company-accounting-Finan课件(PPT 44页)

1、Chapter 2 Financing company operations Prepared by Emma Holmes第1页，共44页。Issue of sharesA company can issue shares on any terms or conditions it determinesShare capital may include different classes:OrdinaryPreferenceTo issue preference shares a constitution setting out the rights is necessary (s254A(

2、2)Shares can be issued at any price, payable in full or by instalment第2页，共44页。Key features of share capitalShares may have different rights in respect of voting, sharing in profits or return of capitalRights of shareholders include:The right to vote for directors of the companyThe right to share in

3、assets on the winding-up/liquidation of the companyThe right to share in new share issues (for the same class of shares)Ordinary shareholders have no specific right to dividends.第3页，共44页。Accounting for share issuesThe following slides contain a number of examples of the accounting process involved w

4、hen a company issues new shares.Most of the following examples assume that shares are issued via an IPO /prospectus process. Such processes involve the shareholders applying for a number of shares in response to a prospectus issued by the company. The company will then issue the shares to new shareh

5、olders based on the applications it has received.Initial Public Offering第4页，共44页。Accounting for share issuesSuch share issues are accompanied by disclosure documents. Commonly the disclosure documents specify a minimum number of applications which must be received in order for the share issue to pro

6、ceed.The Corporations Act requires:that the minimum subscription be achieved within 4 months of the issue of the disclosure document; andshares be allotted within 13 months of the issue of the disclosure document.第5页，共44页。Accounting for share issuesOn issuing new shares the company may require the f

7、ull amount owing on the shares to be paid at the time of application. Alternatively it may require a portion to be paid on application, with the balance being due at some time in the future (on allotment and/or at call).There are a number of different accounts used to facilitate this application, al

8、lotment and call process. 第6页，共44页。Issue of shares Payable in full on application (Example 1)ABC issued a prospectus for the issue of 100,000 $5 shares on 1 January 2012.The prospectus specified that the $5 was payable in full on application.The company received applications for a total of 100,000 s

9、hares these applications were received throughout the month of January.On 31 January 2012 ABC issued 100,000 shares.Required: Prepare the journal entries to account for the issue of shares by ABC.第7页，共44页。Issue of shares Payable in full on application (Example 1)1-30 January 2012DrCash trust500,000C

10、rApplication500,000To record receipt of application monies prior to issuing the shares(100,000 shares x $5)Cash account trust is used to record cash prior to the shares being issued- the cash is held in a trust account on behalf of the applicantsRepresents a liability of the company prior to the sha

11、res being issued第8页，共44页。Issue of shares Payable in full on application (Example 1)31 January 2012DrApplication500,000CrShare capital500,000Issue of shares applied forDrCash500,000CrCash trust500,000Transfer from cash trust on issue of sharesTIP: T-accounts are helpful to ensure that temporary accou

12、nts are cleared out correctly第9页，共44页。Issue of shares Deposit on application, balance on allotment (Example 2)ABC issued a prospectus for the issue of 100,000 $5 shares on 1 January 2012.The prospectus specified that $3 was payable on application, with the balance payable on allotment.The company re

13、ceived applications for a total of 120,000 shares throughout the month of January.The Directors refunded the money in relation to unsuccessful applications.On 31 January 2012 ABC issued 100,000 shares.Required:Prepare the journal entries to account for the issue of shares by ABC.第10页，共44页。Issue of s

14、hares Deposit on application, balance on allotment (Example 2)1 January 2012DrCash trust360,000CrApplication360,000To record receipt of application monies prior to issuing the shares31 January 2012DrApplication300,000Dr Allotment200,000CrShare capital500,000Issue of shares applied for(120,000 shares

15、 x $3)The allotment account is a temporary account used when further amounts are owing when shares are issued represents a receivable of the company(100,000 shares x $5)第11页，共44页。Issue of shares Deposit on application, balance on allotment (Example 2)31 January 2012DrApplication60,000CrCash trust60,

16、000Refund of application monies to unsuccessful applicantsDrCash300,000CrCash trust300,000Transfer from cash trust on issue of sharesDrCash200,000CrAllotment200,000Cash received on allotment(20,000 shares x $3)(100,000 shares x $2)(100,000 shares x $3)第12页，共44页。Issue of shares Deposit on application

17、, instalment on allotment, balance on call (Example 3)ABC issued a prospectus for the issue of 100,000 $5 shares on 1 January 2012.The prospectus specified that $2.50 was payable on application, a further $1.25 was payable on allotment and the final $1.25 was payable at call.On 31 January 2012 ABC i

18、ssued 100,000 shares.On 31 May 2012, the company made the call for the outstanding balance of $1.25 per share. The call was payable by 30 June 2012.At 30 June 2012, the call on 10,000 shares remained unpaid.Required:Prepare the journal entries to account for the issue of shares for ABC.第13页，共44页。Iss

19、ue of shares Deposit on application, instalment on allotment, balance on call (Example 3)1 January 2012DrCash trust250,000CrApplication250,000To record receipt of application monies prior to issuing the shares31 January 2012DrApplication250,000Dr Allotment125,000CrShare capital375,000Issue of shares

