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Shareholders' Equity

Shareholders' equity represents the residual claim that shareholders have on a company's assets after all liabilities have been paid. It includes contributed capital from shares issued at par value or a premium, as well as retained earnings. Contributed capital is reduced by the amount of any subscribed capital not yet paid. The trust fund doctrine holds that share capital is considered a trust fund for creditors and restricts dividend payments to retained earnings.

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46 views2 pages

Shareholders' Equity

Shareholders' equity represents the residual claim that shareholders have on a company's assets after all liabilities have been paid. It includes contributed capital from shares issued at par value or a premium, as well as retained earnings. Contributed capital is reduced by the amount of any subscribed capital not yet paid. The trust fund doctrine holds that share capital is considered a trust fund for creditors and restricts dividend payments to retained earnings.

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Mondays And
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Shareholders’ Equity

Shareholders’ equity is the residual interest in the assets of a corporation after deducting
all its liabilities. This is the equivalent of the “Owner’s equity” in a sole proprietorship
and the aggregate of partners’ capital balances in a partnership.

Contributed Capital
 Share Capital
o A par value share is one with specific value fixed in the articles of incorporation.
o But a no-par share has always an issued value or stated value.
Share capital is basically classified into two, namely:
o Ordinary Share is so called because the ordinary shareholders have the rights and
privileges.
o Preference Share is so called because of the preferences granted to the
shareholders.
 Preferred claims on dividends and net assets in the event of liquidation.
 Only have a limited or fixed return on investment.
 Share Premium – AKA additional paid-in capital arises from various sources which
includes the following:
o Excess over par value or stated value Remember:
o Resale of Treasury shares @ more than cost
Share capital
o Donated Capital
Share premium
o Issuance of Share warrants Subscribed share capital
o Issuance of convertible bonds payable (Subscription
o Distribution of small stock dividends Receivable)
o Quasi-reorganization Contributed Capital
 Subscribed Share Capital – represents the portion of the authorized share capital that is
subscribed but not yet issued.
 Subscription Receivable – represents the unpaid portion of the subscription price.
o Is presented as a deduction from the related subscribed share capital. (contra-
equity account)
o If more than 12 months or less, treated as current assets.
o If the problem is SILENT, assumed as contra-equity account.

Components of Shareholder’s Equity: Subscription


a. Contributed Capital Of the total authorized share capital,
b. Other Comprehensive Income (OCI) 25% was subscribed at par value and
c. Retained Legal Capital
Earnings 25%Trust
of theFund
total Doctrine
subscription was paid
d. Treasury Shares at subscription date.
is the portion of paid in capital arising from The trust fund doctrine holds that the share
issuance
Noteof: ( a+
share
b+ccapital which cannot
)−d=Shareholder '
be
s Equity capital of a corporation is considered as trust
returned to the shareholders in any form fund for the protection of creditors.
during the lifetime of the corporation.
The corporation can pay dividends to
The amount of legal capital is determined as: shareholders but limited only to the retained
earnings balance.
a. In the case of par value share, legal

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