Ordinary Shares
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Ordinary Share[pic 1][pic 2][pic 3][pic 4][pic 5][pic 6][pic 7][pic 8]In this chapter, we address the following questions:What is a share?What is a share capital or capital stock?What types of share can a company have?What is an ordinary share?What are the features, advantages and disadvantages of Ordinary Shares? Who should use ordinary shares?What are the types of ordinary share?What are dividends?What is the share price?Why might a company issue ordinary shares?Benefits of ordinary sharesSome things to consider when investing in ordinary sharesAccounting for Ordinary Share Capital IssueOVERVIEWThe three forms of business organization are single proprietorship, partnership, and corporation, does not affect the asset and liability sections of the statement of financial position. The only difference is in the owners equity sections. Sole proprietorships and partnerships use capital accounts and ultimately combine the owners contributions and accumulated earnings. Corporations separately report contributed capital and accumulated profits in accordance with some legal provisions. The owners equity section of a corporations statement of financial position is called shareholders equity. Shareholders equity or stockholders equity is the residual interest of owners in the net assets of a corporation measured by the excess of assets over liabilities.Shareholders equity has two major components-share capital (contributed or paid-in capital) and retained earnings. Share capital reflects the amount of resources received by a corporation as a result of investment by shareholders, donations or other share capital transactions. Retained earnings (or accumulated profits or losses) are the amount of capital accumulated and retained through the profitable operations of the business. The following is the shareholders equity section of a statement of financial position:Shareholders EquityShare Capital Preference Shares-P50 par, 1000 shares authorized, issued and outstanding P50, 000 Ordinary Shares-P5 par, 30,000 shares authorized,20,000 shares issued and outstanding P100, 000 Share Premium- Ordinary 50,000 150,000[pic 9]Total Share Capital P200, 000Retained Earnings 80,000[pic 10]Total Shareholders Equity P280, 000The Philippine Accounting Standards (PAS) has adopted the terminology used in the International Accounting Standards (IAS).Philippine Term IAS TermCapital Stock Share CapitalSubscribed capital stock Subscribed share capital
Common Stock Ordinary Share CapitalPreferred Stock Preference share capitalAdditional paid in capital Share premiumRetained earnings (deficit) Accumulated profits (losses)Retained earnings appropriated Appropriation reserve Revaluation surplus Revaluation reserveTreasury stock Treasury shareIn this chapter, the discussion is only for the first type of share capital-the ordinary share capital.ShareIf you own a share, you own a portion of a company. In the same way you can see your ownership of a company as a slice of pie, cut out of a bigger pie.Someone who owns one or more shares is called a shareholder. Shareholders may receive cash flows (dividends) if a company’s board of directors declares that the company has performed well and has enough profit to distribute to its shareholders.A share in the company gives you the right to vote on decisions affecting the company. You can also call a share, ‘equity’ or ‘stock’. Share Capital or Capital StockThe term “capital stock” or “share capital” is the amount fixed in the articles of incorporation to be subscribed and paid in or secured to be paid in by the shareholders of the corporation, either in money or property or services, at the organization of the corporation, or afterwards and upon which the corporation is to conduct its operations. Actually, the amount fixed in the articles of incorporation is called the authorized share capital.The share capital is divided into shares evidenced by a share certificate.A share represents the interest or right of a shareholder in the corporation. The four rights of a shareholder are:1. To share in the earnings of the corporation2. To vote in the election of directors and in the determination of certain corporate policies.3. To subscribe for additional share issues- this is the right of preemption or stock right.