
*What we need from the building is its FAIR VALUE, not its
◆ In excess of par value carrying value. In this case, the building is recognized at the
Ex: Atasha Corporation issued 1,000 P5 par FAIR VALUE OF THE SHARES ISSUED.
ordinary shares to shareholders at P7 per share.
Cash 7,000
Ordinary SC (par) 5,000 3) PAYMENT OF EXISTING LIABILITY IN LIEU OF CASH
Share premium 2,000 PAYMENT
➔ Issuance of equity securities of debtor to creditor for
◆ No par value full payment of obligation
Ex: Atasha Corporation issued 1,000 ordinary
shares to shareholders at P7 per share.
PAYMENT OF LIABILITY
Cash 7,000
Ordinary Share Capital 7,000 FV of Shares Issued xx
◆ No par but with stated value - CV of liability extinguished* (xx)

Ex: Atasha Corporation issued 1,000 no par
Gain on extinguishment — To P/L xx
ordinary shares with stated value of P3 to
shareholders at P5 per share. *CV of liability = principal + unpaid accrued interest if any
Cash 5,000
Share Premium 2,000
2
professional typically required equity & expense
ISSUANCE OF EQUITY SECURITIES advice relating to both for the offer
prospectus of shares to the
public and for
FV of Shares Issued** xx listing procedures
to comply with
- Par value of shares issued (xx) requirements
established by
Share Premium — To SHE xx SEC and the stock
exchange
**Measurement of equity securities issued:
Opinion of Joint – as it is For allocation to
★ 1ST: FV of shares issued counsel typically required equity & expense
★ 2ND: FV of liability both for the offer
★ 3RD: CV of liability of shares to the
public and for
listing procedures
SHARE ISSUANCE COST to comply with
requirements
● Costs related to the issuance of shares established by
SEC and the stock
exchange
RELATED TO ISSUANCE RELATED TO LISTING
(PURO) (PLS) Tax opinion Joint – as it is For allocation to
typically required equity & expense
Publication fee Public relations fee both for the offer
Underwriting cost of shares to the
Registration fee w/ SEC Listing fee in the stock public and for
OPT and documentary stamp exchange listing procedures
tax to comply with
Road Show presentation requirements
If issued ABOVE PAR: established by
1st: Deduct from related - Expensed SEC and the stock
share premium from exchange
issuance
2nd: Share issuance cost* Type of Cost Share General
Issuance/Listing Treatment
If issued AT PAR:
1st: Share issuance cost*
Other costs:
*Share issuance costs,
contra shareholders’ equity Prospectus design Joint – although in For allocation to
account as a deduction from: and printing cases where most equity & expense
prospectus copies
1st: Share premium from are sent to
previous share issuance potential new
shareholders, the
2nd: Retained earnings with majority of such
appropriate disclosure costs might relate
to share issuance
Roadshow Listing – although Profit or loss item

Type of Cost Share General presentation it may help to sell
Issuance/Listing Treatment the offer to
potential investors
Taxes: and hence
Documentary Share issuance Deduction to contributes to
stamp tax equity raising equity, it is
usually a general
Other percentage Share issuance - Deduction to promotional
tax as the PO tax on equity activity
primary offering is
imposed and shall Public relations Listing – these Profit or loss item
be paid by the consultant’s fees costs generally
issuing relate to overall
corporation company
promotion and are
Professional fees not, therefore,
on: incremental to the
Deduction to share issuance
Underwriting Share issuance equity
Newspaper Share issuance – Deduction to
Audit and other Joint – as it is For allocation to publication fees if the advertising equity
relates directly to
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the share issue EXAMPLE #2 (SHARE CAPITAL SOLD ON SUBSCRIPTION)
and is not general Using the same information as the previous illustration,
advertising aimed however, assume that the subscriber failed to settle the
at enhancing the subscription in the amount of P48,000. A public auction was
entity’s brand held by the corporation to sell the delinquent shares. The offer
price is P56,000 including P3,000 accrued interest and P5,000
SEC Registration Share issuance Deduction to
Fees for New equity expense in relation to the auction. The following are the bidders
Shares for the auction:
Stock exchange Listing Profit or loss items ● Cara 4,300 shares

listing fees ● Alexa 4,500 shares
● Harvey 4,700 shares
SHARE CAPITAL SOLD ON SUBSCRIPTION
Highest Bidder:
● On installment basis ● Cara would receive 4,300 shares
● Certificate of shares of stock will be issued to the ● Ericia (original subscriber) would receive 700 shares
investor once fully paid
● Though not yet fully paid, investor is entitled to receive
dividends as long as not delinquent Subscription Receivable 60,000
Subscribed OSC 50,000
DELINQUENT SUBSCRIPTION Share Premium 10,000
If investor defaults
Cash 12,000
● With highest bidder Subscription Receivable 12,000
○ To pay the unpaid subscription plus related
cost Receivable from Highest Bidder 56,000
○ To receive the smallest number of shares Subscription Receivable 48,000
among bidders. Remaining shares issued to Interest Revenue 3,000
the defaulting investor. Cash 5,000
● Without highest bidder Cash 56,000

○ All shares will be issued to the name of the Subscription Receivable 56,000
issuing corporation
Subscribed OSC 50,000
EXAMPLE #1: Ordinary Share Capital 50,000
5,000 P10 par value ordinary shares of Calista Corporation were
sold on subscription basis on Sept 1, 2020 for P12 per share to SHARE ISSUANCE TO TS SOLVING
Ericia Company. Subscription payments of P24,000 and
P36,000 are due on Sept 16 and Sept 30 respectively.
2-1. The Gallery Company is authorized to issue 100,000 shares
September 1, 2020 of P500 par value ordinary share capital. Gallery has the
Subscription Receivable 60,000 following transactions during the month:
Subscribed OSC 50,000*
Share Premium 10,000 a. Issued 20,000 shares at par, receiving cash
*Subscribed OSC pa lang dahil installment. Kahit hindi pa fully Cash 10,000,000
collected, we recognize the share premium from this transaction. OSC 10,000,000
September 16, 2020 b. Received a bill amounting to P180,000 for services in

Cash 24,000 securing the corporate charter and for other
Subscription Receivable 24,000 preliminary legal costs of organizing the corporation.
The bill was settled by issuing 300 shares of ordinary
September 30, 2020 share capital.
Cash 36,000
Subscription Receivable 36,000 Service fees 180,000
OSC 150,000*
Subscribed OSC 50,000 Share Premium 30,000 (BF)
Ordinary Share Capital 50,000*
*OSC of 150K = 300 shares x P500 par value
*ito pa lang yung time na mag-iissue ka ng certificates ng shares of
stocks to your shareholders (dahil fully paid na)
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c. Issued 12,500 ordinary shares in exchange for a land
and a building with fair values of P5,000,000 and 2-2. The following are independent transactions relating to
3,000,000, respectively. share capital:
Land 5,000,000 a. Issued 10,000 ordinary shares of P150 par value at

Building 3,000,000 P200 per share. The company incurred and paid
OSC 6,250,000* documentary stamp tax and other SEC registration
Share Premium 1,750,000 (BF) fees for P60,000 and public relations consultants’ fees
of P25,000.
*12,500 OS x P500 par value
Cash 2,000,000
d. Received cash for 6,500 ordinary shares sold at P550 OSC (par) 1,500,000
per share. Share Premium (BF) 500,000
Cash (6.5k x 550) 3,575,000 Share Premium (PURO) 60,000

OSC 3,250,000 Cash 60,000
Share Premium 325,000
Marketing Expense* 25,000
Cash 25,000
e. Received subscription for 20,000 shares at P550 per
share, receiving 25% down. *Public relations consultants’ fees = more of a
marketing expense rather than part of “PURO”
Cash 2,750,000 25%(20K x P550)
Subscription Receivable 8,250,000 75%(20K x P550)
Subscribed OSC (par) 10,000,000
💡 RELATED TO ISSUANCE (PURO)
Share Premium (BF) 1,000,000 Publication fee
Underwriting cost
f. Collected balance of the subscription price on the Registration fee w/ SEC
12,000 shares subscribed above and share certificates OPT and documentary stamp tax
were accordingly issued. If issued ABOVE PAR:
1st: Deduct from related share premium from issuance
Cash 4,950,000 (8.25M x 12k/20k) 2nd: Share issuance cost*
Subscription Receivable 4,950,000
💡
If issued AT PAR:
1st: Share issuance cost*
Hindi na sinama sa A=L+E computation dahil walang
effect sa pag-galaw ng assets
b. Issued 3,500 ordinary shares of P200 par in exchange
Subscribed OSC 6,000,000 (10M x 12k/20k) for a parcel of land to be used as a plant site. The
Ordinary SC 6,000,000 ordinary share capital is actively traded on the
Philippine Stock Exchange at an average price of P560
*Ang fully paid lang ay 12,000 shares, kaya yun lang per share.
yung iissue-han ng share certificates
Land 1,960,000*
(No need to include in computation of SHE because OSC 700,000
letter F’s purpose is to cancel out or to derecognize) Share Premium 1,260,000
*Since walang FV of land provided (1st prio), ang

gagamitin ay FV of shares issued (2nd prio)
REVIEW
★ 1ST: FV of goods/services received
a. Cash 10,000,000 ★ 2ND: FV of shares issued
★ 3RD: Par value/stated value of shares
b. Service Fee 180,000
c. Land (5M) + Building (3M) 8,000,000
d. Cash 3,575,000
e. Cash (2.75M) + Subsc. Rec. (8.25M) 11,000,000
Shareholders Equity 32,755,000
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c. Issued 100,000, P100 par ordinary shares for
P18,000,000. One share of P500 par preference was a. Cash 2,000,000
issued with every 20 ordinary shares. At this time, the
market price per share were: Ordinary - P120 and b. Land 1,960,000
Preference - P800.
c. Cash 18,000,000
# OF ORDINARY SHARES # OF PREFERENCE SHARES
d. Cash (150K) + Subs. Rec. (450K) 600,000
100,000 100,000/20 = 5,000 PS
e. Land 5,000,000
e. (Cash) (40,000)
LUMP SUM PRICE OF P18,000,000
must be allocated to ordinary shares & preference shares Shareholders Equity 27,520,000
(based on their fair values)
FV OF PREF. SHARES FV OF ORDINARY SHARES ANOTHER SHORTCUT FOR 2-2 (TABLE METHOD):
5,000 x P800 = 4,000,000 100,000 x P120 = 12,000,000

18M x 4M/16M 18M x 12M/16M
= FV of 4,500,000 = FV of 13,500,000
Cash 18,000,000
Preference SC (5K x P500) 2,500,000
Ordinary SC (100K x P100) 10,000,000
Share Prem. - Pref. (4.5M-2.5M) 2,000,000
Share Prem. - Ordinary (13.5M-10M) 3,500,000
d. Subscriptions to 5,000 ordinary shares with P100 par

value are received from various subscribers along with
PURCHASE OF OWN SHARES
checks amounting to 25% of the subscription price as
down payment. The share capital was subscribed at TREASURY SHARES
P120 per share. The balance of the subscription price ● If a company buys back its own shares of stock, the
is to be paid in three equal monthly installments. repurchased shares of stock are called TREASURY
SHARES.
Cash .25(5000 x P120) 150,000 ○ Issued but not outstanding shares
Subscription Receivable .75(5000 x P120) 450,000 ○ Not entitled to receive dividends
Subscribed SC 5000 x P100 par 500,000 ○ Contra shareholder’s equity account
Share Premium (BF) 100,000
REASONS FOR REPURCHASING
e. Received a parcel of land from a wealthy shareholder
to be used for the construction of a new factory ● To have available shares for employee stock option
building. Legal fees of P40,000 were paid. The fair plans
market value of the land was P5,000,000. The cost of ● To take off the market shares which could be
the land to the shareholder was P800,000 ten years purchased by a hostile buyer
ago. ● To improve the stock market price by decreasing the
supply of shares
NOTE: No issued shares, only share premium in the name of
donated capital. In this case, recognize the asset @ the FV of RECOGNITION OF TREASURY SHARES
the asset received.
★ UPON PURCHASE: Recorded at COST
Land (FV) 5,000,000 ★ UPON REISSUE:
Donated Capital 5,000,000
Reissue Price > Difference: Credit to
Cost Share Premium - TS
Donated Capital 40,000*
Cash 40,000 Difference:
*Any cost that is related to the donation SHOULD NOT be capitalized. Reissue Price <
Cost 1st: Debit to Share Premium - TS
2nd: Debit to Retained Earnings
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a. 30,000 ordinary shares were issued for P380,000 cash
DONATION FROM SHAREHOLDER and 12,000 preference shares for an equipment valued at
P1,500,000.
● Shares given back to a corporation by a shareholder
without compensation
Cash 380,000
WITH FAIR VALUE ON DATE OF RECEIPT Ordinary SP 80,000
● UPON RECEIPT
Treasury Share @ FV xx Equipment 1,500,000
Donated Capital xx Preference Shares 1,200,000
Preference SP 300,000
● UPON REISSUE
Cash xx b. Subscriptions for 10,000 ordinary shares have been taken
Treasury Share @ FV xx and 40% of the subscription price of P16 per share has
Donated Capital xx been collected. The shares will be issued upon collection
of the subscription price in full.
WITHOUT FAIR VALUE ON DATE OF RECEIPT Subscription Receivable 96,000

● UPON RECEIPT Cash 64,000
[MEMORANDUM ENTRY] Subscribed Share Capital 100,000
Ordinary Share Premium 60,000
● UPON REISSUE
Cash xx c. 1,000 ordinary treasury shares were purchased for P18 per
Donated Capital xx share.
Treasury shares 18,000

RETIREMENT OF TREASURY SHARES Cash 18,000
d. Collected the balance on the subscription of 8,000 shares

ACQUISITION COST OF TS < ORIGINAL ISSUE PRICE above and share certificates were accordingly issued.
RELATED OF SHARE Subscribers on 2,000 shares defaulted and the shares
were declared delinquent. Blazing Red paid P2,000 cost
Difference: CREDIT to Share Premium from Retirement for advertising the delinquent shares.
Share Capital xx Cash 76,800

Share Premium from Issuance xx Subscription receivable 76,800
Share Premium from Retirement xx
Treasury Shares xx Advertising expense 2,000
Cash 2,000
ACQUISITION COST OF TS > ORIGINAL ISSUE PRICE Subscribed SC 80,000

RELATED OF SHARE Ordinary SC 80,000
Difference: DEBIT to: e. Received bids on the delinquent shares. The amount due
★ 1ST: Share Premium from Retirement from the highest bidder was collected and the shares were
★ 2ND: Retained Earnings issued.
Share Capital xx - NO ENTRY -

Share Premium from Issuance xx
Share Premium from Retirement/RE xx f. The retained earnings balance on December 31, 2022 is
Treasury Shares xx P350,000.
REQUIRED: Total shareholders’ equity of Blazing Red

Corporation as of December 31, 2022.
2-3. The Blazing Red Corporation is authorized to issue
100,000, P10 par value ordinary shares and 30,000, 10% Ordinary Share Capital 300,000
cumulative and non-participating P100 par preference shares. Ordinary SP 80,000
The corporation engaged in the following share capital
transactions through December 31, 2022: Preference Shares 1,200,000
a Preference SP 300,000
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b Subscribed SC 100,000
(4) Retired the remaining treasury shares
b Ordinary SP 60,000 1,000 TS is retired
c Treasury shares (18,000)
d Subscribed SC (80,000)
ACQUISITION COST OF TS > ORIGINAL ISSUE PRICE
RELATED OF SHARE
d Ordinary SC 80,000
P14 > P1.3M/100K = P13
f Retained Earnings 350,000
Total shareholders’ equity, 12/31/22 2,372,000 Loss of P1 (P14 - 13)
2-4. The Millennium Company had 100,000 shares of Ordinary

Share Capital on December 31, 2021. The company’s statement
💡 Kung anong mangyari kay share capital, yun din
mangyayari kay share premium!
of financial position on that date showed the following
shareholders’ equity balances: OSC 10,000 (1K x P10 par)
Share Premium 3,000 [1K x (P13-10)]
Ordinary Share Capital, P10 par P1,000,000 RE 1,000 (1K x P1 loss)
Share Premium 300,000 Treasury Shares 14,000 (1K x P14 cost)
Retained Earnings 900,000
The following treasury share transactions took place in 2022:

(1) Reacquired 10,000 ordinary shares at P14 per share b. Determine the total shareholders’ equity at December
(2) Sold 4,000 of the treasury shares at P15 per share 31, 2022, assuming that profit for the year was
(3) Sold 5,000 of the treasury shares at P13 per share P280,000 and cash dividends declared were
(4) Retired the remaining treasury shares P200,000.
REQUIRED:
OSC 990,000
a. Prepare the entries in the books of Millennium ● GIVEN: 1,000,000
Company to record the foregoing transactions ● (4) -10,000
(1) Reacquired 10,000 ordinary shares at P14 per share Share Premium 297,000
● GIVEN: 300,000
@ COST (P14 x 10,000) ● (2) +4,000
Treasury Shares 140,000 ● (3) -4,000
Cash 140,000 ● (4) -3,000
(2) Sold 4,000 of the treasury shares at P15 per share Retained Earnings 978,000
● GIVEN: 900,000
Cost: P14 ● (3) -1,000
Reissue Price: P15 ● (4) -1,000
Gain of P1 (15-14) ● Cash profit: +280,000
● Cash dividends declared: -200,000
Cash (P15 x 4K) 60,000
Treasury Shares: 0
Treasury Shares (P14 x 4K) 56,000 (1) +140,000
Share Prem. - TS (BF) 4,000 (2) -56,000
(3) -70,000
(3) Sold 5,000 of the treasury shares at P13 per share (4) -14,000
Shareholders Equity 2,265,000