20、 applied forDrCash250,000CrCash trust250,000Transfer from cash trust on issue of shares(100,000 shares x $2.50)(100,000 shares x $3.75)第14页，共44页。Issue of shares Deposit on application, instalment on allotment, balance on call (Example 3)31 January 2012DrCash125,000CrAllotment125,000Cash received on

21、allotment31 May 2012Dr Call125,000CrShare capital125,000Call of $1.25 per share on 100,000 shares issuedBalance of share capital a/c now $500,000The call account is a temporary account used when further amounts are owing when a call is made represents a receivable of the company第15页，共44页。Issue of sh

22、ares Deposit on application, instalment on allotment, balance on call (Example 3)30 June 2012DrCash112,500CrCall112,500Cash received on allotmentThe balance in the call account is $12,500, being $1.25 x 10,000 shares.Unpaid calls are referred to as calls in arrears and are shown as a reduction of sh

23、are capital in the companys financial statements.The balance in the share capital account at 30 June is as follows:Share capital (100,000 ordinary shares $5)500,000Less: Calls in arrears (10,000 shares $1.25)(12,500)TOTAL SHARE CAPITAL487,500(100,000 10,000 = 90,000 shares x $1.25)第16页，共44页。Oversubs

24、criptionThe number of shares applied for may exceed the number of shares available for issue.In such cases the directors of the company may:Reduce the number of share to be issued to each applicant (on a pro-rata basis)Issue shares only to certain applicants (eg on a first-in-first-served basis)The

25、treatment of excess application monies depends on the terms of a companys constitution. Options include:Refunding excess application monies to unsuccessful applicants; orRetaining the excess application money as an advance on future callsThe calls in advance account is treated as contributed equity

26、even though it is legally a liability第17页，共44页。Oversubscription (Example 4)ABC issued a prospectus for 100,000 $5 shares on 1 January 2012.The prospectus required payment of $3 on application and $2 in one years time.The company received applications for a total of 125,000 shares these applications

27、were received throughout the month of January.On 31 January 2012 ABC issued 100,000 shares.Required: Prepare the journal entries to account for the issue of shares assuming the excess money was offset against the call due in one years time.第18页，共44页。Oversubscription (Example 4)1-30 January 2012DrCas

28、h trust375,000CrApplication375,000Receipt of application monies prior to issuing the shares31 January 2012DrApplication375,000CrCalls in advance 75,000CrShare capital300,000Issue of shares applied for and transfer of excess to calls in advance accountDrCash375,000CrCash trust375,000Transfer from cas

29、h trust on issue of shares(125,000 x $3)(25,000 x $3)第19页，共44页。Forfeiture of sharesDirectors may be given the power under the companys constitution to forfeit (cancel) shares in respect of which calls are not made. Possible actions that can be taken in such circumstances are:The balance of paid moni

30、es may be retained by the company In this case the balance is retained in an equity account (Forfeited Shares Reserve)2.The amount paid may be refunded back to the forfeiting shareholder In this case the balance is recorded in a liability account (Forfeited Shares Account). 第20页，共44页。Forfeiture of s

31、haresPrior to refunding the balance the company could reissue the shares as fully paid shares to new shareholders with the new shareholders paying less than the fully paid value of the share. The difference, as well as any costs of reissue are deducted from the amount to be refunded back to the forf

32、eiting shareholders.This option is only available if the companys constitution states this fact. Where the constitution is silent, the company is entitled to keep any excess (option 1).第21页，共44页。Forfeiture of shares (Example 5)This example continues on from example 3.On 1 July 2012 the directors of

33、ABC decided to forfeit the 10,000 shares in respect of which the call of $1.25 was not made.The shares were cancelled and reissued as fully paid to $5 per share on payment of $4 per share.Costs of $500 were incurred to reissue the shares.Required:Prepare the journal entries to account for the forfei

34、ture and re issue of the 10,000 shares.第22页，共44页。Forfeiture of shares (Example 5)1 July 2012DrShare capital50,000CrCall 12,500CrForfeited shares a/c 37,500Cancel of forfeited sharesDrCash 40,000DrForfeited shares a/c 10,000CrShare capital 50,000Re-issue of forfeited shares for $4 per shareDrForfeite

35、d shares a/c 500CrCash 500Costs incurred to reissue sharesDrCash 2,000CrForfeited shares account 2,000Refund of balance to forfeiting shareholders(10,000 x $5)(10,000 x $1.25)(10,000 x $3.75)(10,000 x $5- fully paid)Discount of $1/share12,500 10,000 - 500第23页，共44页。Share issue and formation costsUnde

36、rwriting costs:Arranging for the issue to be underwritten will avoid having to refund monies due to under-subscriptionUnderwriter agrees to purchase all excess shares in return for an upfront payment of an underwriting commissionTreated as a reduction against contributed equityOther share issue cost

37、s:Includes costs such as stamp duty, legal fees etcTreated as a reduction against contributed equityFormation costs:Treated as an expense第24页，共44页。Share capital - summaryThe share capital equity total shown on the Balance Sheet is the net of:$Share Capital xLess Calls in Arrears(x)Add Calls in Advan

