Retained Earnings Mrs. Paz Castro

From the shareholders’ point of view, a share dividend does not change their percentage interests in the corporation although total outstanding shares have increased.

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From the shareholders’ point of view, a share dividend does not change their percentage interests in the corporation although total outstanding shares have increased.

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SMALL SHARE DIVIDENDS
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Additional shares issued are less than 20% of the previously outstanding shares.
Recorded by transferring from retained earnings to share capital (ordinary shares and share premium accounts) the fair market value of the additional shares to be issued.
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In cases when the fair market value is lower than the par or stated value, the par or stated value will be the basis for recording.

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• Ex.: Oishi!, a Japanese fastfood chain, is blessed with years of profitable operations for its commitment to serve affordable and healthy Japanese food favorites. The shareholders’ equity of the company before declaration of a 10% share dividend is as follows:

Ordinary shares, P50 par, 20,000 shares issued and outstanding P1,000,000

Share Premium Total Share Capital
200,000
P1,200,000
Retained Earnings
650,000

• The declaration of a 10% share dividend will require the issuance of an additional 2,000 shares. Assume

that the company’s share is being traded at the stock
exchange and that the stock market price per share is
P110. The fair market value of the shares to be distributed is P220,000. The entries will be:

Retained Earnings Shares Distributable
220,000
100,000
Share Premium 120,000
To record declaration of 10% share dividends. Shares Distributable 100,000
Ordinary Shares 100,000
To record issuance of share dividends.

• Retained Earnings (or the temporary account, Share Dividends Declared) is debited for the fair market value of the share dividends. Shares Distributable is credited for the par value of shares to be distributed and Share Premium for the balance.
• If a statement of financial position is prepared between the declaration date and the distribution date of a share dividend, the Shares Distributable account will be shown in the shareholders’ equity immediately after the Ordinary Shares account.

• When the share is distributed, only the components of the shareholders’ equity changes; retained earnings decreased by P220,000 and total share capital increased by P220,000. The total shareholders’ equity did not change.

	Before Dividends	After Dividends	Increase (Decrease)
Ordinary Shares, P50 par, 20,000 shares issued and outstanding	P1,000,000	P1,100,000	P100,000
Share Premium	200,000	320,000	120,000
Total Share Capital	P1,200,000	P1,420,000	P220,000
Retained Earnings	650,000	430,000	(220,000)
Total Shareholders’ Equity	P1,850,000	P1,850,000	-