Cost: P14
Reissue: P13
Loss of P1 (13-14)
Cash (P13 x 5K) 65,000

Share Prem. - TS 4,000*
Treasury Shares (P14 x 5K) 70,000
*5,000 shares: Lumalabas na mauubos yung 4,000, pero

kulang pa ng 1K so nagdebit sa RE para dun sa 1K
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RETIREMENT OF SHARE CAPITAL A. Retirement Price: 21
Issue Price: 21.6
P0.60 x 4,000 = P2,400 gain
● RETIREMENT PRICE < ORIGINAL ISSUE PRICE
○ Difference: Credit to SHARE PREMIUM FROM
Preference share capital 80,000 (4k x P20 par)
RETIREMENT
Share premium - Pref. 6,400 (4K x P1.60)
○ From issued, it will become unissued shares
Cash (4K x P21) 84,000
Share Premium - Retired (4k x P21) 2,400
Share Capital xx
Share Premium from Issuance xx
Share Premium from retirement xx
B. Retirement Price: 26
Cash xx
Issue Price: 21.6
P4.4 x 4,000 = P17,600 LOSS
● RETIREMENT PRICE > ORIGINAL ISSUE PRICE
(Loss should be reported within equity, not P/L) 💡 Remember that A & B are independent transactions
Difference:
Debit to:
Share premium - Pref 6,400 (4K x P1.60)
★ 1ST: Share premium from retirement
Retained Earnings 17,600 (computed loss)
★ 2ND: Retained earnings
Cash (4k x P26) 104,000
Share capital xx
C. WHAT IF:
Share premium from issuance xx
Retirement Price: 26
Share premium from retirement/RE xx
Issue Price: 21.6
Cash xx
P4.4 x 4,000 = P17,600 LOSS
Difference Retirement of Treasury Share and Share Capital: Share Premium - Retirement: P10,000
● Retirement of Share Capital Share premium - Pref 6,400 (4K x P1.60)
○ With effect to Total SHE Share Premium - Ret. 10,000
○ With credit to Cash Retained Earnings 7,600
○ To cancel issuance (issued -> unissued) Cash (4k x P26) 104,000
● Retirement of treasury shares D. WHAT IF:

○ No effect on Total SHE Retirement Price: 26
○ No credit to Cash (Credit to cash on the Issue Price: 21.6
day of purchase of treasury shares) P4.4 x 4,000 = P17,600 LOSS
○ Still issued but not outstanding
Share Premium - Retirement: P20,000
(Note: Can fully absorb the P17,600 loss)
2-5. The Consuelo Enterprises, Inc. had the following
shareholders’ equity: Preference share capital 80,000 (4k x P20)
Share premium - Pref 6,400 (4K x P1.60)
Preference Share Capital, P20 par, 100,000 P2,000,000 Share Premium - Ret. 17,600
shares authorized Cash (4k x P26) 104,000
Ordinary share capital, P30 par, 100,000 1,800,000

shares authorized
Share Premium - Preference Share 160,000
Share Premium - Ordinary Share 250,000
● Orig Issue Price (2M + 160k)/100k = 21.60 per share
REQUIRED: Journalize the retirement of 4,000 preference

shares, assuming that the retirement price is
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DIVIDENDS
💡 The share price does not include the dividends
ISSUANCE OF SHARES @ 04/30
DIVIDENDS ● Shares were issued at P25
➔ Distribution of income to shareholders on a pro-rata* ● QUESTION: On April 30, how much is the increase
basis in Total SHE?
➔ Come from the unappropriated retained earnings ○ P25 increase in SHE
*The amount of dividends that each shareholder will receive will May 31 Date of Distribution
depend upon their percentage of ownership - the number of
shares that each shareholder owns.
💡 Not all shares are entitled to receive dividends. Only the
Outstanding shares are entitled to receive dividends.
IMPORTANT DATES
1. Date of Declaration
➔ Date when the BOD formally announces the Number of issued shares (Outstanding share) xx
distribution of dividends
➔ When it arises on the action of entity - Constructive Number of subscribed shares (Outstanding share) xx
Obligation ● Entitled to received dividends
● Since they are not yet fully collected,
they will not yet be given to the
Retained earnings xx subscribers (Will be given once fully
Cash dividends payable xx paid)
2. Date of Record Less: Treasury shares (not outstanding since they (xx)
are in the hands of corporation)
➔ Date on which the stock and transfer book of the
corporation is closed for registration. Only those listed Entitled to Receive Dividends xx
as of this date is entitled to receive dividends
➔ No entry
TYPES OF DIVIDENDS
3. Date of Distribution ● Share dividends
➔ Date on which the dividends are distributed to entitled ● Cash dividends
shareholders ● Property dividends
● Scrip dividends
Cash dividends payable xx ● Liquidating dividends
Cash xx
SHARE DIVIDENDS OR BONUS ISSUE
ILLUSTRATION:
January 1 Date Of Declaration ISSUING CORP SHAREHOLDER
Small (<20%) Small (<20%)

P5 of shares were declared.
Retained EarningsFV xx Memo: received additional
February 14 “Dividends on” SDD @par xx shares
Share Premium xx
“DIVIDENDS-ON” → If issued between Date of Declaration & RE is at FV since small bonus issue, Large ( > = 20%)
kaunti pa lang shares sa market.
Date of Record Meaning, not yet diluted yung
market, making the FV still relevant. Memo: received additional
shares
ISSUANCE 02/14
Large ( > = 20%)
● Shares were issued at P20
● QUESTION: On Feb 14, how much is the increase in Retained Earnings @par xx
Total SHE? SDD @par xx
○ P15 increase in SHE RE is at par since diluted na ang
○ P5 pertains to the dividends market sa dami ng shares, diluted na
rin ang FV making it irrelevant.
March 31 Date Of Record

2-7. The capital accounts for the Red Stone Company on July 1,
April 30 “Ex-Dividends” 2022 are as follows:
“Ex-Dividends” → if issued between Date of Record & Date of Ordinary Share Capital, P10 par, 100,000
Distribution shares issued and outstanding P1,000,000
Retained Earnings 3,135,000
10
The company’s ordinary shares are currently selling at P20. ● INCREASES number of shares
● DECREASES par value
REQUIRED:
Entries to record the following independent transactions: b. 1-FOR-2 (SPLIT DOWN)
A. A 10% bonus issue is declared and issued For every 2 shares that you are holding, it will
B. A 30% bonus issue is declared and issued become 1 (divided by 2)
C. A 2-for-1 share split is declared and issued
- MEMO ENTRY: Effected a 2-for-1 split -
A. [10% - SMALL BONUS ISSUE]
A 10% bonus issue is declared and issued ★ Effect on Total SHE? → NONE (since no entry)
# ADDT’L SHARES: 10%(100K) = 10K ★ Effect on Par value/share? → DECREASE IN PAR
VALUE (SPLIT UP)
DECLARATION 𝑃1𝑀
= 𝑃5
100𝐾 + 100𝐾
Retained EarningsFV 200K
★ Effect on Treasury Shares? → AFFECTED
Share div. distributablePAR 100K ○ Share splits (split up or split down) are not
Share Premium 100K classified as dividends, therefore, treasury
shares are entitled to share split
ISSUANCE
SDDPAR 100K
SPLIT UP SPLIT DOWN
OSCPAR 100K
💡 Share dividends
NUMBER OF INCREASE DECREASE
TREASURY SHARES
distributable/payable:
Classified as EQUITY
COST PER DECREASE INCREASE
TREASURY SHARE
(Not a liability, since the settlement will be
in the form of SHARES not ASSETS)
CASH DIVIDENDS ALLOCATION
CASH dividends payable: Classified as LIABILITY
● Cash dividends → Allocation between PREFERENCE
★ Effect on Total SHE? → NONE (nag-cancel out lang and ORDINARY
lahat, nagkaroon lang ng transfer from one equity
account to another.) ● Preference dividends:
○ NON-CUMULATIVE: Present shareholders
★ Effect on Par value/share? → NONE are only entitled to current year dividends
𝑃1𝑀 + 𝑃100𝐾
= 𝑃10 (no effect) ○ CUMULATIVE: Present shareholders are
100𝐾 + 10𝐾
entitled to current dividends and to any
dividends not declared in prior periods (in
★ Effect on Treasury Shares? → NONE
arrears)
○ Treasury shares are not outstanding,
○ NON-PARTICIPATING: Only entitled to
therefore they are not entitled to receive
dividends equal to the fixed rate
dividends.
○ PARTICIPATING: Entitled to additional
dividends proportionate to ordinary
B. [30% - LARGE BONUS ISSUE] A 30% bonus issue is
shareholders on the basis of par value, in
declared and issued
excess of the fixed rate
# ADDT’L SHARES: 30%(100K) = 30K
DECLARATION (@ PAR VALUE)

Retained EarningsPAR 300K
Share div. distributablePAR 300K
ISSUANCE (@ PAR VALUE)

SDDPAR 300K
OSCPAR 300K
C. [SHARE SPLIT] A 2-for-1 share split is declared and

issued
a. 2-FOR-1 (SPLIT UP)
● For every 1 share that you are holding, it will
become 2 (multiplied by 2)
11
ILLUSTRATION: b. Preference share is CUMULATIVE and
10% preference shares with share capital amounting to P10M NON-PARTICIPATING
➔ Entitled to receive DIVIDENDS: 10%(10M) = P1M
*CUMULATIVE BUT NON-PARTICIPATING DIVIDENDS PREFERENCE ORDINARY
2020 No dividends declared 2020 150K 150K

(150K for PS, kulang pa Arrears: 30K 0
2021 No dividends declared nga dahil 180K dapat)
2022 Declared 500,000 Pref2022: 500K → 2020

2021 260K 30K
(30K → arrears) 180K 50K
2023 Declared 5,000,000 Pref2023: 500K → 2020
1M → 2021 (180K → pref. entitled) 210K
1M → 2022 50K
1M → 2023
P3.5M 2022 540,000 180K 360K
(No more arrears, so
180K for PS, excess will
2-8. The Dark Red Company, which started operations in 2020, be given to OS)
paid dividends at the end of 2020, 2021, and 2022 as follows:
2020 - P150,000 c. Preference share is CUMULATIVE and FULLY

2021 - P260,000 PARTICIPATING
2022 - P540,000
ENTITLED:
Through these years, the corporation has 250,000 shares of ● Pref: 9%(2M) = P180K
P10 par value ordinary share and 20,000 shares of 9%, P100 par ● Ord: 9%(2.5M) = P225K
value preference share.
(WHAT IF) SITUATION 1:
REQUIRED: ● Participating Pref: 9% → Lower rate will be applied to
Compute the amount of total dividends and dividends per share ORDINARY SHARES
at the end of 2020, 2021, and 2022, on both preference and ● Participating Ord: 10%
ordinary share under each of the following assumptions:
(WHAT IF) SITUATION 2:
a. Preference share is NON-CUMULATIVE and ● Participating Pref: 10% → Will apply this rate
NON-PARTICIPATING ● Non-participating Ord: 9%
● NON-CUMULATIVE → Kapag may arrears, hayaan mo

DIVIDENDS PREFERENCE ORDINARY
na yung arrears. Ang mahalaga lang is maibigay mo
yung current year
2020 150K 150K
● NON-PARTICIPATING → After mo bigyan yung
(150K for PS, kulang pa Arrears: 30K 0
preference shareholders ng dapat na dividends nila for nga dahil 180K dapat)
the year, lahat ng excess, ibibigay na sa ordinary
shares 2021 260K 30K
(30K → arrears) 180K 50K
(180K → pref. entitled) 210K
*Preference Entitled: 20K x P100 x 9% = 180K
50K

2022 540,000 180K* 225K*
(180K)* 60K** 75K**
2020 150K 360K 240K 300K
(150K for PS, kulang pa 150K 0 (225K)*
nga dahil 180K dapat) 135K
(60K)**
2021 260K 75K**
(180K for PS, excess 180K 80K
will be given to OS) **135K x 2M/4.5M =
60,000
2022 540,000 180K 360K
(180K for PS, excess
will be given to OS)
12
2-9. The Red Violet Company paid a total of P610,000 OTHER DIVIDENDS
dividends in 2022 to its 250,000 shares of P10 par ordinary
1.) PROPERTY DIVIDENDS
share and 20,000 shares of 9%, P100 par preference share.
Dividends of P50,000 were in arrears at January 1, 2022. 1. PROPERTY DIVIDENDS → Distribution of non-cash
ENTITLED: assets or investment securities of another entity
● Preference: 9%(2M) = 180K
● Ordinary: 9% (2.5M) = 225K ★ PROPERTY DIVIDENDS PAYABLE
○ Always measured at fair value
a. Participating up to 14% (additional 5%) ○ Classified as a CURRENT LIABILITY
○ Update to fair value of non-cash asset every:
■ Declaration date
■ Year end
610K 50K 225K
■ Settlement date
(50K) 180K 86,111
(180K) 68,889 311,111
★ NON CASH ASSET
380K 298,889
○ Update to fair value of investment securities
(225K)
(NCAHFS)
155K
○ Others: Lower of CV and FV → Cost to
(68,889)*
distribute
86,111
**155K x 2M/4.5M = 68,899 ○ Every:
■ Declaration date
💡 Solving RATE OF PARTICIPATION ■ Year end
𝐸𝑥𝑐𝑒𝑠𝑠
𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑂𝑇𝐴𝐿
=
155𝐾
4.5𝑀 💡 In non-cash assets, the measurement of the non-cash
asset depends upon the nature of the asset.
= 3.44%
We follow the standard that covers that specific asset.
Additional 5% (Fully participating)
💡 Kapag fully participating, allocate based on share capital

(Kunin ratio ng share capital)
★ Example: If the entity will distribute non-current assets,
they shall be classified as non-current assets held for
sale.
According to PFRS 5, NCAHFS shall be measured at

the lower of (1) FV less cost to sell and its (2) carrying
b. Participating up to 12% value
Additional: 3%
Rate of participation: 3.44% (Partially participating) Non-current At the LOWER of:
💡
asset held for (1) FV less cost to sell, and
Mang Inasal “Unli Rice” & cups of rice analogy: Ang kaya sale (NCAHFS) (2) Carrying value
mo lang is hanggang 3 CUPS OF RICE, hindi na kakayanin
yung 3.44 CUPS OF RICE Inventory Measured at the LOWER of:
💡
(1) Cost, and
Kapag partially participating, multiply mo lang yung share (2) Net realizable value (NRV)
capital dun sa rate na kaya niya
Equity At the beginning (initial date/declaration
date) and end (year end/balance sheet
date) of the year, they must be measured
at fair value.
610K 50K 225K
(1) Equity investments at FVPL
(50K) 180K 95K
(2) Equity investments at FVOCI
(180K) 60,000 320K
380K 290K
(225K) PROBLEM SOLVING (PROPERTY DIVIDENDS PAYABLE)
155K
(60,000)
2-11. On October 31, 2022, Red Ball Corporation declared
95K
dividends to its 100,000 ordinary shares payable in the form of
**3%(2M) = 60,000
TIvoli Company ordinary. One share of Tivoli Company
ordinary is distributable for each 10 shares of Red Ball
13
Corporation ordinary. The dividends are distributable on
Accumulated Depreciation = P45,000 x 6*
February 28, 2023. The market value of Tivoli Company
Accumulated Depreciation = P270,000
ordinary was P15 on October 31, 2022, P17 on December 31,
2022 and P20 on February 28, 2023.
💡 6●years2016:
is composed of:
3 months
REQUIRED: Give the entries to record the foregoing, including
any adjustment at December 31, 2022. The Tivoli Company ● 2017: 1 year
ordinary was carried in the books of Red Ball Corporation on ● 2018: 1 year
October 31, 2022 at P14 per share. Red Ball classifies Tivoli ● 2019: 1 year
ordinary shares as financial assets at fair value through profit or ● 2020: 1 year
loss. ● 2021: 1 year
● 2022: 9 months
10/31/22 — DECLARATION DATE
(Cost: P14 // FV: P15) @ EIFVPL Measuring NCAHFS:
Lower of (1) Fair Value - Cost to Sell and (2) CVPPE
1 𝑇𝑖𝑣𝑜𝑙𝑖
100,000 Red Ball x 10 𝑅𝑒𝑑 𝐵𝑎𝑙𝑙
= 10,000 shares
CVPPE 450,000 - 270,000 = P180,000
EIFVPL (P1 x 10,000) 10,000 FV - CTS P190,000

Unrealized Gain 10,000
Retained Earnings (P15 x 10,000) 150,000 10/01/22

Property dividends payable 150,000 Depreciation expense (45K x 9/12) 33,750
Accumulated depreciation 33,750
12/31/22 — YEAR END (P17 vs P15)
EIFVPL (P2 x 10,000) 20,000 NCAHFS 180,000
Unrealized Gain 20,000 Accumulated depreciation 270,000
Equipment 450,000
Property dividends payable 20,000 💡 What if on Oct 1, 2022, the CV is greater than FV - CTS?
★ Recognize an impairment loss
02/28/23 — SETTLEMENT DATE (P20 vs P17)
Retained Earnings 30,000 Impairment loss xx
Property dividends payable 30,000 NCAHFS xx
Property dividends payable (P20 x 10k) 200,000 Retained earnings xx

EIFVPL (P17 x 10k) 170,000 Property dividends payable xx
Gain (P/L) 30,000
2-12. On October 1, 2022, the Red Chili Company declared 12/31/22

dividends to its ordinary shareholders distributable in the form P160K vs P190k → PDP
of pieces of equipment. These equipment where acquired on P160K vs P180K → NCAHFS
October 1, 2016 at a total cost of P450,000 and were
depreciated over a ten-year estimated useful life with no PDP 160,000
estimated scrap value. The company depreciates this asset
using the straight-line method, computed to the nearest month. NCAHFS (180,000)
The dividends were distributed on January 31, 2023. The Impairment loss (20,000)
equipment were estimated to have the following market value:
Impairment Loss 20,000
October 1, 2022 190,000
NCAHFS 20,000
December 31, 2022 160,000
💡 What ifand
January 31, 2023 175,000
on Oct 1, 2022, recognized an impairment loss
REQUIRED: subsequently, the FV-CTS > CV?
Give the entries relative to the foregoing, including any ★ Can recognize recovery of impairment loss
adjustment on December 31, 2022. P160K vs P190k → PDP
450,000 PDP 30,000

Annual Depreciation = 10
= P45,000 per year RE 30,000
14
01/31/23
P175K vs P160k → PDP SDDPAR 50,000
FSW Outstanding 50,000
RE 15,000
EXERCISE (80%)
PDP 15,000
FSWOPAR 40,000
OSC 40,000
PDP 175,000
NCAHFS 160,000
EXPIRE (20%)
Gain 15,000
FSWOPAR 10,000
OTHER DIVIDENDS OTHER DIVIDENDS
2.) FRACTIONAL SHARE WARRANTS 3.) LIABILITY DIVIDENDS
★ Remedies of corporations LIABILITY DIVIDENDS

