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Delinquent Subscription

Corporation Code of the Philippines, Sec. 67

Subscription that has not been paid in full within 30 days on the date fixed by
the board of directors.

Conditions related to a delinquent subscription

1. Sold at a public auction (Sec. 41) 2. Has no right to vote or be voted (Sec. 24) 3. Receives insufficient or no cash dividends (Sec. 43)

Delinquent Subscription
Delinquency sale
Corporation Code of the Philippines, Sec. 68

1. BOD orders the sale of the delinquent subscription 30 to 60 days from the day it
becomes delinquent. 2. Delinquent subscriber shall be informed either personally or through mail. 3. Notice of the sale shall be published once a week for two weeks. 4. Offer price includes the balance of the subscription, accrued interest, costs of advertisement and expenses of sale. 5. Corporation may bid for the delinquent subscription provided that no one bids at the

public auction.

Delinquent Subscription
Delinquency sale
Corporation Code of the Philippines, Sec. 68

6. The highest bidder shall be the one who shall offer to pay the full amount of the
balance on the subscription together with accrued interest, costs of advertisement, and expenses of sale, for the smallest number of shares. 7. Should there be no bidders, the corporation may bid for the delinquent subscriptions, but title to all of the shares shall be vested to the corporation as treasury shares.

Delinquent Subscription
Lafferty Corp. Declared Dean Winchesters share subscription delinquent. The records of the corporation pertinent to Winchesters subscription show that he subscribed for 50 000, P20 par ordinary shares at P30 per share, and he still has a remaining balance of P750 000. The delinquent shares are subsequently offered for public auction incurring a cost of P100 000. The offer price is P850 000. There are three bidders during the auction who are willing to pay the offer price corresponding to the shares, as follows: Bidder Mia Michaels Nigel Lythgoe No. of shares 20 000 25 000

Mary Murphy

30 000

Suppose there are no bidders in the sale, how would the journal entries in the books of Lafferty differ?

Delinquent Subscription
Thomas Corp. was incorporated at the beginning of 2012. It was authorized to issue 1M, P20 par ordinary shares. The incorporators subscribed to 30% of the authorized shares at 150% of the par per share and paid 40% of the balance as down payment. The following transactions occurred during the year. 1. Thomas received a subscription for 50 000 of the shares at P50 per share. 20% of the balance was immediately paid and the rest was contracted to be paid a month after. 2. The incorporators paid the remaining balance of their subscription. Share certificates were subsequently issued to them. 3. After paying half of the balance of the subscription in #1, the subscriber defaulted and the subscription was declared delinquent. Expenses amounting to P100 000 was incurred in relation to the delinquency sale. 4. Lawson, Goodwin and Tidwell bid for the delinquent subscription for 25 000, 22 000 and 23 000, respectively. The highest bidder subsequently paid the remaining balance and share certificates were issued. 5. 60 000 shares were reacquired at P40 per share. 6. 20 000 of the reacquired shares were subsequently reissued at P48/share. 20 000 were reissued at par. 7. A part of the accumulated profits was appropriated for the cost of the treasury shares.

Delinquent Subscription
Questions: 1. How much is the total contributed capital after all the foregoing transactions? 2. What is the total cost of the remaining treasury shares? 3. What is the amount debited to retained earnings due to the reissuance of the treasury shares? 4. How many shares were issued and how many were outstanding? 5. How many shares did the highest bidder receive? 6. Suppose there was no highest bidder, what will be the total cost of the treasury shares at the end of the reporting period? Assume that the reissued shares were part of the 60 000 that were previously reacquired.

Treasury Shares
Definition Skousen, Stice, Stice; Intermediate Accounting,16th Edition Shares issued by a corporation but were subsequently reacquired and held for
possible future reissuance or retirement
Reported as a contra-equity account, not as an asset Does not create a gain or loss on reacquisition, reissuance or retirement

Valix, Peralta, Valix; Financial Accounting 2, 2012 Edition

An entitys own shares that have been issued and then reacquired but not cancelled

Treasury Shares
Kieso, Weygandt, Warfield; Intermediate Accounting IFRS Edition, Volume 2
Corporations own shares that were outstanding, have been reacquired by the
corporation, and are not retired Not an asset and should be shown in the statement of financial position as a reduction of equity

Treasury Shares
Reasons for Reacquisition of Shares
1. To boost underpriced shares/To create market 2. To distribute surplus without paying dividends 3. To boost earnings per share 4. To offset issuance of shares under share-based compensation plans 5. To invest excess cash temporarily

6. To thwart takeover attempts or to reduce the number of shareholders

Treasury Shares
Limitation on Reacquisition of Shares
Sec. 41, Corporation Code of the Philippines A stock corporation shall have the power to purchase or acquire its own

shares for a legitimate corporate purpose or purposes Provided, that the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired

Other Notes on Treasury Shares

Treasury shares may decrease retained earnings but not increase it. Although issued, treasury shares do not have the status of outstanding shares. Treasury shares are not an asset of the company.

Treasury shares are affected by share splits.

Treasury Shares
IAS 32, par. 33 No gain or loss shall be recognized in profit or loss on the purchase, sale, issue or cancellation of an entitys own equity instruments Consideration paid or received shall be recognized directly in equity.

*Reissuance of treasury shares, regardless whether at, below or above cost,

increases total assets and equity.

Treasury Shares
Cole Co. reacquired 50 000 of its ordinary shares previously issued at P8/share. The following transactions show how the treasury shares

were subsequently reissued.

1. 10 000 shares at P8/share 2. 10 000 shares at P7/share

3. 10 000 shares at P9/share

4. 10 000 shares at P6/share

*Treasury shares may decrease retained earnings but not increase it.

Treasury Shares
Retirement of Treasury Shares
1. 2. Cancellation of certificates Reduction in the number of issued shares


Historical cost is used in recording

If the retirement results in gain, it is credited to share premium from treasury shares.

If the retirement results in a loss, it is debited to the following accounts in order: 1. Share premium from treasury shares 2. Retained earnings

Treasury Shares
The following accounts were taken from Chehon Companys statement of financial position Ordinary shares, 100 000 shares, P10 par Share premium - ordinary Share premium - treasury shares Retained earnings Treasury shares, 10 000 shares at cost 1,000,000.00 500,000.00 100,000.00 2,000,000.00 (120,000.00)

Chehon decided to retire the treasury shares. They were originally issued at an average price of P15/share. Prepare the journal entry to record the transaction. Suppose the treasury shares have a total cost of P300 000. Prepare the journal entry

to record the transaction.

Treasury Shares
Disclosure of Treasury Shares
1. Number of shares 2. Restriction on retained earnings