38、ce xLess Underwriting commission(x)Less Share issue costs(x)Total share capital x 第25页，共44页。Subsequent issues of sharesIssued to raise funds to support expansion1. RIGHTS ISSUEOffer of shares to existing shareholdersRights dependent on the number of shares heldRights may be renounceable or non-renou

39、nceable2. PRIVATE PLACEMENTSOffer of shares to one entity onlyUsually issued to institutional investorsAccounting for these types of issues but does not involve the use of application/cash trust accountsThe entry required is:DrCash xxCrShare capitalxx第26页，共44页。Subsequent issues of shares3. BONUS ISS

40、UEShares granted only to existing shareholdersIssued at no cost in lieu of cash dividendNumber based on shareholding at date of declarationNo change in the net equity of the company.The entry required is:DrRetained earnings OR reserve xxCrShare capitalxx第27页，共44页。Share optionsAn option is a right (n

41、ot obligation) to buy a certain number of shares by a set date at a set price.Options may be issued for free eg options may be issued to employees in lieu of cash bonuses.Options may be sold to investors similar to normal shares.Where options are not exercised by a specific date they lapse.第28页，共44页

42、。Share options (Example 6)On 30 June 2012, ABC issued 10,000 options valued at $1 each to the CEO as payment for past servicesEach option entitles the CEO to acquire a share in the company for $3The options must be exercised within 12 months of issue date- after this time they will lapse第29页，共44页。Sh

43、are options (Example 6)Required:Prepare the journal entries to account for the issue and exercising of the options assuming:a)The options are issued for no consideration. On 1 May 2013, when the share price is $3.10, the CEO exercises the options.b)The options are issued for no consideration. The op

44、tions are not exercised by the CEO and lapse on 30 June 2013.c)The options are issued for $1 each. By 30 June 2013, 9,000 of the options have been exercised. 第30页，共44页。Share options (Example 6)30 June 2012 (same entry for a) and b)DrWages expense10,000CrOptions10,000Issue of options to CEOa) 1 May 2

45、013DrCash30,000DrOptions10,000CrShare capital40,000Exercising of options by CEOb)30 June 2013DrOptions10,000CrLapsed options reserve10,000Transfer of balance to a reserve account on the lapsing of the options第31页，共44页。Share options (Example 6)c) 30 June 2013DrCash10,000CrOptions10,000Issuing of opti

46、ons 1 July 2012 - 30 June 2013DrCash27,000DrOptions 10,000CrShare capital36,000CrLapsed options reserve 1,000Exercising of 9,000 options to 30 June 2013 and transfer of balance to a reserve account on the lapsing of the options(10,000 x $1)(9,000 x $3)(1,000 x $1)第32页，共44页。Such shares either:Give th

47、e holder the right to be repaid his/her capitalOrGive the company the right to repay the capitalMain issue is the classification of such sharesAre they equity, liabilities or a combination of both?Redeemable preference shares第33页，共44页。Shares can be redeemed from:Proceeds of a fresh issue of shares2.

48、Retained earningsAdditionally, the companys constitution may specify payment of a redemption premium which is paid from profitOn redemption the shares are cancelled and cannot be reissued Redeemable preference shares - equity第34页，共44页。DrShare Capital - Preference$xCrShareholders redemption$xTransfer

49、 of preference capital to redemption accountDrShareholders redemption$xCrCash$xRedemption of preference sharesDrCash/ Retained earnings$xCrShare Capital - Ordinary$xReceipt of cash on issue of new sharesRedeemable preference shares - equity Cash a/c applies to issues of new shares; retained earnings

50、 a/c applies to redemption from profitsThe shareholders redemption account is a clearing account第35页，共44页。Redeemable preference shares with the following characteristics are more in the nature of liabilities:Redeemable in cash on a certain date or at the option of the holderCumulative as to the paym

51、ent of dividendsNon-participating in further dividends distributionsPriority capital return rightsAccounting process required when accounting for redeemable preference shares that are classified as liabilities depends on whether the redemption is: From a fresh issue of sharesFrom profits at a premiu

52、m Illustrative example 2.10 in textbook shows the accounting for bothRedeemable preference shares - liabilities 第36页，共44页。Conversion of sharesA company may change its issued capital by:Share consolidations Involves grouping issued shares into larger parcelsEg; 2 x $1.00 consolidated into 1 x $2.00 s

53、hareShare splitsInvolves splitting issued shares into smaller parcelsEg; 1 x $2.00 share split into 2 x $1.00 sharesShare conversionsInvolves converting an ordinary share to a preference share or vice versaGoverned by constitution 第37页，共44页。WHY BUY BACK SHARES?Change debt/equity ratioDefence against

54、 takeoverClear odd lots or employee share schemesLEGAL REQUIREMENTSCovered by Section 257A of Corporations ActAllowed only if not prejudicial to creditorsLimited types of buy-backs allowedACCOUNTING FOR BUY-BACKSShares must be cancelledBuy-back may generate a premium or a discount These are adjusted against either