○ Issue fractional share warrants ● Issued by corporations that has cash shortage
○ Pay cash in lieu of fractional share warrants ● Either (both with interest exp):
(FSW) ○ Scrip dividends (short-term)
○ Bond dividends (long-term)
★ Arises from:
○ Share split
○ Bonus issue/Share dividends OTHER DIVIDENDS
4.) LIQUIDATING DIVIDENDS
● Dividends declared in excess of the balance of

retained earnings
● A return of capital rather than distribution of earnings
LIQUIDATING RE xx
COMPANY Liquidated Capital (SP) xx
Dividends Payable xx
WASTING RE xx
ASSET Liquidated Capital* xx
2-10. Red Mama Company has 100,000 shares of P10 par COMPANY Dividends Payable xx
ordinary share outstanding. In declaring and distributing a 50%
bonus issue, Red Mama initially issued only 45,000 new shares; *from accumulated depletion
the other shares were not issued because some investors did
not own Red Mama shares in even multiples of 2. To these Max dividends = RE + ACC DEPLETION
shareholders, Red Mama issued fractional share warrants.
Subsequently, 80% of the fractional share warrants were turned
SHARE WARRANTS
in for full shares.
★ Preference Shares
★ Bonds Payable
💡 Share warrants allow the holder to purchase ordinary share

at an option or exercise price (Normally lower than the market
value of shares)
DETACHABLE WARRANTS NON-DETACHABLE

DECLARATION DATE (LARGE BONUS ISSUE) WARRANTS
REPAR 500,000
Share Dividends DistributablePAR 500,000 • Can be sold/transferred • Can’t be sold/transferred
separately separately (Lagi dapat
nakadikit sa bonds or
ISSUANCE DATE preference shares)
SDDPAR 450,000
OSCPAR 450,000
15
★ If warrants are issued along with BONDS PAYABLE, 2-13. The capital structure of Red Ribbon Corporation on
allocate the issue price using RESIDUAL METHOD: December 31, 2021 follows:
1. Bonds Payable Preference 12% Share Capital, P200 P6,000,000
2. Share Warrants Par, 30,000 shares issued and
outstanding
★ If warrants are issued along with PREFERENCE Ordinary Share Capital, P50 par, 5,000,000
SHARES, allocate the issue price based on FAIR 100,000 shares issued and
VALUE: outstanding
1. Preference Shares Share Premium - Preference 1,800,000
2. Share Warrants (Part of share premium) Share Premium - Ordinary 1,500,000
2-15. The Red Carpet Company wants to raise its working
capital. After analysis of available alternatives, the company During 2022, the following selected transactions occurred:
decides to issue 1,500 shares of P30 par preference share 1. Purchased and retired 4,000 preference shares at
capital with detachable warrants. The package of the P280 per share,
preference shares and warrants sells for P98. The warrants
enable the holder to purchase 750 shares of P10 par ordinary RETIREMENT PRICE VS. ORIGINAL ISSUE PRICE
shares at P40 per share. Immediately following the issuance of
shares, the share warrants are selling at P10 each. Each P280 Pref Share Cap. 6M
preference share without the warrant sells for P90. (Loss of P20 per share) Pref Share Prem. 1.8M
7.8M
REQUIRED: 1. Debit to Share Premium -
Retirement 7,800,000/30,000 = P260
a. Amount assigned to the preference share and share 2. Debit to Retained Earnings (P200 par & P60 excess)
warrants issued
PSC 800,000
Share Premium - Issue 240,000
ISSUE PRICE Retained Earnings 80,000
P98 x 1,500 shares = P147,000 Cash 1,120,000
# of SHARES RETIRED/CANCELLED: -4,000 shares
ALLOCATING THE ISSUE PRICE:
2. Purchased 8,000 shares of its own ordinary share at
PREFERENCE SHARES ORDINARY SHARE WARRANTS P80 per share.
OUTSTANDING (OSWO)
P147,000 x 90/100 = P132,300 P147,000 x 10/100 = P14,700 Treasury shares 640,000

Cash 640,000
ISSUANCE # of TREASURY SHARES from ORDINARY SHARES:
Cash 147,000 8,000 shares
Preference Share Capital (PSC) (1,500 x P30 par) 45,000
Share Premium (132,300 - 45,000) 87,300
OSWO 14,700 3. A 2-for-1 share split on the ordinary share was
approved by the shareholders, thereby reducing the
par value to P25
b. Entry to record the exercise of the warrants, assuming
that only 80% of the warrants were exercised
- NO ENTRY (MEMO ONLY) -
● Increased ordinary shares to ____
EXERCISE
● Reduces par value to P25
750 shares x 80% = 600 ordinary shares
Cash (600 shares x P40 option price) 24,000 SHARE SPLIT (2-FOR-1):
OSWO (14,700 x 80%) 11,760 ● INCREASES number of shares
Ordinary Share Capital (600 x P10 par) 6,000 ● REDUCES par value per share
Share Premium (BF) 29,760 ● Also affects TREASURY SHARES
💡 WHAT IF THE 20% EXPIRED?

OSWO (14,700 x 20%) 2,940
# of ORDINARY SHARES:
100K x 2 = 200K ORDINARY SHARES (P25 par)
Share Premium 2,940
# of TREASURY SHARES:
8000 x 2 = 16,000 TREASURY SHARES
(Cost per share = P40)
16
4. Reissued 6,000 treasury shares at P45 each
Dividends Payable (624k + 188k) 812,000
P45 vs P40 (cost per treasury share)
∴ GAIN of P5 per share
8. The profit for 2022 was P2,000,000
Cash 270,000 Income Summary 2,000,000
Treasury Share 240,000 Retained Earnings 2,000,000
Share Premium. - T/S 30,000
# of TREASURY SHARES: -6,000 TREASURY SHARES REQUIRED

Determine the following at December 31, 2022:
a. Number of preference shares issued and
5. Shareholders donated 4,000 ordinary shares when the outstanding
market price was P46 per share. ➔ PREF. SHARES ISSUED: 26,000
➔ PREF SHARES OUTSTANDING: 26,000
b. Number of ordinary shares issued and outstanding
Share Prem. - Donated Capital 184,000
# of TREASURY SHARES: +4,000 TREASURY SHARES

➔
💡
ORDINARY SHARES ISSUED: 200,000
Kailangan isama yung para sa treasury shares:
6. Two thousand of the donated shares were issued for Outstanding ordinary shares 188,000
P48 per share. Issued ordinary shares 200,000
Cash 96,000 ➔ ORDINARY SHARES OUTSTANDING: 188,000

Treasury Shares (@ P46)
Share Premium. - T/S
92,000
4,000 💡
(as solved above)
Ordinary shares outstanding: yung portion na
entitled to receive dividends
# of TREASURY SHARES: -2,000 TREASURY SHARES
c. Cost of remaining treasury shares (acquired by
purchase)
7. Declared the annual dividends on the preference
share and P1 per share dividend on the ordinary share.
16,000 @ P40
(6,000)
# of PREF. SHARES: 30K - 4K = 26,000 PREF. SHARES 10,000 @ P40 = P400,000
0.12(6M - 800K) = P624,000 DIVIDENDS (PREF. SHARES)
d. The amount of total dividends declared during the
year: 812,000
Original (Ordinary Share Capital) 100,000
(2) Purchase of treasury shares (8,000) e. Total shareholders’ equity: 16,294,000
92,000
(3) 2-for-1 split x2
184,000
(4) Reissuance of treasury shares 6,000
190,000
(5) Donation of ordinary shares (4,000)
186,000
(6) Two thousand of the donated shares 2,000

were issued for P48 per share.
# of OUTSTANDING ORDINARY SHARES 188,000
x P1
DIVIDENDS (ORDINARY SHARES) P188,000
17
2-14. Red Heart Corporation was organized at the beginning of 06/15/20 — +50,000 SHARES
2018 with 300,000 authorized shares of P100 par value Cash 6,000,000
ordinary share capital OSC 5,000,000
At December 31, 2020, the shareholders’ equity section of Red
Heart was as follows: 09/30/20
#30K + 50K = 80K x .05 = +4,000 SHARES
Ordinary Share Capital, P100 par, 30,000 P3,000,000
Retained EarningsFV 440,000
shares issued
Share Div. Payable 400,000
11/10/20
Retained Earnings 450,000 Share Div. Payable 400,000
OSC 400,000
Total Shareholders’ Equity P3,750,000
12/31/20
On June 15, 2021, Red Heart issued 50,000 ordinary shares for Income Summary 1,175,000
P6,000,000. A 5% bonus issue was declared on September 30, Retained Earnings 1,175,000
2021 and issued on November 10, 2021 to shareholders of
record on October 31, 2021. The market value of the ordinary 03/01/21 -3,000 SHARES
share was P110 each on the declaration date. The profit of Red Treasury SharesCOST 285,000
Heart for the year ended December 31, 2021 was P1,175,000. Cash 285,000
During 2022, Red Heart had the following transactions: 05/01/21 +1,500 SHARES
Cost: 95 vs Issue Price: 120
∴ Share premium of P25
March 1 Red Heart acquired 3,000 of its own
ordinary shares for P95 each Cash (P120 x 1,500) 180,000
Treasury shares (P95 x 1,500) 142,500
May 1 Red Heart sold 1,500 shares of its treasury Share premium (P25 x 1,500) 37,500
for P120 per share.
08/10/21
August 10 Issued shareholders one share right for 1 share right = 2 ordinary shares @ P125
each share held to purchase two additional
ordinary shares for P125 per share. The # of OUTSTANDING SHARES:
rights expire on December 31, 2022. 30,000 + 50,000 + 4,000 - 3,000 + 1,500 = 82,500 shares
September 15 15,000 share rights were exercised when

the market value of ordinary shares was
💡 Upon issuance of the rights, magkakaroon ng MEMO
P140 each. Memo: Issued 82,500 share right to purchase additional
shares for P125.
October 31 40,000 share rights were exercised when
the market value of ordinary shares was 09/15/21 — 15K x 2 = +30,000 SHARES
P140 each. Cash 3,750,000
OSC 3,000,000
December 10 Red Heart declared cash dividends of P5 Share Premium 750,000
per share payable on January 5, 2023
10/31/21 — 40K x 2 = 80,000 SHARES @ P125
December 20 Red Heart declared 1,000 shares of its Cash (P125 x 80K) 10,000,000
treasury and reverted them to an unissued OSC (P100 x 80K) 8,000,000
basis. On this date, the market value of the Share Premium 2,000,000
ordinary share was P150 each.
12/10/21
Profit for 2022 was P1,200,000. # of OUTSTANDING SHARES:
82,500 + 30,000 + 80,000 = 192,500
REQUIRED:
a. Journal entries for years 2021 and 2022 DIVIDENDS: 192,500 x P5 = P962,500
b. Shareholder’s equity section of the statement of
financial position on December 31, 2022 Retained earnings 962,500
Cash dividends payable 962,500
18
12/20/21 — Retirement of TS SHARE BASED PAYMENT
Cost of TS: P95 vs Issue Price: P110 (3.3M/30K)
∴ Gain of P15
● A transaction in which an entity obtains goods or
services as consideration either for its own equity
OSC (1K x P100) 100,000
instruments or a payment based on the price of its
Share Premium (1K x P10) 10,000
equity instruments
Share Premium - Retirement (1K x P15) 15,000
Treasury Shares (1K x P95) 95,000
# Orig Issued: 30,000

# Treasury Shares: 3,000 → Nung nagkaroon ng retirement of
1,000 shares, all of this came from the original issuance na
30,000 shares
Cost of TS: P95 vs Issue Price: P110
💡 WHAT IF:
● # of Treasury Shares purchased is 40,000 T/S?
● Retirement of 35,000 T/S TYPES OF SHARE BASED PAYMENT
ALLOCATION OF PURCHASED 40K T/S: 1. Equity settled → Entity receives goods/services and
★ Original: 30,000 pays for them by issuing its shares of stocks or share
★ 06/15/20: 10,000 options
2. Cash settled → Entity receives goods/services and
RETIREMENT OF 35,000 T/S: USE FIFO incurs an obligation to pay cash at an amount that is
★ 30,000 based on the fair value of its equity instrument
Cost: P95 3. Choice between equity settled and cash settled →
Issue Price: P110 Entity receives goods/services and either the entity or
the counterparty is given a choice for settlement in the
★ 5,000 form of equity instrument of cash based on th efIr
Cost: P95 value of the equity instrument
Issue Price: P120
VESTING CONDITION
12/31/21 determines whether the entity receives the required services
Income Summary 1,200,000 from the employee that will entitle the employee to receive
Retained Earnings 1,200,000 cash, other assets or equity instruments under a share based
payment arrangement.
Shareholders’ equity, beg (12/31/19) 3,750,000
06/15/20 6,000,000
09/30/20 -
11/10/20 -
12/31/20 1,175,000
03/01/21 (285,000)
05/01/21 180,000
08/10/21 -
09/15/21 3,750,000
10/31/21 10,000,000
12/10/21 (962,500)
12/20/21 -
12/31/21 (Net income) 1,200,000
Shareholders’ equity, end (12/31/20) 24,807,500
19
would resign before December 31, 2024; although 8 employees
EQUITY SETTLED left during 2024.
Employees numbering 140 exercised their options during 2025;

● Entity receives goods/services and pays for them by
another 10 employees exercised their options during 2026. The
issuing its shares of stocks or share options
rest of the options expired.
MEASUREMENT REQUIRED:
NON-EMPLOYEE EMPLOYEE a. Compute the compensation expense resulting from
share options for the years 2022, 2023, and 2024.
1st: FV of goods/services 1st: FV of share options
received granted on grant date 2022 2023 2024
(date at which the entity and the
supplier agree to a share based
# of Employees 200 190 178
payment)
- Actual left (10) (12) (8)
2nd: FV of shares issued 2nd: INTRINSIC VALUE = - Est. left (15) (5) (0)
excess of FV shares over
3rd: Par value of shares option price Entitled SOO 175 173 170
issued
x # SOO x 100 x 100 x 100
# SOO Total 17,500 17,300 17,000
EQUITY SETTLED: SHARE OPTIONS
x FVSOO x P32 x P32 x P32
SHARE OPTIONS Comp. Exp. Total P560,000 P553,600 P544,000
● A contract that gives the holder the right, but not the
obligation, to subscribe to the entity’s shares at a fixed x Ratio x 1/3 x 2/3 x 3/3
or determinable price for a specified period.
Cumulative Comp. P186,667 P369,067 544,000
● Additional compensation granted to officers and key
Exp. CY
employees.
= SOO
● Part of share premium
- Cumulative (0) (P186,667) (369,067)*
RECOGNITION OF COMPENSATION EXPENSE Comp. Exp. PY *186,667 + 182.4k
SHARE OPTION VEST Recognized IN FULL with a Comp. Exp. CY P186,667 P182,400 P174,933
IMMEDIATELY corresponding increase in equity
SHARE APPRECIATION Recognized OVER VESTING JOURNAL ENTRIES

RIGHTS DO NOT VEST PERIOD as the employees
IMMEDIATELY render service 1/1/22
MEMO: Granted 100 share options to each 200 employees
provided they remain in service until 12/31/24.
PROBLEM SOLVING ON SHARE OPTIONS
12/31/22
2-18. The Red Fox Corporation granted 100 share options to Comp Exp. 186,667
each of its 200 employees on January 1, 2022. The option plan Share Options Outstanding 186,667
entitles the employees to buy a share of the entity’s P200 par
ordinary share capital at P220 per share. 12/31/23
Comp Exp. 182,400
Based on an option-pricing model used by Red Fox, the fair Share Options Outstanding 182,400
value of the option on January 1, 2022 was determined to be
P32. The plan further provides that the employees should be in 12/31/24
the service of the company until at least December 31, 2024. Comp Exp. 174,933
The options are exercisable starting January 1, 2025, and expire Share Options Outstanding 174,933
on December 31, 2026.
b. Prepare the journal entries for the years 2025 and
At January 1, 2022, it was estimated that 15% of the employees 2026.
who received the options will resign during the next three
years. During 2022, 10 employees left the company. At 2025: 140 employees exercised
December 31, 2022, 15 employees were expected to leave Cash (P220 x 140 employees x 100 options) 3.08M
before December 31, 2024. During 2023, 12 more employees SOO (P544K x 140/170) 448K
left, and at the end of the year, it was expected that 5 more OSC (P200 x 140 x 100) 2.8M
Share Premium (BF) 728K
20
2026: [MARKET BASED] 2-19. On January 1, 2022, Cherry Red
● Additional 10 employees → exercised Company issued 10,000 share options for the purchase of P100
● Remaining 20 employees → unexercised par value ordinary share at a strike price of P120 per share, to
its key employees. The share options vest when the following
EXERCISED
two conditions are satisfied:
Cash (P220 x 10 employees x 100 options) 220K
SOO (P544K x 10/170) 32K 1. The share price should reach P200, up to December
OSC (P200 x 10 x 100) 200K
Share Premium (BF) 52K 31, 2024, and
2. The employees receiving the options must be in the
UNEXERCISED entity’s service up to December 31, 2024. It is
expected that the share price of the company would
SOO (P544K - P448K - P32K) 64K reach P200 on December 31, 2024. The options are
Share Premium 64K
exercisable until the end of 2025.
2-17. On January 2, 2022, the shareholders of Fire Red Based on the pricing model used by the company, the fair value
Company approved a plan granting certain officers of the of the share option on January 1, 2022 is P20.
company non-transferable options to buy 50,000 shares of
P100 par ordinary share capital at P280 per share. The REQUIRED:
option-pricing model used by the company indicates that the a. Assume that the fair value of the company’s share
fair value of each option on January 2, 2022 is P30. The plan reached P200 in December 2023 and share options
provides that the officers must be employed by the company were exercised in 2025. Prepare entries for years
until December 31, 2024 and that the options will expire at the 2022 through 2025.
end of 2025.
At December 31, 2022, it was expected that 45,000 share

