Financial Accounting
Sharonhy
Module1IntroductiontoShareholdersEquity1.pptx
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Module 1 – Introduction to Shareholders’ Equity
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Learning Outcomes
Understand that the equity of an organisation can consist of several different accounts
Understand that within equity there can be various classes of shares, each providing different rights to holders
Be able to provide the journal entries to recognise the issue of both fully paid and partly paid shares by a company
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Equity as a residual claim on net assets
What is equity?
The Conceptual Framework defines equity as:
the residual interest in the assets of the entity after deducting all of its liabilities
What are Shareholders’ funds?
What makes up total owners’ equity?
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Retained earnings
Retained earnings often makes up a significant proportion of shareholders’ funds
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Accounting for the issue of share capital
Share capital
Balance of owners’ equity within a company comprising the capital contributions made by owners
When shares are issued then the amount received from the issue is added to ‘share capital’
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Accounting for the issue of share capital (cont.)
To recognise receipt of application monies
Debit Bank trust
Credit Application
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Accounting for the issue of share capital (cont.)
To recognise the issue of shares and to close application account
Debit Application
Credit Share capital
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Accounting for the issue of share capital (cont.)
To transfer cash from trust account to general operating bank account
Debit Cash at bank
Credit Bank trust
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Partly paid shares
A company might issue shares on an instalment basis
What needs to be done?
Call accounts
which are amounts receivable in the future for the shares, meet the AASB Framework definition of an asset.
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Issue of shares other than for cash
Where shares are to be issued for a consideration other than cash, the fair value of the consideration for the issue must be determined
Fair value is defined in the accounting standards as ‘the amount for which an asset can be exchanged between knowledgeable, willing parties in an arm’s length transaction’
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Now…
Refer to the next Podcast
Worked Example: Issue of Partly Paid Shares
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