Financial Accounting
Sharonhy
Module2i-ShareholdersEquity1.pptx
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1
Shareholders’ Equity
Podcast #2
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2
Oversubscription of shares
When more shares are applied for than the number to be issued—quite common
Two approaches to manage oversubscription:
Satisfy full demand of a certain number of subscribers and refund the funds advanced by others
Issue shares to all subscribers on a pro rata basis
Accounting for dividends
Once the final profit for the year has been calculated, which is after the end of the financial year, the directors are in a position to decide on the amount of final dividends to allocate to shareholders
Redemption of preference shares
Under s. 254 (J) and (K) of the Corporations Act, shares are to be redeemed:
out of profits that would otherwise be available for dividends, or
out of proceeds of a fresh issue of shares made for the purposes of the redemption
Forfeited shares
Shares can be forfeited if:
shares are issued as partly paid and shareholders do not subsequently pay the amounts due on allotment or on calls
a shareholder ceases to be a member of the company at that time
Forfeited shares (continued)
Various outcomes
If company is listed on the ASX or if company’s operating rules allow it, a refund is paid to the investor less costs incurred in reissuing shares
Amounts paid are recorded in a forfeited shares account (liability) until refunded
If company is not listed on the ASX and constitution says nothing about refunds, company can retain the amounts paid less costs of reissuing shares
– Amounts paid are held in a forfeited shares reserve (part of shareholders’ funds)
Share splits and bonus issues
Share splits
Subdivision of the company’s shares into shares of smaller value
Share splits and bonus issues (cont.)
Bonus shares
Existing shareholders receive additional shares, at no cost, in proportion to their shareholding at the date of the bonus issue
Journal entry
Debit Retained earnings
Credit Share capital—ordinary shares
Bonus shares from retained earnings often referred to as a bonus share dividend
Rights issues and share options
A rights issue provides existing shareholders with the right to acquire additional shares typically at an ‘attractive’ price
Share options give the holder the right to acquire shares in the future at a particular price
Required disclosures for share capital
AASB 101 requires disclosure of the following:
For each class of share capital
Number of shares authorised
Number of shares issued and fully paid, and issued but not fully paid
Reconciliation of number of shares outstanding at beginning and end of period
Rights, preferences and restrictions of the class
Shares reserved for issue under options and contracts for sale of shares
Shares in the entity held by the entity or by subsidiaries or associates
Description of nature and purpose of each reserve within equity
Reserves
Include:
revaluation surplus
general reserve
Required to disclose (AASB 101):
The statement of changes in equity provides a reconciliation between the opening and closing amount of each share capital and reserve account
The statement of changes in equity includes the following information:
total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interest,
for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with AASB 108, and
for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:
- (i) profit or loss
- (ii) other comprehensive income and
- (iii) transactions with owner in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control