💡 ACCELERATION OF VESTING → Recognize
IMMEDIATELY the compensation expense that would have
options would vest, although in June 2023, some officers with
been recognized over the remaining vesting period
6,000 share options left the entity. At the end of 2023, it was
estimated that no other officers holding share options would
12/31/22
leave before vesting of the options. However, an officer holding
# of SOO = 10,000 x P20 x ⅓ = P66,667
1,500 share options left the entity in August 2024. All remaining
∴ P66,667 is the Compensation Expense 2022.
options were exercised during 2025.
Compensation Expense 66,667
REQUIRED: Prepare journal entries in the books of Fire Red
SOO 66,667
Company pertaining to the options for years 2022-2025,
inclusive.
12/31/23
2022 2023 2024 # of SOO = 10,000 x P20 x 2/2 = P200,000
# SOOTOTAL 50,000 50,000 44,000 SOO2023 200,000
- Actual left (0) (6,000) (1,500) (SOO2022) (66,667)
- Est. left (5,000) (0) (0) Compensation Expense 2023 P133,333
Entitled SOO 45,000 44,000 42,500
∴ P133,333 is the Compensation Expense2023.
x FVSOO x P30 x P30 x P30
Comp. Exp. Total P1,350,000 P1,320,000 P1,275,000 Compensation Expense 133,333
SOO 133,333
x Ratio x 1/3 x 2/3 x 3/3
Cumulative Comp. 450,000 880,000 P1,275,000 12/31/25 — To record the exercise of the options
Exp. CY
= SOO Cash (10,000 x P120) 1,200,000
SOO 200,000
- Cumulative (0) (450,000) (880,000) OSC (10,000 x P100) 1,000,000
Comp. Exp. PY
Share Premium (BF) 400,000
Comp. Exp. CY P450,000 P430,000 P395,000
EXERCISED
Cash (P280 x 42,500) 11.9M

SOO (450K+430K+395K) 1.275M
OSC (P100 x 42,500) 4.25M
Share Premium (BF) 8.925M
21
b. Assume that the fair value of the company’s share [NON-MARKET BASED] 2-20. On January 1, 2022, Red Day
reached P200 in December 2024. Eighty percent of Company granted 80 share options to each of its 400
the options were exercised in 2025 and the remainder employees for the purchase of P100 par ordinary shares at P140
lapsed. Prepare entries for years 2022 through 2025. per share. The fair value of each option on this date was P22.
The employees are required to be in the employ of the
company at least until the options vested. The share options will
Compensation Expense 2022 66,667
vest as follows:
● End of 2022, if earnings in 2022 increased by 15%
● End of 2023, if average annual earnings during 2022
and 2023 increased by 12%.
12/31/25: 80% expired, 20% expired The company reported an increase in earnings by 13% in 2022.
At December 31, 2022, it was expected that earnings during
Cash (80% x 10,000 x P120) 960,000 2023 would increase by at least 13%. During 2023, reported
SOO (80% x P200,000) 160,000 earnings increased by 12%.
OSC (80% x 10,000 x 100) 800,000
Share Premium (BF) 320,000 No employees left the company during the two-year period
2022-2023. All options were exercised during 2024.
SOO (20% x P200,000) 40,000
Share Premium - Expired 40,000 REQUIRED:
a. All entries during 2022 through 2024
c. How will the entries differ if the company's share
reached a market price of P200 only in June 2025, 2022:
such that none of the options vested during the 13% < 15% (Didn’t reach target of 15%)
prescribed period?
2023:
13+13
Reached P200 in June 2025 (Beyond vesting period) 13%EXPECTATION + 13%ACTUAL (AVE: 2 = 13% vs 12%)
✅ Reached target average annual earnings of 12% during
2022 and 2023
Compensation Expense 2023 66,667 2022

12/31/22 = 80OPTIONS x 400EMPLOYEES x ½ x P22 = P352,000
2023
13+13
13%EXPECTATION + 12%ACTUAL (AVE: = 12.5%)
● Entries from 12/31/22 to 12/31/24 → SAME 2
12/31/23 = Also at P352,000
12/31/25 (None of the options vested during prescribed period)
SOO 200,000 💡
➡️ WHAT IF: Didn’t reach the average of 12% in 2023
Cancel the previous compensation expense in 2022
SOO 352,000
💡 WHAT IF:
Expectation to reach by:
● 2024: 2022 x 1/3 b. Assume that the reported earnings in 2022 increased
● 2023: 2022 x 1/2 by 15%. How much compensation expense would be
● 2022: 2022 x 1/1 recognized during 2022 as a result of the option plan?
Expectation is to reach by 2023:

● 2022: x 1/2 💡 Reached the target of 15% in 2022: VEST IMMEDIATELY
Compensation Exp. = 80 x 400 x P22 x 1/1
● 2023: Did not reach but expected to reach on 2024 2022 OPTIONS EMPLOYEES
○ 2023: 2/3 Compensation Exp. 2022 = P704,000

○ 2024: 3/3
22
CASH SETTLED
JOURNAL ENTRIES:
● Entity receives goods/services and incurs an
obligation to pay cash at an amount that is based on a. Prepare all entries in the books of Striking Red
the fair value of its equity instrument Company for years 2020-2022.
INITIAL MEASUREMENT
● Good or services received and the related liability are 1/1/20
measured at the FAIR VALUE OF LIABILITY MEMO: Issued 10,000 SARS to selected employees
SUBSEQUENT MEASUREMENT 12/31/20

● Liability is REMEASURED AT FAIR VALUE Compensation Expense 66,667
○ Balance sheet date SARS Pay 66,667
○ Until date of settlement
💡 Most common: SHARE APPRECIATION RIGHTS (SARS)

12/31/21
SARS Pay 133,333
SHARE APPRECIATION RIGHTS
12/31/22
● DEFINITION: A form of compensation whereby the Compensation Expense 250,000
employee is entitled to future cash payment based on SARS Pay 250,000
the increase in the entity’s share price over a specified
level over a specified period of time
● Recognized a liability for future cash payment b. Give the entry for the exercise of the SAR assuming that:
○ Liability: initially and subsequently measured (1) The rights were exercised on January 1, 2023, when
at the Fair value* of the Share Appreciation the market price of the ordinary share is P165
Rights
1/1/23
*FAIR VALUE = Excess of the market value of Market Price of Ordinary Share = P165
the share over a predetermined price
SARS Payable 450,000
RECOGNITION OF COMPENSATION EXPENSE Cash 450,000
SHARE APPRECIATION RIGHTS SHARE APPRECIATION RIGHTS

VESTS IMMEDIATELY DO NOT VEST IMMEDIATELY (2) The rights were exercised on December 31, 2023,
when the market price of the ordinary share is P172.
Recognized IN FULL with a Recognized OVER VESTING
corresponding increase in PERIOD as the employees
liability at grant date render service 12/31/23
Market Price of Ordinary Share = P172 (Adjust liability and
2-22. On January 1, 2020, Striking Red Company issued 10,000 Expense)
share appreciation rights (SAR) to selected employees that vest
after three years, provided the employees remain employed by 12/31/23 P520,000
the company at least until the exercise date. Each SAR entitles 10K x (P172-120) x 1/1 = P520,000
the employee a cash payment for an amount the share price of
the company’s ordinary share exceeds P120.
Cumulative Comp. Exp. (12/31/22) (450,000)
The market price of Striking Red’s ordinary share at the end of
Compensation Exp. (12/31/23) 70,000
each vesting year is as follows:
December 31, 2020 P140 JOURNAL ENTRIES:

December 31, 2021 150 Comp. Exp 70,000
December 31, 2022 165 SARS Payable 70,000
SARS CExpCY SARS Payable 520,000

Payable / Cash 520,000
CumCExp
12/31/20: 10,000 x (P140 - P120) x 1/3 = 66,667 66,667
12/31/21: 10,000 x (P150 - P120) x 2/3 = 200,000 133,333
12/31/22: 10,000 x (P165 - P120) x 3/3 = 450,000 250,000
23
2-23. On January 1, 2020, Red Bull Corporation issued 10,000
share appreciation rights to its selected employees that vest on SHARE BASED TRANSACTION WITH CASH ALTERNATIVES
January 1, 2023 provided these employees are still in the
employ of the company. Each SAR provides for a cash payment
equal to the excess of the company's share market price on RIGHT TO CHOOSE SETTLEMENT
exercise date over P120. All of the share appreciation rights ★ PROVIDER OF GOODS OR SERVICES
were exercised in 2023 when the share market price was P165. With compound financial instrument (partly liability and
partly equity)
The fair value of each SAR and the fair value of the share are
made available to you at the following dates: PROVIDER: EMPLOYEE PROVIDER: 3RD PARTY
FV of SAR FV of share FV of share xx FV of goods/services xx

December 31, 2020 P26.80 P145 alternative
December 31, 2021 31.20 150
December 31, 2022 39.40 160 FV liability at grant (xx) FV liability at grant (xx)
date date
REQUIRED:
a. How much liability shall be presented in the statement of Value assigned to xx Value assigned to xx
financial position at the end of each year 2020-2022? equity equity
SARS CExpCY ★ ENTITY

Payable /
CumCExp 1. CASH SETTLED → If the entity has a present
obligation to settle in cash
12/31/20: 10,000 x P26.8 x 1/3 = 89,333 89,333
2. EQUITY SETTLED → If the entity has NO present
12/31/21: 10,000 x P31.20 x 2/3 = 208,000 118,667 obligation to settle in cash
12/31/22: 10,000 x P39.40 x 3/3 = 394,000 186,000 💡 If at settlement date, the entity settles in cash, the cash
payment is accounted as REPURCHASE OF EQUITY
12/31/23: 10,000 x (P165-P120) x 1/1 = 450,000 56,000 INSTRUMENT
💡
(Use intrinsic value)
Since tapos na yung vesting period,
1/1 na ang gagamitin.
Settlement Price > SOO Recognized: Additional Expense
Settlement Price < SOO recognized: Remain in Equity
b. Prepare all entries for the years 2020 to 2023 to record the
2-24. On January 1, 2020, Ruby Red Company granted to each
foregoing.
of its four executives the right to choose either 1,000 ordinary
shares or to receive cash payment equal to 900 shares. The
JOURNAL ENTRIES: grant is conditional upon the completion of three years of
1/1/20 service. The entity estimates that the value of the share
Memo: Issued 10,000 SARS to selected employees alternative on January 1, 2020 is P150 per share. Ruby Red’s
ordinary share capital has par value of P100.
12/31/20
Comp Exp 89,333 The following table shows the fair value of Ruby Red’s ordinary
SARS Payable 89,333 shares:
January 1, 2020 P158
12/31/21 December 31, 2020 160
Comp Exp 118,667 December 31, 2021 165
SARS Payable 118,667 December 31, 2022 168
December 31, 2023 172
12/31/22
Comp Exp 186,000 One executive exercised his right to receive the cash alternative
SARS Payable 186,000 on December 31, 2022; the others chose to receive the ordinary
shares on December 31, 2023.
12/31/23
Comp Exp 56,000
SARS Payable 56,000

Cash 450,000
24
REQUIRED:
a. Determine the amount assigned to equity on January 12/31/21
1, 2020 Compensation expense 214,400
FV of Share Alternative @ grant date 150,000
SOO 10,400
(1000 x P150)
12/31/22
FV of Cash Alternative @ grant date (142,200)
Compensation expense 219,200
(LIABILITY — 900 x P158)
SOO 10,400
Assigned to Equity 7800
(any remaining balance)
📌 One executive exercised his right to receive the cash
alternative on December 31, 2022; the others chose to
x 4 executives
receive the ordinary shares on December 31, 2023.
SOO P31,200
On 12/31/22: 1 executive received CASH (Cash Settled)
(604,800 for 4 executives, pero isa lang nag exercise ng
b. Compute the amount charged to Compensation cash payment)
Expense during the years 2020, 2021, 2022, and 2023
as a result of the foregoing. SARS Payable (604,800/4) 151,200
Cash 151,200
SARS
SOO (31,200/4) (expired) 7,800
SARS CExpCY Share Premium 7,800
Payable /
CumCExp On 12/31/23: 3 executives received EQUITY Settlement
12/31/20: 192,000 192,000

900 SARS x 4 executives x P160 x 1/3 12/31/23: 900 x 3 x P172 x 1/1 464,400
12/31/21: 396,000 204,000 Cum Comp Exp (604,800x 3/4) (453,600)
900 SARS x 4 executives x P165 x 2/3
12/31/22: 604,800 208,800 Additional Comp Exp 10,800

900 SARS x 4 executives x P168 x 3/3
Comp Exp 10,800

SOO SARS Payable 10,800
CumCExp CExpCY
12/31/20: 31,200 x 1/3 10,400 10,400 SARS Payable 464,400
SOO (31,200 x ¾) 23,400
12/31/21: 31,200 x 2/3 20,800 10,400 OSC (3 x 1000 shares x P100) 300,000
12/31/22: 31,200 x 3/3 31,200 10,400 Sh. Premium (BF) 187,800
A. WITHIN THE VESTING PERIOD

2020 2021 2022 WHAT IF: 3RD PARTY SUPPLIER WITH RIGHT TO CHOOSE
SARS 192,000 204,000 208,800 1/1
SOO 10,400 10,400 10,400 Service Fee xx
CExp 202,400 214,400 219,200 AP xx
SOO xx
JOURNAL ENTRIES:
1/1/20 SOO: If measurement is the fair value, remeasurement within
Memo: Granted each executives the right to choose between vesting period only.
equity settlement or cash settlement.
If measurement is the intrinsic value, it must be remeasured
12/31/20 until the settlement date.
Compensation expense 202,400
SARS Payable 192,000 SARS: Must be remeasured until the settlement date (to equal
SOO 10,400 the cash payment and the liability)
25
RETAINED EARNINGS APPROPRIATION OF RETAINED EARNINGS
● Represents the cumulative profits (net of losses,
distribution to owners, and other adjustments) which May be a result of:
are related in the business and not yet distributed to ● LEGAL REQUIREMENT (i.e. appropriated for the cost
shareholders. of treasury shares purchased)
● CONTRACTUAL REQUIREMENT (i.e. appropriated in
Retained Earnings, Beg xx compliance with loan agreements for protection of
creditors
+/- Correction of Prior Period Errors +/- xx ● DISCRETIONARY REQUIREMENT (i.e. appropriated
+/- Effect on Change in Acctg. Policy +/- xx for expansion of factory)
- Loss from Retirement of SC / TS (xx)

APPROPRIATION
- Loss from Reissue of TS (xx) RE - unappropriated xx
+/- Net Income/Loss for the year +/- xx RE - appropriated xx
- Dividends declared for the year (xx) 💡 The entry only states that a certain amount of RE is not
available for future distribution. In appropriating RE, it does
Retained Earnings, end xx
not necessarily mean that cash is set aside for that specific
purpose and vice versa.
CORRECTION OF ERRORS
APPROPRIATION NO LONGER EXISTS
1. CURRENT PERIOD ERRORS RE - appropriated xx
➔ Errors committed and discovered in the same period RE - unappropriated xx
➔ AJE: Through the affected nominal/real accounts
💡 Both entries do not affect the total balance of RE.
2. PRIOR PERIOD ERRORS
➔ Errors committed in previous years and subsequently 2-25. The Red Santa Company began its business in 2022 with
discovered P13,000,000 retained earnings account balance, of which
➔ AJE: Through Retained EarningsBEGINNING P4,000,000 is appropriated for plant expansion. During the year
2022, the following events occurred:
3. CHANGE IN ACCOUNTING POLICY
➔ Applied RETROSPECTIVELY (as if it was used by the 1. A material error was discovered in the financial
company from the start) statements for the year 2021, which caused
➔ AJE: Through Retained EarningsBEGINNING depreciation of 2021 to be understated by P200,000.
The company’s income tax rate is 30%.
EXAMPLES:
★ Inventory: FIFO → Weighted Ave.
★ PPE: Cost Model → Revaluation Model 2021:
Depreciation → UNDERSTATED by 200,000
4. CHANGE IN ACCOUNTING ESTIMATE Net Income → OVERSTATED
➔ Applied CURRENT and PROSPECTIVELY
➔ AJE: Through the affected nominal/real accounts Retained EarningsBEGINNING 140,000
Income Tax Payable (200K x 30%) 60,000
EXAMPLES: Acc. Depreciation (Adjustment) 200,000
★ DepreciationPPE → Change in Life, Change in
Residual Value, Change in Depreciation 2. Cash dividends of P5 per share on the 300,000, P100
Method par ordinary shares outstanding were declared and
💡 Total
distributed, after paying the required annual dividend
retained earnings may consist of on its 200,000 shares of 8% P100 par preference
● UNAPPROPRIATED/UNRESTRICTED → Portion of share.
retained earnings that is available for future
distribution to shareholders Dividends:
PREFERENCE: .08(P100 x 200K) = 1,600,000
● APPROPRIATED/RESTRICTED → Portion of retained ORDINARY: P5(300K) = 1,500,000
earnings that is not available for future distribution 3,100,000
to shareholders
Cash 3,100,000
26
3. Ten thousand shares of preference share capital were Retained Earnings, Beg 13,000,000
retired at P150 per share. These shares were originally
issued at P130 per share. 1. (Correction of Prior Period Errors) (140,000)
2. (Dividends declared for the year) (3,100,000)
Retirement Price: P150 vs Issue Price: P130 3. (Loss from Retirement of SC) (200,000)*
∴ Loss of P20 *P20 x 10,000
PSC (10K shares x P100 par PS) 1,000,000 4. — NO EFFECT — -

Share Premium Payable (10K sh x P30) 300,000 5. (Bonus issue) (6,750,000)
Retained Earnings (10K sh x P20 loss) 200,000
Cash 1,500,000 6. — NO EFFECT —
7. Profit for the year 3,000,000
4. The company completed its plant expansion project Retained Earnings, end 5,810,000
and released the retained earnings previously
appropriated for this purpose. REAPPROPRIATED → 2,000,000
REUNAPPROPRIATED → 3,810,000
Retained EarningsAPPROPRIATED - PLANT 4,000,000
Retained EarningsUNAPPROPRIATED 4,000,000 BOOK VALUE FOR SHARE
💡 This does not affect the balance of the retained earnings. ★ Theoretically, the amount that would be paid on each
share assuming the entity is liquidated.
5. A bonus issue of 45,000 shares of ordinary share
capital was distributed to shareholders. The shares sell
𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦
at P150 per share on the date of declaration and P140 Book Value per Share = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
per share on the date of distribution. There were
300,000 shares issued and outstanding before the
bonus issue. AMOUNT # OF SHARES
45,000/300,000 = 15% Share capital issued xx xx

