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1、2,Lecture 1,Shareholders Equity(Part 1),3,COMMONWEALTH OF AUSTRALIACOPYRIGHT REGULATIONS 1969WARNINGThis material has been copied and communicated to you by or on behalf of Curtin University of Technology pursuant to Part VA of the Copyright Act 1968(the Act)The material in this communication may be
2、 subject to copyright under the Act.Any further copying or communication of this material by you may be the subject of copyright protection under the Act.Do not remove this notice,4,Objectives,Distinguish between different forms of corporate entities.Distinguish between different type of shares.Acco
3、unt for share issues fully payable on application and by installments.Account for oversubscriptions.Account for share forfeiture and reissue.,5,Types of companies,Listed vs unlistedLimited,unlimited,vs no-liability Public companiesOwnership is widely spreadMany company law provisions are directed at
4、 public companiesProprietary companiesLimited membershipRestrictions on raising fundsLarge vs small distinction is common,6,Key features of the corporate structure,A company is a legal entityLimited liabilityShare capital ledger account reflects the companys ownershipEach share represents a proporti
5、onal right to the companys net assetsCompanies can issue different types of sharese.g.ordinary or preference shares,7,Types of shares,Ordinary shares:Most basic and common type.Payment of dividends rank after preference shareholders.Preference shares:Preferential as to the payment of dividends and/o
6、r as to a return of capital in a winding-up.Holders are entitled to a fixed annual rate of dividend.Accounting entries are the same in both issues ordinary and preference.,8,Issue of public company shares,A prospectus is required for a public issue.Minimum subscription may be required.Issue can be u
7、nderwritten.Share issue costs are treated as a reduction in share capital(Dr Share issue costs).What if the issue is oversubscribed?Shares issued may have a par value or no par value.,9,Accounting for share issues,No accounting entries are prepared when the invitation to subscribe is madeAccounting
8、commences on receipt of application forms and moniesAccounts involved:Cash Trust(for monies received before shares are issued/allotted)Application Share CapitalCall(if payable by 2 or more instalments)CashCalls in Advance,10,Receipt of application monies,On receipt of application monies:Cash trustDr
9、yApplicationCry(Monies received$x per share)Before issue/allotment of shares:Application account is a liability.Application monies received before shares are issued must be held in a separate trust account.If a minimum subscription level has been set and is not reached:Application monies must be ref
10、unded by reversing the above entry.,11,Allotment of shares,If a minimum subscription has been set and reached,the directors allot the shares.ApplicationDryShare capitalCry(No.shares x application amount per share)The share capital account records the equity contributed by shareholders.,12,Allotment
11、of shares,After allotment the following entries may be required:Refund to unsuccessful applicants:ApplicationDry Cash trustCry(Refund to unsuccessful applicants)2.Transfer of excess application monies:ApplicationDry Calls in advanceCry(Transfer of excess application monies)3.Transfer cash to company
12、s bank account:CashDry Cash trustCry(Transfer of cash from cash trust account),13,Issue of shares fully payable on application,20081 MarXY Ltd issued a prospectus inviting subscription for 200,000 ordinary shares at an issue price of$1.50 each,payable in full on application.31 MarApplications closed
13、 and 200,000 shares were received.14 AprDirectors allotted the shares.Required:Prepare the journal entries to record the share issue.,14,Issue of shares fully payable on application,200831 Mar Cash trustDr300,000 ApplicationCr300,000(money received on application held in trust)(Application account i
14、s a liability before allotment of shares.)14 AprApplicationDr300,000 Share capitalCr300,000(allotment of 200,000 shares)Cash Dr300,000 Cash trustCr300,000(transfer of cash from trust account to normal bank account),15,Call entries,Only made if shares are payable by instalmentsMake call:CallDry Share
15、 capitalCry(Call of$x per share x no.shares)2.Transfer relevant amount of calls in advance:Calls in advanceDry CallCry(Transfer of calls in advance)3.Receipt of call monies:CashDry CallCry(Receipt of call monies),16,Issue of shares payable by instalments,20081 MarXY Ltd issued a prospectus inviting
16、subscription for 200,000 ordinary shares at an issue price of$1.50 each,payable$1.30 on application and 20c in a future call.31 MarApplications closed and 200,000 shares were received.14 AprDirectors allotted the shares.200924 MayCall of 20c per share was made.All call money was received by 1 June.R