∴ SMALL BONUS ISSUE (RE @ FV)
Add: Subscribed share capital xx xx
Retained Earnings (P150 x 45K) 6,750,000
OSC (P100 x 45K) 4,500,000 Total xx xx
Less: Treasury shares (xx) (xx)
6. During 2022, the company issued P20,000,000, Amount & number of shares xx xx
10-year 12% bonds. The bond indenture provides that outstanding
Red Santa shall restrict P2,000,000 of retained
earnings annually for the accumulation of enough *Subscription receivable is not deducted in computing for total
funds for this indebtedness. shareholder’s equity. It is assumed that the company is undergoing
liquidation, it has to pay off its creditors and if there’s excess,
distribute to shareholders.
Retained EarningsUNAPPROPRIATED 2,000,000
Retained EarningsAPPROPRIATED - BONDS 2,000,000 The liquidating company pays its creditors by realizing/selling its
💡 This does not affect the balance of the retained earnings. non-cash assets to outsiders and its proceeds will be used to pay its
obligations.
7. Profit for the year was P3,000,000. ★ MORE THAN ONE CLASS OF SHARE CAPITAL
Income Summary 3,000,000 Book Value per SharePREF =

𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦
𝑁𝑜. 𝑜𝑓 𝑝𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠' 𝐸𝑞𝑢𝑖𝑡𝑦
Book Value per ShareORDINARY = 𝑁𝑜. 𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
REQUIRED: Compute the retained earnings balance that will be
shown in the statement of financial position at December 31,
2022. How much of this balance is unavailable for further
distribution of dividends?
27
SOLVING TOTAL SHE:
PREFERENCE SHE Preference Share Capital 6,000,000
Preference share capital at par xx Ordinary Share Capital 8,000,000
Liquidation premium xx Retained Earnings (3.9M - 600K - 240K) 3,060,000
Dividends xx Total Shareholders’ Equity 17,060,000
Preference SHE xx
REQUIRED:
a. Computation of book value per share of preference
LIQUIDATION VALUE/PRICE and ordinary share at December 31, 2022.
Preference share capital at par xx A. PREFERENCE SHARES
Liquidation premium xx Preference share capital 6,000,000
Dividends — 3 years (9% x 6M) 1,620,000
ORDINARY SHE 3 years since the company never paid, meaning there’s arrears.
Total SHE xx Total preference shares 7,620,000

7,620,000
Preference SHE (xx) BVPSPREFERENCE = 60,000 P127
Ordinary SHE xx
B. ORDINARY SHARES
ASSUMED AVAILABLE FOR DIVIDENDS
● Retained earnings 17,060,000 - 7,620,000 = 9,440,000
● Share premium 9,440,000
● Revaluation surplus BVPSORDINARY = 800,000 P11.80
● Preference dividends:
○ NON-CUMULATIVE: Present shareholders b. Assuming that the preference share has a liquidation
are only entitled to current year dividends value of P105 per share, compute the book value per
○ CUMULATIVE: Present shareholders are share of the preference and ordinary share at
entitled to current dividends and to any December 31, 2022.
dividends not declared in prior periods (in
arrears) PREFERENCE SHARES
○ NON-PARTICIPATING: Only entitled to
Liquidation Value (P105 x 60K) 6,300,000
dividends equal to the fixed rate
○ PARTICIPATING: Entitled to additional Dividends 1,620,000
dividends proportionate to ordinary
Preference Shares 7,920,000
shareholders on the basis of par value, in
excess of the fixed rate 7,920,000
BVPSPREFERENCE = 60,000 P132
2-26. Red Hat company began operations in January 2020 and
reported the following results of operations for each of its first ORDINARY SHARES
three years of operations: 2020 - P600,000 loss; 2021 -
P240,000 loss; 2022 - P3,900,000 profit. Total 17,060,000
Preference Shares (7,920,000)
At December 31, 2022, the company’s capital accounts were as
follows: Ordinary Shares 9,140,000
9,140,000
9% cumulative Preference Share Capital P100 par; 100,000 BVPSPREFERENCE = 800,000 P11.425
shares authorized; 60,000 shares issued and outstanding
P6,000,000
Ordinary share Capital, P10 par; 1,000,000 shares authorized;

800,000 shares authorized; 800,000 shares issued and
outstanding P8,000,000
Red Hat Company has never paid a cash dividend or bonus

issue and there has been no change in the capital accounts
since it began operations.
28
QUASI-REORGANIZATION ADDITIONAL ENTRY:
● Is primarily an accounting procedure that involves a Revaluation Surplus 2.3M
revaluation of corporate assets and liabilities and a Retained Earnings 2.3M
restatement of the corporate capital structure to
enable the corporation to have a fresh start toward 2-28. The Skinny Red Company has a deficit in the retained
financial solvency and profitability. earnings of P1,000,000. Business appears to be turning around,
so the president wants the company to go through a
Quasi-reorganization may be affected thru: quasi-reorganization. The statement of financial position of the
1. Revaluation of the entity’s PPE company prior to the reorganization contains the following
➔ Assets and liabilities are revalued upwards or information:
downwards
➔ Any resulting credit balance in revaluation surplus is
Current Asset 500,000
used to eliminate the deficiency
Land 1,500,000
2. Recapitalization Buildings 5,000,000
➔ Any resulting share premium is used to eliminate the
deficiency Liabilities 1,000,000
Accumulated depreciation 1,000,000

PROBLEM SOLVING ON QUASI-REORGANIZATION
Ordinary share capital, P20 par 6,000,000
value
2-27. Red, Inc. has experienced several assets on its books that
are undervalued. It desires to revalue its assets and eliminate Retained earnings (Deficit) (1,000,000)
the deficit. At December 31, 2022, the company owns the
following identifiable asset: As part of the quasi-reorganization, the current assets and
buildings are to be written down by P100,000 and P300,000,
Cost Acc. Dep. Book Fair respectively. Ordinary share capital is to be exchanged and will
Value Value be restated at a legal capital of P4,000,000. The resulting share
premium will be used to cancel the resulting deficit.
Inventory P1.0M - 1.0M P0.7M
REQUIRED:
Land 5.0M - 5.0M 6.5M a. Journal entries to record the quasi-reorganization
Buildings 7.5M 3.5M 4.0M 5.0M
Machinery & 3.5M 1.5M 2.0M 2.2M Current Assets 100,000
Eqpt.
Accumulated Depreciation 300,000
The Statement of Financial Position on December 31, 2022,
Ordinary Share Capital 2,000,000
reported a deficit of P2,000,000 Share Premium 2,000,000
REQUIRED:
Journal entries to record the quasi-reorganization. DEFICIT:
Retained Earnings 300K Retained Earnings: (1,000,000)

Allowance for Inventory Write-down 300K Loss from Current Assets (100,000)
Loss from Building (300,000)
Land 1.5M
(1,400,000)
Revaluation Surplus 1.5M
Share Premium: 2,000,000
Building 1M
Revaluation Surplus 1M Share Premium 1,400,000
Machine and Equipment 200K
Revaluation Surplus 200K b. A statement of financial position immediately after the
quasi-reorganization.
DEFICIT:
Retained Earnings: (2,000,000) Current Assets 400K Liabilities 1M
Loss from Inventory (300,000) Land 1.5M OSC 4M
(2,300,000) Bldg. 5M Share Premium 600K
Revaluation Surplus: 2,700,000 Acc. Dep. (1.3M) Retained Earnings 0

(1.5M + 1M + 200K)
Total Assets 5.6M Total Liab & SHE 5.6M
29
IN-DEPTH
MODULE 2: INCOME TAXES I. PERMANENT DIFFERENCES → Items of income and
expense that are recognized in accounting but NEVER
Accounting Income ≠ Taxable Income
IN TAX
Accounting Income Taxable Income II.
NON-TAXABLE NON-DEDUCTIBLE
Based on: Based on: REVENUE EXPENSES
● PFRS ● National Internal
● PAS Revenue Code Examples: Example: Penalty for
● Interpretations ● Memorandum Exempted from tax violation of law
● Conceptual Circulars (Dividends of a Domestic
Framework ● CASH BASIS Corp → DC)
● ACCRUAL BASIS
💡
Final Taxes (Capital Gains
Dahil magkaiba ng basis, need i-reconcile ang accounting Tax, Interest Income)
income into taxable income
III. TEMPORARY DIFFERENCE → Difference in the
Taxable income → To be subjected to tax table carrying value of the asset or liability based on
accounting and based on tax
RECONCILIATION Includes: TIMING DIFFERENCE (Income and expenses

that are recognized for both accounting and tax, but
Pre-tax Financial Income xx at different periods)
Permanent Differences: + xx
(1) Non-Deductible Expenses TWO METHODS:
(To be added back since non-deductible) 1. Balance Sheet Method: Accounts for TEMPORARY
& TIMING DIFFERENCE
(2) Non-Taxable Revenue (xx) 2. Income Statement Method: Only accounts for
(To be deducted since non-taxable) TIMING DIFFERENCE
Financial Income Subject to Tax (FIST) xx

FUTURE TAXABLE FUTURE DEDUCTIBLE
Temporary Differences: + xx AMOUNT AMOUNT
(1) Future Deductible Amount
• Arises from situations that • Arises from situations that
(2) Future Taxable Amount (xx) are FAVORABLE to are UNFAVORABLE to
accounting accounting
Taxable Income xx
Balance Sheet Method: Balance Sheet Method:
If the carrying value of the If the carrying value of the
AssetACCTG > AssetTAX AssetACCTG < AssetTAX
LiabilityACCTG < LiabilityTAX LiabilityACCTG > LiabilityTAX
Income Statement Method: Income Statement Method:

If the carrying value of the If the carrying value of the
IncomeACCTG > IncomeTAX IncomeACCTG < IncomeTAX
ExpensesACCTG < ExpensesTAX ExpensesACCTG > ExpensesTAX
• Gives rise to a DEFERRED • Gives rise to a DEFERRED

TAX LIABILITY TAX ASSET (DTA with limit)
-Excess MCIT over NIT
-Net operating loss
carry-over (NOLCO)
30
COMPUTING FOR TOTAL INCOME TAX EXPENSE 1. Uncollectible account expense in excess of amounts
written off during the period → C
Current portion — Tax Income x Tax Rate xx BDEACCTG > BDETAX = UNFAVORABLE
Income Tax Expense xx 2. Tax depreciation in excess of depreciation for

Income Tax Payable xx accounting purposes → D
DepreciationACCTG < DepreciationTAX = FAVORABLE
Deferred portion xx
(1) Deferred Tax Liab: FTA x Tax Rate 3. Interest earned on investments in tax-exempt
government securities → B
Income Tax Expense xx
Deferred Tax Liability xx 4. Interest earned on deposits with banks (Final tax → B)
(2) Deferred Tax Asset: FDA x Tax Rate (xx) 5. Excess of profit earned over profit reported under the
installment method for income tax purposes → D
Deferred Tax Asset xx
IncomeACCTG < IncomeTAX = FAVORABLE
Income Tax Expense/Benefit xx
6. Deductible insurance premiums paid in excess of

Total Income Tax Expense xx
insurance expense reported for financial reporting. → D
InsuranceACCTG > InsuranceTAX = FAVORABLE
ALTERNATIVE SOLUTION:
Total Income Tax Expense = FIST x Tax Rate
7. Provision for loss on pending lawsuit expected to be
(only applicable if there is only 1 tax rate)
settled during the next reporting period → C
LossACCTG > LossTAX = UNFAVORABLE
TAX RATES
8. Insurance premiums paid on a life insurance policy
CURRENT PORTION DEFERRED PORTION where the entity is the designated beneficiary. → A
(Beneficiary: Entity)
Tax rate that is enacted or Use the tax rate that is
substantially enacted as of applicable in the period that
year end the deferred taxes reverse. INSURANCE FOR LIFE OF AN OFFICER
Provided, enacted or If the beneficiary is TREATMENT FOR PREMIUMS PAID:

substantially enacted as of
year end other than the entity ● NOT a permanent difference
● MAY NOT BE a temporary
difference
PRESENTATION
If the beneficiary is ● Gain on settlement: NTR
CURRENT TAX ASSET CURRENT TAX LIABILITY the entity ● Premium payment: NDE
Current Asset Current Liability
DEFERRED TAX ASSET

(Generally: No offsetting)
DEFERRED TAX LIABILITY

9.
❌
Impairment loss attributed to goodwill → A
( GOODWILL)
10. Warranty expense reported for financial reporting

Non-Current Asset Non-Current Liability purposes in excess of actual costs of repairs done
(Generally: No offsetting)
during the period → C
💡 DTA & DTL are always non-current Warranty ExpACCTG > Warranty ExpTAX = UNFAVORABLE
11. Collections of rental in excess of rent revenue

PROBLEM SOLVING reported during the period → C
IncomeACCTG < IncomeTAX = UNFAVORABLE
4-1. Classify the following items that may cause discrepancy
12. Dividends received by a domestic corporation from a
between accounting profit and taxable income, into the
domestic corporation → B (tax exempt)
following types of differences.
A. Non-deductible expenses
13. Increase in fair value of equity investments measured
B. Non-taxable revenues
at fair value through profit or loss → D
C. Deductible temporary difference
IncomeACCTG > IncomeTAX
D. Taxable temporary difference
31
4-4. Visayas Corporation has one temporary difference at the 4-5. Mindanao Corporation, in its first year of operations, has
end of 2022 that will reverse and cause deductible amounts of the following differences between the book basis and tax basis
P500,000 in 2023, P650,000 in 2024, and P400,000 in 2025. of its assets and liabilities at the end of 2022.
Visayas’ pretax financial income for 2022 is P2,000,000, and
the tax rate is 30% for all years. There are no deferred tax
Book Basis Tax Basis
assets or liabilities at the beginning of 2022. Visayas expects
profitable operations to continue in the future.
Equipment (net) P4,000,000 P3,400,000
REQUIRED:
a. Compute the taxable income and income tax Estimated warranty liability P2,000,000 -0-
expense-current for 2022. Compute also the deferred
tax asset at December 31, 2022. It is estimated that the warranty liability will be settled in 2023.
The difference in equipment (net) will result in taxable amounts
2023 500,000 of P200,000 in 2023, P300,000 in 2024, and P100,000 in
2025. The company has taxable income of P5,200,000 in
Future Deductible 2024 650,000 2022. As of the beginning of 2022, its enacted tax rate is 30%
Amounts for 2022-2024 and 35% for 2025. Mindanao expects to report
2025 400,000 taxable income through 2025.
Total FDA 1,550,000 REQUIRED: Journal entries to record income tax expense,
current and deferred, for 2022.
(a) Deferred Tax Asset: FDA x Tax Rate 465,000
= 1,550,000 x 30%
Equipment FTA of 2023:
600,000 200,000 x 30%
Pretax Financial Income 2,000,000
Deferred Tax
Temporary Differences: + 1,550,000 2024: Liability:
Future Deductible Amount 300,000 x 30% 185,000
(a) Taxable Income 3,550,000 2025:

100,000 x 35%
x Tax Rate 30%
Warranty FDA of 2023: Deferred Tax
(a) Current Income Tax Expense 1,065,000
liability 2M 2M x 30% Asset: 600,000
ADDITIONAL SOLVING
Current (5.2M x 30%) 1,560,000
Current 1,065,000
Deferred Tax Liability 185,000
Deferred (465,000)
Deferred Tax Asset (600,000)
Total Income Tax Expense 600,000
Total Income Tax Expense 1,145,000

Pretax Financial Income (work back) 3,800,000
Income Tax Expense (600,000)
+ Permanent Differences 0
Net Income (To be presented in SCI - P&L) 1,400,000
Financial Income Subj. to Tax (FIST) 3,800,000
(work back)
b. Prepare journal entries to record income tax expenses
FDA 2,000,000
for 2022.
CURRENT PORTION FTA (600,000)
Income tax expense 1,065,000
Income tax payable 1,065,000 Taxable Income 5,200,000
DEFERRED PORTION
Deferred tax asset 465,000
Income tax expense/benefit 465,000 Income Tax Expense (1,145,000)
Net Income 2,655,000
32
4-7. Bohol Company reported taxable income of P12,000,000
JOURNAL ENTRIES: for the year ended December 31, 2022. The controller is
Income tax expense 1,145,000 unfamiliar with the required treatment of temporary and
Deferred tax asset 600,000 permanent differences in reconciling taxable income to pretax
Income tax payable 1,560,000 financial income and has contacted your firm for advice. You are
Deferred tax liability 185,000 given company records that list the following differences:
Book depreciation in excess of FDA P430,000

4-6. Samar, Inc. reports taxable income of P2,000,000 on its tax depreciation
income tax return for the year ended December 31, 2022.
Timing differences (temporary differences) between financial Interest earned on government NTR 450,000
income and taxable income for the year are: securities
Tax depreciation in excess of book depreciation P360,000 REQUIRED: Determine the pretax financial income.
Accrual of product liability claims in excess of P240,000 Pretax Financial Income (work back) 12,020,000
actual claims
Non-taxable Revenue (NTR) (450,000)
Reported installment sales income in excess of P530,000
taxable installment sales income Financial Income Subj. to Tax (FIST) 11,570,000
(work back)
REQUIRED: Assuming an income tax rate of 30%, compute the Future Deductible Amount (FDA) 430,000
income tax expense — total and current portion, deferred tax
asset and liability, and income tax payable balances to be Taxable Income 12,000,000
recorded in Samar’s books.
Tax depreciation in excess of book FTA P360,000

depreciation (favorable sa 4-8. Wall Services computed pretax financial income of
accounting) P2,200,000 for its first year of operations ended December 31,
2022. In preparing the income tax return for the year, the tax
Accrual of product liability claims in FDA P240,000 accountant determined the following differences between 2022
excess of actual claims (unfavorable financial income and taxable income.
sa accounting)
Non-deductible expenses P400,000
Reported installment sales income in FTA P530,000
excess of taxable installment sales Non-taxable revenues 140,000
income (favorable sa accounting)
Temporary difference - installment sales 700,000
reported in financial income but not in taxable
Current (2M x 30%) 600,000 income
Deferred
The temporary difference is expected to reverse in the
● DTL (890K x 30%) 267,000 following pattern:
● DTA (240K x 30%) (72,000) 2023 - P140,000; 2024 - P320,000; 2025 - P240,000
Total Income Tax Expense 795,000 The enacted tax rates for this year and the next three years are
as follows:
Financial Income Subj. to Tax (FIST) 2,650,000 2022 - 30% 2024 - 34%
(work back) 2023 - 32% 2025 - 36%
2.65M x 30% = 795,000 (will come up with
same Total IT Exp)
FDA 240,000
FTA (890,000)
Taxable Income 2,000,000
33
REQUIRED: family as beneficiary. — Neither temporary or
a. Prepare a schedule showing the reversal of the permanent
temporary differences and the computation of income d. Tax depreciation in excess of book depreciation,
taxes payable and deferred tax asset or liability as of P1,500,000 — FTA
December 31, 2022. e. Excess of income on installment sales over income
reportable for tax purposes, P1,000,000 — FTA
Pretax Financial Income 2,200,000 f. Rent collected in advance of period earned, P750,000
— FDA
Non-deductible Expenses 400,000 g. Warranty provision accrued in advance of period paid,
P400,000 — FDA
Non-taxable Revenue (140,000)
Pretax financial profit is P10,000,000 and income tax rate is 30%
Financial Income Subj. to Tax (FIST) 2,460,000 for the current and future years.
Future Taxable Amount (FTA) (700,000) REQUIRED:

a. Indicate which of the above items are permanent
Taxable Income 1,760,000
differences and which are temporary differences,
Tax Rate x 30% classify the permanent differences whether
non-taxable revenue or non-deductible temporary
Current Income Tax Expense 528,000 differences. (Refer to red annotations)
b. Calculate the taxable income.

A. SCHEDULE OF REVERSAL
Pretax Financial Income (Given) 10,000,000
2023: 140,000 x 32% 44,800 Non-deductible Expenses 400,000
2024: 320,000 x 34% 108,800 Non-taxable Revenue (2,000,000)
2025: 240,000 x 36% 86,400 Financial Income Subj. to Tax 8,400,000
Deferred Tax Liability 240,000 Future Taxable Amount (1.5M + 1M) (2,500,000)
Future Deductible Amount (750K + 400K) 1,150,000

b. Prepare journal entries to record income taxes payable
and deferred income taxes. Taxable Income 7,050,000
Income Tax Expense 768,000

Income Tax Payable 528,000 c. Compute income tax payable, deferred tax asset and
Deferred Tax Liability 240,000 deferred tax liability.
Total Income Tax Expense 8.4M x 30% = 2,520,000
c. Prepare the section of the statement of (From FIST)
comprehensive income of Wall Services beginning
with “Income from continuing operations before Deferred Tax Liability 2.5M x 30% = 750,000
income taxes” for the year ended December 31, 2022. (From FTA)
Deferred Tax Asset 1.15M x 30% = 345,000

Pretax Financial Income 2,200,000 (From FDA)
Income Tax Expense (768,000) Current Portion 7.05M x 30% = 2,115,000

(Taxable Income)
ADDITIONAL SOLVING:
4-2. You are given the following information for Carlos
Corporation for the year ended December 31, 2022. Income Tax Expense (2,520,000)
a. Capital gains subjected to final withholding tax
P2,000,000 — NTR Net Income 7,480,000
b. Fines and penalties for violations of law, P400,000. —
NDE
c. Premium payment for life insurance policy on
president, P40,000. The president designated his
34
d. Prepare all entries relating to income tax. FDA (Cumulative) 1,500,000
Recording Total IT Expense
Income Tax Expense 2,115,000 FTA (Cumulative) 1,900,000
Income Tax Payable 2,115,000
b. Compute the balance of income tax payable, deferred
Recording DTL tax asset, and deferred tax liability as of December 31,
Income Tax Expense 750,000 2022.
Recording DTA
Deferred Tax Asset 345,000
4-10. (BALANCE SHEET APPROACH)

The Jude Company has taxable income for the year 2022 Current 1,500,000
amounting to P5,000,000. The tax bases for its assets and
liabilities at December 31, 2022 are equal to their carrying Income Tax Expense 1,500,000
amounts except for the following items. Income Tax Payable 1,500,000
Carrying Tax Base Deferred Tax Asset Use 75,000 (from t-acc)
Amounts
Accounts Receivable P1,900,000 P2,100,000 Income Tax Expense 75,000
Deferred Tax Asset 75,000
Inventories 950,000 850,000
Deferred Tax Liability Use 830,000 (from t-acc)
Building and Equipment 10,000,000 8,200,000
Provision for Warranty 800,000 0 Deferred Tax Liability 830,000
Unearned Rent 500,000 0
The company’s statement of financial position at December 31, Current 1,500,000

2021 showed deferred tax liability of P1,400,000 and deferred
tax asset of P525,000. Deferred Tax Asset 75,000
Deferred Tax Liability (830,000)

The enterprise is subject to an income tax rate of 30%. It is
believed that any deferred tax asset is fully realizable. The Total Income Tax Expense 745,000
company paid no income tax during 2022 relating to 2020
operations.
REQUIRED:
a. Determine the future taxable amount and future
deductible amount as of December 31, 2022.
Carrying Tax Base FDA or FTA
Amounts
Accounts P1,900,000 P2,100,000 FDA of

Receivable 200,000
Inventories 950,000 850,000 FTA of

100,000
Building and 10,000,000 8,200,000 FTA of

Equipment 1,800,000
Provision for 800,000 0 FDA of

Warranty 800,000
Unearned 500,000 0 FDA of

Rent 500,000
35
4-11. The Emenem Company has determined that its taxable
income for the year 2022 is P3,000,000. The following related Pretax Financial Income 2,800,000
facts were gathered: (work back)
Cumulative temporary differences, December 31, 2022 Non-Taxable Revenue (200,000)
Future taxable amount P1,500,000 Non-Deductible Expenses 600,000
Future deductible amount 800,000 Financial Income Subj. to Tax (FIST) 3,200,000
(work back)
Permanent differences
Future Taxable Amount (FTA) (500,000)
Non-taxable revenues 200,000 Financial Income Subj. to Tax (FIST) 300,000
Non-deductible expenses 600,000 Taxable Income 3,000,000
Deferred tax asset, December 31, 2021 150,000

Current (3M x 30%) 900,000
Deferred tax liability, December 31, 2021 300,000
Income tax rate for current and future years is 30%. Deferred Tax Asset (90,000)
REQUIRED: Total Income Tax Expense 960,000

a. Prepare entries to recognize the current and deferred
components of the income tax. 💡 FIST x 30% = 960,000 (Since 1 tax rate only)
b. Compute the following:
i. Total income tax expense, identifying the JOURNAL ENTRIES:
current and deferred components of income Income tax expense 900,000
tax Income tax payable 900,000
ii. Accounting profit subject to tax (FIST) →
3,200,000 Income tax expense 150,000
Deferred tax liability 150,000
iii. Accounting profit before income tax (PFI) →
2,800,000 Deferred tax asset 90,000
Income tax expense 90,000
Future taxable P1,500,000 DTL (12/31): 450,000

amount
Future deductible 800,000 DTA (12/31): 240,000

amount
36
Current (1M x 30%) 300,000
4-3. Luzon Corporation has one temporary difference at the end
of 2022 that will reverse and cause taxable amounts of Deferred Tax Asset (60,000)
P550,000 in 2023, P600,000 in 2024, and P650,000 in 2025.
Luzon’s pretax financial income for 2022 is P3,000,000, and the Total Income Tax Expense 240,000
tax rate is 30% for all years. There are no deferred tax assets
and deferred tax liability at the beginning of 2022. Income tax expense 240,000
REQUIRED: Income tax payable 300,000
a. Compute the taxable income and income tax
expense-current for 2022. Compute also the deferred
tax liability at December 31, 2022.
Pretax 3,000,000 4-13. Conchita Corporation’s only temporary difference at

Financial December 31, 2022 is caused by a P2,000,000 deferred gain
Income for tax purposes for an installment sale of a plant asset, and
related receivable is due in equal installments in the financial
Future Taxable (1,800,000) DTL: 540,000 years ending December 31, 2023, and December 31, 2024. The
Amount (FTA) (1.8M x 30%)
related deferred tax liability at December 31, 2021 was
Taxable 1,200,000 Current: 360,000 P640,000, based on the tax rate of 32%. A new tax rate of 30%
Income (1.2M x 30%) is enacted and is expected to become effective for years
ending on and after December 31, 2022. Taxable profit is the
Total Income 900,000 same as financial profit for the year 2022, which is P3,000,000.
Tax Expense
REQUIRED:
b. Prepare journal entries to record income tax expenses a. Determine the amount of deferred tax liability at
for 2022. December 31, 2022.

Income tax payable 360,000

Deferred tax liability 540,000
4-12. Capetown Company has a deferred tax asset account with b. Compute the total amount of income tax expense for
a balance of P180,000 in the financial year ended December 31, the year 2022, identifying separately the current
2021 due to a single temporary difference of P600,000. On portion and the deferred portion..
December 31, 2022, this same temporary difference increased
to a cumulative amount of P800,000. Taxable profit for 2022 is Current (3M x 30%) 900,000
P1,000,000. The tax rate is uniform for all years.
Deferred Tax Liability (40,000)
REQUIRED: Prepare entries relating to income tax for the year
ended December 31, 2022, assuming that there will be Total Income Tax Expense 860,000
sufficient future taxable profit against which deferred tax asset
will be realized. c. Prepare the entries for income tax for the year ended
December 31, 2022.
180,000
𝑇𝑎𝑥 𝑅𝑎𝑡𝑒 = 600,000
= 30%
ADDITIONAL SOLVING:
37
4-14. The following information relates to Britanny company, a
💡 DEFERRED
★ FDA
TAX ASSET arises from:
calendar year corporation.
★ NOLCO (within the next 3 years, the company
● Deferred tax liability ay January 1, 2022, P150,000
expects to be operating profitably)
● Deferred tax asset at January 1, 2022, P90,000
★ MCIT (within the next 3 years, the company expects
● Taxable profit for the year 2022, P3,000,000
that it will be paying the normal income tax)
● Pre-tax accounting profit for the year ended December
21, 2022, P2,800,000
● Cumulative taxable temporary difference at December 4-15. The Persistent Company, which started operations in 2017,
31, 2022 , P400,000 reported 2020 profit before income tax of P2,000,000. There
● Cumulative deductible temporary difference at were no differences between taxable profit and accounting
December 31, 2022, P200,000 profit. The corporate tax rate is 30%, while the minimum
● Assume an income tax rate of 30% corporate tax (MCIT) for 2020 was computed to be P700,000.
REQUIRED: REQUIRED: Prepare the entry/entries for the income tax,

a. Determine the income tax payable at December 31, assuming:
2022, assuming previous payments of P500,000 were a. Persistent expects to operate profitably in the
made in 2022 relating to 2022 income tax succeeding years and its normal corporate income tax
b. Prepare entries for income tax, both current and shall exceed the MCIT
deferred portion. Previous payments aggregating
P500,000 were charged to Income Tax Expense. MCIT 700,000
c. Compute for the company’s total income tax expense
and profit (After income tax) for the year 2022. NIT (600,000)
Excess MCIT 100,000
(Use tax rate of 30%)
b. Persistent expects that it will continue to pay the MCIT

instead of the corporate income tax at least for the
next three years.

Current (3M x 30%) 900,000

4-9. Daniel Company purchased equipment costing P2,000,000
Deferred 0 on January 1, 2022. The equipment has an estimated useful life
of four years, with no residual value. Daniel Company
Total Income Tax Expense 900,000
depreciates this equipment using straight-line method for
accounting purposes, but uses sum-of -the-years’ digit method
Income tax expense 900,000 for tax purposes. Assume a 30% tax rate for all years.
Daniel Company reports the following income in its income tax
Income tax payable 500,000 return for the years 2022, 2023, 2024, and 2025:
Cash 500,000
Income tax payable 400,000 2022 P800,000

(Based on entries: 900K - 500K)
2023 890,000
2024 1,200,000
2025 1,500,000
Other than for the difference in depreciation for the equipment
described, there is no other difference between Daniel’s
accounting income and taxable income for years 2022, 2023,
2024, and 2025.
38
REQUIRED:
a. Compute for Daniel’s pre-tax accounting profit for the b. Compute for the balance of deferred tax liability at the
years 2022, 2023, 2024, and 2025. end of 2022, 2023, 2024, and 2025.
𝑅𝑒𝑚𝑎𝑖𝑛𝑖𝑛𝑔 𝐿𝑖𝑓𝑒 𝑎𝑡 𝑡ℎ𝑒 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟 2022 2023 2024 2025
𝑛(𝑛+1) x Purch. Price
𝐹𝑎𝑐𝑡𝑜𝑟 = 2 DTL 300,000 400,000 300,000 0
Accounting Tax Δ
x 30% x 30% x 30%
2022 500,000 P800,000 300,000 FTA
90,000 120,000 90,000 0
2023 500,000 600,000 100,000 FTA
2024 500,000 400,000 100,000 FDA
c. Prepare entries for current income taxes and deferred
2025 500,000 200,000 300,000 FDA income taxes for years 2022, 2023, 2024, and 2025.
2022:
Income Tax Payable 240,000
2023:
2024:
2025:
EQUIPMENT:
Accounting Tax Δ FTA 12/31 d. Compute for the total income tax expense for years
2022 1,500,000 P1,200,000 300,000 FTA 2022, 2023, 2024, and 2025.
2023 1,000,000 600,000 400,000 FTA 2022 2023 2024 2025
2024 500,000 200,000 300,000 FTA Current 240,000 267,000 360,000 450,000
2025 0 0 0
DTL 90,000 30,000 (30,000) (90,000)
Total Income 330,000 297,000 330,000 360,000

2022 2023 2024 2025
Tax Expense
PFI = FIST 1,100,000 990,000 1,100,000 1,200,000
e. Compute the profit for years 2022, 2023, 2024, and
FTA (300,000) (100,000) 100,000* 300,000* 2025.
TI 800,000 890,000 1,200,000 1,500,000 2022 2023 2024 2025
*reversal PFI 1,100,000 990,000 1,100,000 1,200,000
Income Tax (330,000) (297,000) (330,000) (360,000)

Exp
Net Income 770,000 693,000 770,000 840,000
39
IAS 19 — EMPLOYEE BENEFITS 1. FUNDED PLAN
➔ Transfer of assets to a retirement fund (purpose: to
meet obligations arising from a retirement benefit
EMPLOYEE BENEFITS plan.)
● All forms of considerations given by an employer in ➔ Sets aside fund for future retirement benefits
exchange for services rendered by an employee or for ➔ Making payments → managed by a funding agency
termination of employment (which may be a trustee, bank, or an insurance
● Employee benefits include (POST): company managing the plan assets).
○ Post-employment benefits → benefits after ◆ Plan assets → the assets transferred to the
employment other than termination such as plan and used as payment for retirement
defined benefit plan and defined contribution benefits
plans ➔ Funding agency’s obligation is to accumulate funds
○ Other long-term employee benefits → and make payments to retired employees when due
long-term paid absences such as long service
leave, sabbatical leave, jubilee, disability, or 2. UNFUNDED PLAN
profit sharing ➔ No funding agency
○ Short-term employee benefits → sick leave, ➔ Employer retains the management of the retirement
vacation leave, paid annual leave, wages, fund (payment of retirement benefits without a
salaries separate fund)
○ Termination benefits → healthcare coverage,
severance pay, moving expenses, attorneys
DEFINED CONTRIBUTION PLAN
fees, back wages
■ May be divided into voluntary and ● The entity pays fixed contributions into a separate
involuntary termination benefits entity known as the fund.
● Makes a specific/definite amount of contribution to the
POST-EMPLOYMENT BENEFITS fund without specifying the retirement benefit to be
received by employees.
● Makes contributions to a trustee → the one who
● Benefits, other than termination benefits and manages, administers, and invests the fund.
short-term benefits, which are payable after ● Retirement benefit → dependent on how the plan was
completion of employment. managed by trustee
● May include: ○ If the investment management was poor (low
○ Retirement benefits (pension plans, lump returns), then the retirement benefit would be
sum payments on retirement) less.
○ Post-employment life insurance ○ If the investment management was excellent
○ Post-employment medical care (high investment returns), then there would
● Most of them are formal arrangements, and are part be more retirement benefits to be paid.
of remuneration packages. ● Employee bears investment risk.
● Some may be informal and some are established by ○ It is dependent on the performance of the
law. fund on how much it can pay for retirement
● Classified either as DEFINED BENEFIT PLANS or benefits.
DEFINED CONTRIBUTION PLANS
● May be contributory/non-contributory, and DEFINED BENEFIT PLAN
funded/unfunded.
DEFINED BENEFIT PLAN

POST-EMPLOYMENT BENEFITS may be: ● A post-employment plan other than a defined
contribution plan.
CONTRIBUTORY NON-CONTRIBUTORY ● Agreed benefits provided by employer to the
employee—depending on the years of service/salary
Employer and employee Only the employer makes ● Employer must make contributions (plus earnings) that
required to make the contributions and must be large enough to cover future retirement
contributions to the consequently shoulders the benefits.
retirement benefit plan. retirement benefit cost. ● Employer bears investment risk.
○ If the plan performs, the entity can take a
Example: SSS retirement break from contributing to the fund as it
plan where the employer might have enough assets to cover benefit
and employee are required expense payments.
to make contributions each ○ If the plan does not perform, the entity may
month as prescribed by law. make additional contributions to make good
the deficiency to pay the retirement benefit.
40
ACCOUNTING FOR DEFINED CONTRIBUTION PLAN
● Straightforward → obligation of the entity is ★ PROJECTED UNIT CREDIT METHOD/ACCRUED
determined by the amount contributed for each BENEFIT METHOD: Actuarial valuation method to
period. determine the PRESENT VALUE of the DBO,
● No actuarial assumptions → no actuarial gain or loss CURRENT SERVICE COST, and PAST SERVICE
● Obligations and contributions are undiscounted COST (if applicable)
(except when not expected to be settled within 12 ★ Each period of service gives rise to an additional
mos. From the end of the reporting period) unit of benefit entitlement.
● FS Disclosures: ★ Measures each unit separately to build the final
(1) Amount recognized as expense for the DCP obligation (PROJECTED BENEFIT OBLIGATION)
(2) Contribution to the DCP for key management ★ Actuarial assumptions are needed (employee
personnel (as required by IAS 24 - Related turnover, mortality, expected increase in salary, etc.)
Party Disclosures)
ILLUSTRATION 3: A director of ABC Company receives a
ILLUSTRATION 1: On Dec. 31, 2021, ABC Co. paid P300,000 retirement benefit of 10% of their final salary per annum for a
contributions to a DCP. Of this amount, P225,000 is in contractual period of 3 years. The director does not contribute
exchange for services performed by employees in Dec 2021, to the scheme.
and the balance of P75,000 in respect of food services to be
performed in 2022. The anticipated salary of the director over 3 years is
● P1,000,000 for 2020
12/31/21 ● P1,200,000 for 2021
Post-employment benefit expense 225,000 ● P1,440,000 for 2022
Prepaid benefit expense 75,000
Cash 300,000 The discount rate is 5%. The PV factor of P1 at 5% for:
● 1 period - 0.9524
ILLUSTRATION 2: On Dec. 31, 2021, ABC Co. paid P675,000 ● 2 periods - 0.9070
contributions to a DCP. The required annual contribution was ● 3 periods - 0.8638
determined to be P750,000 for the year 2021 to the funding
agency. REQUIRED: Using the Projected Unit Credit Method: determine
the
12/31/21 1. Current service cost - 2020, 2021, 2022
Post-employment benefit expense 750,000 2. Projected benefit obligation - 2020, 2021, 2022
Cash 675,000
Accrued post-employ. benefit exp. 75,000 Final salary of director 1,440,000
x 10%
ACCOUNTING FOR DEFINED BENEFIT PLAN
Annual retirement benefit 144,000
2020 2021 2022