17、equired:Prepare the journal entries to record the share issue.,17,Issue of shares payable by instalments,200831 MarCash trustDr260,000 ApplicationCr260,000(money received on application held in trust)14 AprApplicationDr260,000 Share capitalCr260,000(allotment of 200,000 shares)Cash Dr260,000 Cash tr
18、ustCr260,000(transfer of cash to normal bank account),18,Issue of shares payable by instalments,200924 MayCallDr 40,000 Share capitalCr 40,000(call of 20c on 200,000 shares)1 JunCashDr 40,000 Call Cr40,000(receipt of call money),19,Oversubscription,More applications for shares are received than ther
19、e are shares to be issuedDirectors may allot the shares:On a first-come-first-serve or pro-rata basisTreatment of excess application monies depends on prospectus terms or companys constitutionFirst-come-first-serve allotment:Refunds are made to unsuccessful applicantsPro-rata allotment:Common for co
20、mpanies to retain the excess Excess is transferred to Calls in advance accountTreated as part of share capitalIf there are no future calls,excess is refunded,20,Oversubscription,20081 MarXY Ltd offered for subscription 200,000 ordinary shares at an issue price of$1.50 each,payable$1.00 on applicatio
21、n and 50c in a call as required.31 MarApplications closed and 250,000 shares were received.14 AprShares were allotted.Directors retained excess application money as an advance on future calls.200924 MayA call for 50c per share was made.1 JunAll money due on the call was received.,21,Oversubscription
22、,200831 MarCash trustDr250,000 ApplicationCr250,000(money received on application held in trust)14 AprApplicationDr250,000 Calls in AdvanceCr50,000 Share capitalCr200,000(allotment of 200,000 shares&transfer of excess application monies)Cash Dr250,000 Cash trustCr250,000(transfer of cash to normal b
23、ank account),22,Oversubscription,200924 MayCallDr100,000 Share CapitalCr100,000(call of 50c on 200,000 shares)Calls in AdvanceDr50,000 Call Cr50,000(calls in advance monies transferred)1 JuneCash Dr50,000 CallCr50,000(receipt of call monies),23,Oversubscription,20081 MarXY Ltd offered for subscripti
24、on 200,000 ordinary shares at an issue price of$1.50 each,payable in full on application.31 MarApplications closed and 250,000 shares were received.14 AprShares were allotted.Directors refundedexcess application money.,24,Oversubscription,200831 MarCash trustDr375,000 ApplicationCr375,000(money rece
25、ived on application held in trust)14 AprApplicationDr300,000 Share capitalCr300,000(allotment of 200,000 shares)Cash Dr300,000ApplicationDr75,000 Cash trustCr375,000(transfer of cash&refund of excess application money),25,Forfeiture and reissue of shares,If allowed by the constitution,directors can
26、forfeit shares for non-payment of calls.On forfeiture:The shares and unpaid call receivable are cancelled.Any paid amount is transferred to the Forfeited Shares account.Forfeited monies can be used to fund any reissue of the shares by offering them at a discount and/or meeting reissue costs.The rema
27、ining forfeited shares account balance may,depending on the constitution,either be retained or refunded to the former shareholders.,26,Forfeiture and reissue entries,1.Forfeiture of shares:Share capital(no.x amt called)Dry Call(no.x call)Cry Forfeited shares(no.x amt paid)Cry(Shares forfeited)Reissu
28、e of shares at a discount:Cash(amt received)DryForfeited shares(no.x discount)Dry Share capital(no.x issue price)Cry(Reissue of shares at a discount)3.Classification of the forfeited shares account:Equity(reserve),if balance is retained by companyLiability,if balance is refunded,27,Forfeiture and re
29、issue entries,200924 MayA call for 20c per share was made on 200,000 shares with an issue price of$1.50 each,paid to$1.30.1 JunAll money due on the call was received except a parcel of 20,000 shares.12 JunThe 20,000 shares were forfeited.25 JunThe 20,000 shares were reissued for$1.20,paid to$1.50.Ex
30、penses of reissue amounted to$1,000.The constitution provided for refund of forfeited shares to former shareholders.,28,Forfeiture and reissue entries,200924 MayCallDr40,000 Share capitalCr40,000(call of 20c on 200,000 shares)1 JunCash Dr36,000 CallCr36,000(receipt of 20c on 180,000 shares)12 JunSha
31、re capitalDr30,000 CallCr 4,000 Forfeited shares liabilityCr 26,000(forfeiture of 20,000 shares),29,Forfeiture and reissue entries,25 Jun Cash Dr24,000Forfeited shares liabilityDr 6,000 Share capitalCr30,000(reissue of shares)Forfeited shares liabilityDr 1,000 CashCr 1,000(expenses of reissue)Forfei
32、ted shares liabilityDr19,000 Cash Cr19,000(return of surplus to ex-s/holders)(NOTE:If the surplus on forfeited shares is kept by the company,it is treated as part of equity-the forfeited shares reserve account is used.),30,Other types of share issues,In the next lecture,we will examine:private placement;rights issue;option;bonus issue Can be issued in lieu of payment of dividends.,