★ IAS 19 says that an entity shall recognize the
following components of the Defined Benefit Cost: Prior years - 144,000 288,000
1. Service cost (P/L): Current year 144,000 144,000 144,000

a. Current service cost 144,000 288,000 432,000
b. Past service cost
c. Gain/loss on settlement YEAR BENEFIT PV FACTOR PV
2. Net interest (P/L): 2020 144,000 0.9070 130,608

a. Interest expense on defined benefit 2021 144,000 0.9524 137,146
obligation (DBO)
b. Interest income on plan assets (PA) 2022 144,000 1.0000 144,000
c. Interest expense on effect of asset ceiling 411,754
3. Remeasurements (OCI as actuarial gain/loss):
a. Remeasurement of plan assets (PA)
b. Remeasurement of projected benefit
obligation (PBO)
c. Remeasurement on the effect of asset
ceiling
41
b. When the entity recognizes related
DATE CURRENT INTEREST PBO restructuring costs or termination benefits.
SERVICE COST (5%) ● All PSC shall be recognized as an expense
COST immediately.
12/31/20 130,608 - 130,608

PLAN ASSETS
12/31/21 137,146 6,530 274,284
● Assets held by a long-term benefit fund and
qualifying insurance policies
12/31/22 144,000 13,716 432,000
● Conditions for assets held by a long-term benefit
fund are:
1. Assets are held by an entity, the fund itself, that
is legally separate from the reporting entity
2. The assets are available to pay only employee
CURRENT SERVICE COST
benefits
3. The assets are not available to the reporting
● The increase in the PV of the DBO resulting from entity’s own creditors even in bankruptcy
employee service in the CURRENT PERIOD 4. Assets cannot be returned to the reporting
● This is the cost to the entity under a DBP for entity or can be returned if the assets are
services rendered by employees in the current year. sufficient to meet obligations or the reporting
● Increases expenses and DBO. entity is to reimburse it for benefits already paid.
MEASUREMENT OF PLAN ASSETS:

NET INTEREST ● Plan assets are measured at their fair value.
● The net interest on DBO or PA is the change in the RETURN ON PLAN ASSETS
DBO, PA, and effect of asset ceiling as a result of ● Includes the:
the passage of time 1. Interest, dividends, other income derived
from the PA
● 3 elements: 2. Realized and unrealized gains/losses on
1. Interest expense on DBO the PA
Disc. Rate x DBO, beg ● Deducted in computing for the return:
1. Cost of managing the PA or managing
investments
2. Interest income on PA 2. Taxes (any tax payable on the PA itself or
tax on investment income)
Disc. Rate x FV of PA, beg
REMEASUREMENT OF PA: Component of OCI
3. Interest expense on effect of asset ceiling
● If Actual Return > Interest Income on FV of PA =
Disc. Rate x Effect of Asset Ceiling
Remeasurement Gain
● If Actual Return < Interest Income on FV of PA =
Remeasurement Loss
PAST SERVICE COST

COMPONENTS OF FVPA
Change in the PV of DBO for employee service in prior
periods resulting from plan amendment or curtailment. FVPA
Beginning balance xx
● Plan amendment is the introduction of DBP or
changes to an existing DBP. Contributions to the fund xx
● Plan curtailment is the significant reduction by the
entity in the number of employees covered by the Interest income on PA xx
DBP due to: Remeasurement gain/loss on PA xx / (xx)
1. Closing of a plant
2. Discontinuance of an operation Benefits paid (xx)
3. Termination/suspension of a plan Settlement price of PA before (xx)
● IAS 9 provides that PSC shall be recognized as an retirement
expense at the earlier of the following dates: Ending balance xx
a. When the plan amendment or curtailment
occurs.
42
PROJECTED BENEFIT OBLIGATION (PBO)
SETTLEMENT OF PLAN
● Actuarial PV of all benefits attributed by the pension ● Elimination of all further obligations for part or all of the
benefit formula to employee service rendered benefits provided under a defined benefit plan
before a specified date based on future ● Lump sum payment to plan participants in exchange
compensation level or future salary increases for their rights to received specified postemployment
● This is synonymous to defined benefit obligation benefits - example of settlement
● IAS 19 - lump sum payment made under the terms of
REMEASUREMENT OF PBO: the existing defined benefit plan (not settlement)
Actual benefit obligation > estimated amount = actuarial loss
Actual benefit obligation < estimated amount = actuarial gain GAIN/LOSS ON SETTLEMENT
● Settlement price vs. PV of DBO on the date of
settlement
COMPONENTS OF DBO ● Included in computation of employee benefit expense
FVPA ASSET CEILING (AC)

Beginning balance xx
● If FVPA > DBO = Overfunded
Current service cost xx ● IAS 19 refers to the excess as “surplus”.
Interest income on DBO xx ● IAS 19 par. 64 says that surplus in a DBP must not
exceed the asset ceiling determined using the
Remeasurement (gain) or loss on DBO (xx) / xx discount rate in the measurement of the DBO
Benefits paid (xx) ● “The present value of any economic benefit
available in the form of refunds from the plan or
Past service cost xx reductions in future contributions to the plan.”
● Any change in the effect of the AC, excluding
Ending balance xx
interest on the effect of the AC, is a remeasurement
to be recognized in OCI
💡TAKE NOTE:
● The FVPA and PBO do not appear in the books of the
● Interest on the effect of the AC is part of the total
change in the effect of AC
entity but rather in memorandum records only of the ● Discount rate x Effect of AC, beg. of the period =
plan—an entity separate from the employer Interest
● Total change in the effect of AC vs. Interest on the
effect of the AC = Excess is considered the
PREPAID/ACCRUED BENEFIT COST
remeasurement.
● The only account that appears in the FS of the
● Increase in effect of AC is a remeasurement loss
employer.
less interest expense on the effect of AC
● Overfunded (NCA) if it has a debit balance (FVPA >
● Decrease in effect of AC is a remeasurement gain
PBO)
plus interest expense on the effect of AC
● Underfunded (NCL) if it has a credit balance (FVPA <
PBO)
FS DISCLOSURES
1. Characteristics of the DBP and risks associated with

the plan
2. Reconciliations for the FVPA and the PV of the DBO
3. Separate showing of CSC, PSC, Int. Exp or Int. Inc.,
and remeasurements
4. Disaggregation of the FVPA into classes that
distinguish the nature of risks of assets
5. A sensitivity analysis for each significant actuarial
assumption showing the effect on the DBO for any
change
6. Description of any funding arrangement and policy
7. Expected contributions to the plan for the next
period
8. Maturity profile of the DBO
43
OTHER LONG-TERM BENEFITS, SHORT-TERM BENEFITS, ○ The entity has a present legal or
AND TERMINATION BENEFITS constructive obligation to make such
payment as a result of past events.
SHORT-TERM BENEFITS ○ A reliable estimate of the obligation can be
● These are benefits that are expected to be settled made.
within 12 months from the end of the reporting period
(employees rendered from the related service) ILLUSTRATION 1: SHORT-TERM COMPENSATED ABSENCES
● e.g. salaries, wages, paid sick leave, paid vacation ABC Company employees are entitled to a 2-week paid
leave, profit-sharing/bonuses payable within 12 vacation leave. During the year 2021, the employees earned
months, other non-monetary benefits 1,500 weeks of vacation leave and used 1,000 weeks. The
current salary of the employees are at the average of P3,000
ACCOUNTING FOR SHORT-TERM BENEFITS per week and the salary is expected to increase by P300 per
● Any unpaid short-term benefits at the end of the week or a future weekly salary of P3,300.
reporting period are accrued (e.g. salaries, wages)
● Any advanced payments of any short-term benefit are REQUIRED:
considered prepayments. 1. Prepare the JE for the year 2021 assuming the benefit
● Cost of short-term benefits are recognized as expense is accumulating and vesting.
in the year of benefit (e.g. salaries expense, wages
expense) unless another standard permits the cost to
be included as the asset’s cost 12/31/21
Vacation leave pay expense 3,000,000*
EXAMPLES OF SHORT-TERM BENEFITS: Cash 3,000,000
SHORT-TERM COMPENSATED ABSENCES
To record payment of used vacation leave
● Employees are paid for absences due to different *P3,000 x 1,000 weeks
reasons (e.g. sickness, vacation, disability,
maternity/paternity, military services) 12/31/21
● Accumulating vs. Non-accumulating Accrued vacation leave payable 1,650,000
➔ ACCUMULATING: When the benefit can be used in To record accrued vacation leave to be paid next year
future periods and are carried over if entitlement is
not used in full
Earned weeks 1,500
➔ Accumulating paid absences are:
1. Vesting → Employees are entitled for cash Used weeks (1,000)
payment for unused short-term benefit
Unused weeks 500
when they leave the entity
2. Non-vesting → Employees are not entitled Expected future weekly salary x 3,300
for cash payment for unused short-term
Accrued liability* 1,650,000
benefit when they leave the entity.
➔ NON-ACCUMULATING: When the benefit is not

carried forward in the future period. 2. Prepare the JE for the year 2021 assuming the benefit
➔ Benefits will lapse and will not entitle the employees is non-accumulating and non-vesting.
for cash payment upon leaving the entity.
➔ Usual: sick leave, maternity leave, paternity leave
12/31/21
PROFIT-SHARING AND BONUS PLANS Cash 3,000,000
● Employees will receive a portion of the profit upon To record payment of used vacation leave
satisfying certain conditions (e.g. employed within a *P3,000 x 1,000 weeks
certain/specified period)
● This creates an obligation on the part of the entity 12/31/21
when employees render their service.
● Measurement of the obligation should reflect the [NO ENTRY FOR ACCRUAL BECAUSE THE BENEFIT IS
possibility of some employees leaving the entity NON-ACCUMULATING AND NON-VESTING]
without the profit-sharing payments.
● IAS 19 says that an entity shall recognize the
expected cost of profit-sharing and bonus payments
when all conditions are present:
44
ILLUSTRATION 2: SHORT-TERM COMPENSATED ABSENCES ILLUSTRATION 3: PROFIT-SHARING/BONUS
DEF Company has an employee benefit plan which requires GHI Company has a profit-sharing bonus plan which requires an
that employees are entitled to 10 working days of paid sick entity to pay employees 8% of income for the year.
leave for each year. Unused sick leave may be carried forward
for 1 calendar year only. The entity reported income of P50,000,000 for 2021. The
bonus payment is to be made on December 31, 2022.
Sick leave is taken out of any balance brought forward from the
previous year and then out of the current year entitlement on a REQUIRED: Prepare JE to record the bonus for 2021 and the
FIFO basis. subsequent payment on December 31, 2022.
During 2021, the sick leave records of employees A, B, and C

12/31/21
are:
Bonus expense 4,000,000*
Bonus payable 4,000,000
*P50,000,000 x 8%
12/31/21
Bonus payable 4,000,000
Cash 4,000,000
REQUIRED: Compute for the accrued liability for A, B, and C on OTHER LONG-TERM BENEFITS
December 31, 2021.
● These are employee benefits other than short-term,
post-employment, and termination benefits.
A B C
● Not expected to be settled within 12 months after
the end of the reporting period in which the
Unused sick leave, 1/1/21 10 6 4
employees render the related service.
Sick leave used in 2021 taken from (7) (6) (4)
RECOGNITION AND MEASUREMENT
prev. year
● Same recognition and measurement of defined
benefit obligation (DBO)
Sick leave on 1/1/21 not taken 3 - -
● Liability → Excess of the present value of the liability
(forfeited)
over the FVPA at the end of the reporting period
● The only difference is the components of the
defined benefit cost.
A B C
● Components include:
1. Current service cost
Sick leave earned in 2021 10 10 10
2. Past service cost
3. Any gain or loss on settlement
Sick leave used in 2021 taken from - (3) (2)
4. Net interest expense or net interest
the current year
income
5. Remeasurements (actuarial gains/losses)
Unused sick leave, 12/31/21 10 7 8
● The remeasurements for other long-term benefits
are taken to P/L instead of OCI.
A B C TOTAL
TERMINATION BENEFITS
Daily wage 1,500 2,500 1,500
DEFINITION AND NATURE
Expected increase 120% 125% 130% ● Termination benefits are the benefits provided for
effected 1/1/21 the termination of the employee’s employment
because of either:
Expected wage 1,800 3,125 5,200 a. An entity’s decision to terminate the
employee before the retirement date
Unused sick leave, x 10 x7 x8 b. An employee's decision to accept an offer
12/31/21 of benefits in exchange for the termination
of employment.
Total accrued liability 18,000 21,875 41,600 81,475 ● A benefit earned by working for a future period is
not a termination benefit.
● Direct result of termination of employment.
45
5-1.
● Mandatory retirement, termination of employment at
Red Hot Company compensates its employees for certain
employee’s request without an entity offer → not
absences for vacation and sickness. Employees are entitled to
termination benefits
on-day vacation plus one-day sick leave for each month worked
● Usually, lump sum payments but may include:
during the year. Unused vacation days may be carried forward,
1. Direct or indirect enhancement of
but unused sick leave does not accumulate. Employees are
post-employment benefits through an
compensated according to their pay in effect at the time of the
employee benefit plan
leave. The following data were taken from the records for the
2. Salary until the end of the reporting period
year 2022:
if the employee renders no further service
that provides economic benefits to the
entity.
Employ Date of Unused Vacatio Sick Rate
RECOGNITION AND MEASUREMENT ee Initial vacatio n taken leave per day
● IAS 19 par. 165: An entity shall recognize an Employ n 1/1/22 in 2022 taken in
expense and a liability for termination benefits at ment 2022
the earlier of the following:
a. When the entity can no longer withdraw A.B 01/07/2 0 7 5 P550
the offer of termination benefits Santos 0
b. When the entity recognizes the cost of
restructuring that involves the payment of C.D. 06/28/ 6 3 10 520
termination benefits Garcia 21
● There must be AN OFFER OF TERMINATION (the
activity deemed to give rise to the termination E.F. 11/01/22 - 0 5 500
liability) Cruz
● Must recognize termination costs and restructuring
costs G.H. 08/01/2 - 1 2 480
● IAS 19 par. 69: Buen 022
a. If the termination benefits are expected to
be settled wholly within 12 months after
REQUIRED:
the reporting period, requirements for
short-term employee benefits will be
a. Compute the balance of the account liability for
applied
Compensated Absences at December 31, 2021
b. If the termination benefits are expected
b. Compute the amount of employee benefit cost for sick
not to be settled wholly within 12 months
leave and vacation leave for the year 2022
after the reporting period, requirements for
c. Prepare the entry for the payment of compensated
other long-term benefits will be applied.
absences for sick leave and vacation leave during
● Refers to undiscounted and discounted recognition
2022
of amount as termination benefits.
d. Prepare the entry for the accrual of compensated
absences at December 31, 2022
SHORT-TERM EMPLOYEE (PROBLEM SOLVING)
A. Liability compensated for absences for 2021:
ACCUMULATING & NO EXPIRATION
6 leaves x P520 = P3,120
2019: 10 vacation leaves
● Used: 6
B. Vacation Leave
● Remaining: 4 (can be used in 2020)
Earned Taken/Paid Excess/
2020: 10 vacation leaves Accrual
● Used: 12 Santos 12 7 x P550 5 x P550
FIFO LIFO
Garcia 12 3 x P520 9 x P520
2020 2020
2019: 4 VLs 2020: 10 VLs Cruz 2 0 x P500 2 x P500
2020: 8 VLS 2020: 2 VLS Buen 5 1 x P480 4 x P480
12 VLs 12 VLs 5,890 10,350
(All of 2019 was used) (Only 2 VLs from 2019 were
used) VACATION LEAVE 16,240
Sick Leave
46
Earned Taken/Paid Excess
Taken/Paid during 2022
Santos 12 5 x P550 7
Garcia 12 10 x P520 2
★ 35 12 days Earned in 2022: 10
Earned in 2021: 4 (2
2 Forfeited)
✔️ and
Cruz 2 5 —
(2 x P500) ★ 25 10 days Earned in 2022: 10
(3 SLs - utang) Earned in 2021: 4 (4 Forfeited)
Buen 5 2 x P480 4
Paid/taken in 2022 = [(35 x 12) + (25x10) x P450]
9,910 = P301,500
C and D. Accrual for 2022

Comp. Abs. Expense 26,150
Cash 15,800 ★ 40 12 days Earned in 2022: 10
Liab. Comp. Abs. 10,350 Earned in 2021: 2
★ 25 10 days Earned in 2022: 10

5-2. Green Grass Corporation grants its employees ten working Earned in 2021: Forfeited
days of paid sick leave for each year. Any sick leave not used
may be carried forward for one calendar year only. 12/31/21 - 1/1/22 P27,000 (Liability)
At December 31, 2021, the average unused sick leave of each Paid/taken in 2022 = [(35 x 12) + (25x10) x P450]
of its 60 employees is 4 days. The company estimates that 40 = P301,500
of its employees will take a maximum of ten days during 2022,
while the remaining employees will take an average of 13 days Liability for 12/31/22 = 40 x 2 x P450
during 2022. The average daily rate of an employee is P450. (Accrual) = P36,000
During 2022, 35 employees each took 12 days of sick leave,

while the remaining 25 employees each took 10 days of sick
leave.
At December 31, 2022, it is expected that 40 employees will

take no more than 12 days of sick leave during 2022 and the
remaining employees will take no more than 10 days of sick
leave.
The company adopts the LIFO approach in making estimates

relating to accumulating compensated absences.
REQUIRED: C.
a. Determine the amount of expenses recognized in
2022 for sick leave. 12/31/2021
b. Determine the liability at December 31, 2022 for
Comp. Abs. Exp. 27,000
compensated absences.
Liab. Comp. Abs. 27,000
c. Prepare entries for the going, assuming that the
company prepares reversing entries at the beginning
of each year. 01/01/2022
Liab. Comp. Abs. 27,000
Accrual 2021 (Liab. Comp. Abs.)
★ 40 10 days Earned in 2022: 10
Earned in 2021: 4 (4 Forfeited)
Cash 301,500
★ 20 13 days Earned in 2022: 10
Earned in 2021: 4 (3
1 Forfeited)
✔️ and Comp. Abs. Exp.
Liab. Comp. Abs.
36,000
36,000
Liab. Comp. Abs. = 20 x 3 days x P450

= P27,000
47
5-3. Mckinley Company grants all employees two weeks paid
vacation for each full year of employment. Unused vacation
time can be accumulated and carried forward to succeeding
years, and will be paid at the salaries in effect when vacations
are taken or when employment is terminated. There was no
employee turnover in 2022. Additional information relating to
the year ended December 31, 2022, is as follows:
Liability for accumulated vacations at 12/31/21 P500,000

Pre-2022 accrued vacations taken from 1/1/22 - 9/30/22
300,000
Vacations earned for work in 2022 (Adjusted to current rates) DEFINED CONTRIBUTION PLAN
400,00
REQUIRED CONTRIBUTION Retirement Benefit Expense
Mckinley granted a 10% salary increase to all employees on
October 1, 2022, its annual salary increase date. ACTUAL CONTRIB. > Prepaid Retirement Benefit
REQUIRED CONTRIB. Expense
REQUIRED: ACTUAL CONTRIB. < Accrued Retirement Benefit
a. How much is the vacation pay expense for the year REQUIRED CONTRIB. Expense
ended December 31, 2022?
b. What amount is reported as liability for accumulated
vacations at december 31, 2022
2. DEFINED BENEFIT PLAN
Liability → 12/31/21 500,000 ● Are post-employment benefit plans other than defined
200,000
Taken → 1/1/22 - 9/30/22 300,000 contribution plans.
Vacations earned 2022 400,000
A.
Earned in 2020 400,000

Adjustment of 200K (200K x 10%) 20,000
Expense 420,000
B.
Unpaid 12/31/19 200,000

● Contribution is not necessarily recognized as the
Adjustment of 200K (200K x 10%) 20,000 Retirement Benefit Expense
Earned 2020 400,000 ● Items to consider:
○ Defined benefit obligation (DBO)
Liability 620,000 ○ Fair value of plan asset (FVPA)
○ Deficit or surplus
POST-EMPLOYMENT ○ Defined benefit cost
1. DEFINED CONTRIBUTION PLAN

● Are post-employment benefit plans under which an
entity pays fixed contributions into a separate entity (a
fund) and will have no legal or constructive obligation
to pay further contributions if the fund does not hold
sufficient assets to pay all employee benefits relating
to employee service in the current and prior periods.
48
DEFINED BENEFIT OBLIGATION NET DEFINED BENEFIT LIABILITY OR ASSET
Beginning balance xx NET DEFINED BENEFIT DEFICIT
Benefits paid (xx) LIABILITY
Interest expense (Interest exp. = Disc % x DBO beg.) xx NET DEFINED BENEFIT LOWER between SURPLUS
ASSET and ASSET CEILING
CV of DBO paid in advance (xx)
Current service cost xx ASSET CEILING

(Increase in PV of DBO due to employee service in the
current period) ASSET CEILING
Past service cost xx ★ PV of economic benefits available in the form of
(Increase in PV of DBO due to plan amendment or refunds from the plan or reductions in future
curtailment) contributions
★ Affects the DEFINED BENEFIT COST
Actuarial gains or losses
● LOSS: Increased in DBO
Actual Obli. > Estimate +/- xx
4. DEFINED BENEFIT COST
● GAIN: Decreased in DBO
● This is the amount of benefit that the employee needs
Actual Obli. < Estimate
to receive on their retirement
Ending balance xx ● The amount that the company needs to contribute to
the fund for the employees to receive this benefit on
their retirement.
DEFINED BENEFIT COST

3. FAIR VALUE OF PLAN ASSET
● Fund set aside for the payment of retirement benefits (P/L) Retirement Benefit Expense
● May be returned to the entity only if:
○ Reimbursement of benefits already paid by Interest Expense =
employer Effect of Affect Ceiling Beg. x Discount %
○ Surplus assets
● Consists of:
○ Assets held by funding agency (Trustee) Current service cost xx
○ Qualifying Insurance Policies
Past service cost xx
FAIR VALUE OF PLAN ASSET Interest expense - DBO beg xx
Beginning balance xx Interest expense - PEAC beg xx
Benefits paid (xx) Interest expense - FVPA Beg (xx)
Actual gain/loss +/- xx Loss (gain) on early settlement xx
● GAIN: Actual Return > Interest Income LOSS: Settlement Price > CV DBO settled in adv.
● LOSS: Actual Return < Interest Income GAIN: Settlement Price < CV DBO settled in adv.
Interest income Retirement Benefit Expense (P/L) 990,000
+/- Actuarial gain/loss
Actual return
Settlement price of DBO paid in advance (xx) ★ Effect of Asset Ceiling: Excess of prepaid benefit
Interest income (Interest exp. = Disc % x DBO beg.) xx cost over the asset ceiling
Contribution xx ★ Effect of Asset Ceiling = End - Beg
Ending balance xx
DEFICIT OR SURPLUS
FVPA > DBO SURPLUS
FVPA < DBO DEFICIT
49
5-8. The White Flower Company showed in its memorandum
(OCI) Remeasurement records the following balances:
Fair value of Pension plan assets, P4,600,000

Remeasurement Loss/Gain on DBO +/- xx Jan 1, 2022
Remeasurement Loss/Gain on FVPA +/- xx Fair value of pension plan assets, 4,950,000
Contributions to the plan in 2022 500,000
Remeasurement Loss/Gain on Asset Ceiling +/- xx Benefits paid to retirees in 2022 700,000
Interest cost used by entity 10%
A. Determine the actual return on pension plan assets.

Remeasurement Gain xx FVPA - beg. 4,600,000
Interest expense xx Contribution 500,000
⬇️ Effect of Asset Ceiling (xx) Less: Paid (700,000)
Remeasurement Loss xx Actual return 550,000
Interest expense (xx) FVPA - end. 4,950,000
⬆️ Effect of Asset Ceiling xx

B. Determine the amount of actuarial gain or loss that
will be taken to other comprehensive income.
Interest income (4.6M x 10%) 460,000
DEFINED BENEFIT COST
Remeasurement GAIN 90,000 GAIN
OVERFUNDING OR UNDERFUNDING
Actual return 550,000
● Contribution > Defined Benefit Cost: OVER
● Contribution < Defined Benefit Cost: UNDER 5-9. The Orange Gem Company's memorandum records for its
defined benefit plan show the following balances at December
NET DEFINED BENEFIT LIABILITY OR ASSET
31, 2021.
Net defined benefit liability - beg. xx Fair value of plan assets P8,000,000
Benefit Obligation 9.000.000
+ Underfunding xx
- Overfunding (xx) The following have been gathered for the year 2022:
Net defined benefit liability - end. xx Service cost for 2022 P1,000,000
Discount rate 10%
Net defined benefit asset - beg. xx Actual return on plan assets 640,000
- Underfunding (xx) Benefits paid 600,000
Contributions made 2,000,000
+ Overfunding xx Past service cost 800,000
Net defined benefit asset - end. xx
The benefit obligation as measured by the actuary at December
31, 2022 has a present value of P11,050,000
💡 ADDITIONAL NOTES: Required:

a. Prepare a worksheet for the analysis of defined benefit
● ACTUAL RETURN = Actual investment income cost and related liability/asset.
b. Prepare the journal entries to record the funding and
● INTEREST RETURN = Expected investment income
the retirement benefit cost.
c. Determine the balance of the defined benefit asset or
liability (prepaid or accrued) as of December 31, 2020.
d. Reconcile the balance determined in ( c ) with the
amounts shown in the completed worksheet.
50
FVPA - beg. 8,000,000 NET DEFINED ASSET/LIAB (12/31/22)
Contribution 2,000,000 2 WAYS OF SOLVING:
Actual return 640,000 1. FVPAEnd (10.04M) < DBOEnd (11.05M)
LIABILITY of 1,010,000
Less: Paid (600,000)
FVPA - end. 10,040,000 2. FVPAEnd (10.04M) < DBOEnd (11.05M)
LIABILITY of 1,000,000
Contribution (2M) < DBC (2.01M)
Interest income (8M x 10%) 800,000 Under 10,000
Remeasurement LOSS 160,000 LOSS
Actual return 640,000 Acc. BC - Beg. 1,000,000
Underfunding 10,000
DEFINED BENEFIT OBLIGATION Acc. BC - End. 1,010,000
DBO - Beg. 9,000,000
Current service cost 1,000,000 JOURNAL ENTRY:

RBE 1,900,000
Past service cost 800,000 Rem. loss 110,000
Interest expense 900,000 Acc. BC 10,000
Cash 2,000,000
Paid (600,000)
Remeasurement GAIN (50,000) GAIN 5-7. On January 1, 2022, the Brown Cup Company provided the
DBO - End. xx following data relating to its defined benefit plan:
Fair value of plan assets P8,500,000

DEFINED BENEFIT COST Present value of defined benefit obligation 8,200,000
Current service cost 1,000,000 The following information is related to 2022:

Current service cost P1,200,000
Past service cost 800,000
Interest cost 10%
Interest expense 900,000 Actual return on the plan assets 780,000
Contribution to the plan 1,500,000
Interest income (800,000)
Retirement Benefit Expense (P/L) 1,900,000 On December 31, 2022, the company’s actuary placed a value
of P10,180,000 (present value) of defined benefit obligation.
Remeasurement Loss/Gain on DBO REQUIRED:

50,000
a. Determine the defined benefit liability/asset as of
Remeasurement Loss/Gain on FVPA 160,000 January 1, 2022. Indicate whether it is an asset or
liability.
Remeasurement Loss (OCI) 110,000
FVPABeg 8,500,000
DBOBeg 8,200,000
Retirement Benefit Expense (P/L) 1,900,000
Prepaid Benefit Cost 300,000
Remeasurement Loss (OCI) 110,000
Defined Benefit Cost 2,010,000 b. Determine the amount of actuarial gain or loss on
i. Plan assets
ii. Defined benefit obligation
FVPA
Interest income 850,000
Remeasurement Gain/Loss (70,000) LOSS
Actual Return 780,000
51
DBO f. Assume that the present value of available future
refunds and reduction in future contributions is
Beginning balance 8,200,000 P550,000. Prepare the entry for the re-measurement
Benefits paid – to asset ceiling on December 31, 2022. The net
surplus at December 31, 2021 was below the asset
Interest expense 820,000 ceiling.
CV of DBO paid in advance (–) Prepaid BC 12/31 600,000
Current service cost 1,200,000 Asset Ceiling 12/31
(Lower between the Prepaid BC and
550,000 ✔️
Past service cost – the Asset Ceiling)
Actuarial gains or losses (40,000) GAIN
Effect of Asset Ceiling 50,000 IMPAIRMENT LOSS
Gain → To be deducted (dahil kapag gain,
lumiliit yung liability)
JOURNAL ENTRY:
Ending balance 10,180,000 Remeasure Prepaid BC 50,000
Prepaid BC 50,000
c. Compute the retirement benefit cost for 2022,
indicating separately the amount taken to profit or loss 5-10. The Global Financing Company’s memorandum records
and to other comprehensive income. for its defined benefit plan show the following balances at
December 31, 2021:
Current service cost 1,200,000
Past service cost – Fair value of plan assets P5,500,000
Benefit obligation 5,300,000
Interest expense - DBO beg 820,000
Interest expense - PEAC beg – The company presents prepaid retirement benefit cost at
Interest expense - FVPA Beg (850,000) P100,000 in its December 31, 2022 statement of financial
position. This amount represents the present value of reduction
Gain/Loss on DBO paid in advance – in future contributions to the funding agency (the asset ceiling).
Loss: + (Nakakadagdag sa liability)
Gain: - (Nakakabawas sa liability) The following additional information has been made available
relating to 2022:
Retirement Benefit Expense (P/L) 1,170,000
Current service cost P1,000,000
Remeasurement Loss - FVPA +70,000 Discount rate 10%
Remeasurement Gain - DBO (40,000) Benefits paid to employees 300,000
Contributions made 1,000,000
Remeasurement Loss 30,000 LOSS
At the end of the year, the fair value of the plan assets and the
d. Prepare the entries for the retirement benefit cost and present value of the benefit obligation have been determined to
funding for 2022 be P6,800,000 and P6,000,000, respectively. Inquiry from the
Retirement benefit expense 1,170,000 funding agency indicates that the present value of the reduction
Remeasurement loss 30,000 in future contributions is estimated to be P180,000.
Prepaid benefit cost 300,000
Cash 1,500,000 REQUIRED:
a. Prepare a worksheet for the analysis of defined benefit
e. Determine the amount of defined retirement benefit cost and related liability/asset.
asset/liability as of December 31, 2022. b. Prepare the journal entries to record the funding and
Beginning balance 8,500,000 the retirement benefit cost.
c. Determine the balance of the defined benefit asset or
Benefits paid –
liability (prepaid accrued) as of December 31, 2022.
Actual return 780,000 d. Reconcile the balance determined in (c) with the
Settlement price – amounts shown in the completed worksheet.
Contribution 1,500,000
Ending balance 10,780,000
DBOEnd (10,180,000)
Prepaid BCEnd 600,000
Prepaid BCBeg (300,000)
⬆️ Prepaid Benefit Cost 300,000
52
1/1 12/31 Remeasurement Gain - EAC (90,000)
Remeasurement Loss - FVPA (50,000)
FVPA 5,500,000 6,800,000
Remeasurement Gain - DBO +70,000
DBO 5,300,000 6,600,000 Remeasurement Gain 70,000
Prepaid or Accrued 200,000 200,000

Benefit Cost prepaid prepaid Retirement Benefit Expense (P/L) 990,000
Remeasurement Gain 70,000
Asset Ceiling 100,000 180,000
DBC 920,000
Effect of Asset Ceiling 100,000 20,000
impairment loss impairment loss
Remeasurement:
Δ EAC: 80,000 GAIN
● Interest expense: 10,000 (100K x 10%)
● Remeasurement: 90,000 gain
FVPA
Beginning balance 5,500,000
Benefits paid (300,000)
Actual return 600,000
Settlement price —
Contribution 1,000,000
DBO
Beginning balance 5,300,000
Benefits paid (300,000)
Interest expense 530,000
CV of DBO paid in advance (–)
Past service cost –
Actuarial gains or losses 70,000 LOSS
Loss → To be added (dahil kapag tumaas yung
liability,loss sa part ng entity)
DBC
Past service cost –
Interest expense - DBO beg 530,000
Interest expense - PEAC beg 10,000
Interest expense - FVPA Beg (550,000)
Gain/Loss on DBO paid in advance –
Retirement Benefit Expense (P/L) 990,000
53

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MODULE 1: SHAREHOLDER’S EQUITY TYPES OF SHARES OF STOCK

● In a corporation setting, it is the difference between 1. Ordinary Shares

+ Share premium xx 3. Stated value

- Loss from Reissue of TS (xx) WITH PAR VALUE

- Dividends declared for the year (xx) Subscribed Shares Capital xx

Accumulated Revaluation Surplus xx

◆ No par but with stated value - CV of liability extinguished* (xx)

Roadshow Listing – although Profit or loss item

Stock exchange Listing Profit or loss items ● Cara 4,300 shares

● Without highest bidder Cash 56,000

September 16, 2020 b. Received a bill amounting to P180,000 for services in

Land 5,000,000 a. Issued 10,000 ordinary shares of P150 par value at

Cash (6.5k x 550) 3,575,000 Share Premium (PURO) 60,000

*Since walang FV of land provided (1st prio), ang

c. Land (5M) + Building (3M) 8,000,000

e. Cash (2.75M) + Subsc. Rec. (8.25M) 11,000,000

Shareholders Equity 32,755,000

5,000 x P800 = 4,000,000 100,000 x P120 = 12,000,000

d. Subscriptions to 5,000 ordinary shares with P100 par

WITHOUT FAIR VALUE ON DATE OF RECEIPT Subscription Receivable 96,000

Treasury shares 18,000

d. Collected the balance on the subscription of 8,000 shares

Share Capital xx Cash 76,800

ACQUISITION COST OF TS > ORIGINAL ISSUE PRICE Subscribed SC 80,000

Share Capital xx - NO ENTRY -

REQUIRED: Total shareholders’ equity of Blazing Red

2-4. The Millennium Company had 100,000 shares of Ordinary

The following treasury share transactions took place in 2022:

Shareholders Equity 2,265,000

Cash (P13 x 5K) 65,000

*5,000 shares: Lumalabas na mauubos yung 4,000, pero

● Retirement of treasury shares D. WHAT IF:

Ordinary share capital, P30 par, 100,000 1,800,000

Share Premium - Preference Share 160,000

Share Premium - Ordinary Share 250,000

Retained Earnings 800,000

● Orig Issue Price (2M + 160k)/100k = 21.60 per share

REQUIRED: Journalize the retirement of 4,000 preference

Small (<20%) Small (<20%)

March 31 Date Of Record

DECLARATION (@ PAR VALUE)

ISSUANCE (@ PAR VALUE)

C. [SHARE SPLIT] A 2-for-1 share split is declared and

2020 No dividends declared 2020 150K 150K

2022 Declared 500,000 Pref2022: 500K → 2020

2020 - P150,000 c. Preference share is CUMULATIVE and FULLY

● NON-CUMULATIVE → Kapag may arrears, hayaan mo

DIVIDENDS PREFERENCE ORDINARY

💡 Solving RATE OF PARTICIPATION ■ Year end

💡 Kapag fully participating, allocate based on share capital

According to PFRS 5, NCAHFS shall be measured at

EIFVPL (P1 x 10,000) 10,000 FV - CTS P190,000

Retained Earnings (P15 x 10,000) 150,000 10/01/22

Property dividends payable (P20 x 10k) 200,000 Retained earnings xx

2-12. On October 1, 2022, the Red Chili Company declared 12/31/22

450,000 PDP 30,000

★ Remedies of corporations LIABILITY DIVIDENDS

● Dividends declared in excess of the balance of

💡 Share warrants allow the holder to purchase ordinary share