Professional Documents
Culture Documents
School of
Business
Australian
School of
Business
Introduction
Teaching staff
Position
Name
Location
Lecturer-in-charge
(LIC)
Lecturer
Jeffrey Knapp
j.knapp@unsw.edu.au
QUAD 3103
s.hossain@unsw.edu.au
QUAD 3083
Lecturer
richard.morris@unsw.edu.au
QUAD 3064
11/29/16
Australian
School of
Business
Required Texts
Prescribed Textbook
11/29/16
Australian
School of
Business
Course Assessment
Assessment Task
Weighting
Length
Australian
School of
Business
Date/Location
5%
5-10 mins
Tutorial Engagement
5%
10%
10%
Week 4
10%
Weeks 5, 9, 13
Final examination
60%
To be announced
TOTAL
11/29/16
100%
Assessment Details
4.3 In-Lecture Quizzes (5%)
Australian
School of
Business
Australian
School of
Business
Australian
School of
Business
Australian
School of
Business
Lecture Topic 1
Nature and regulation of companies chapter 1
Financing company operations chapter 2
&
Company operations chapter 3
Nature of a company
Australian
School of
Business
A company:
has limited liability
has its own separate legal existence
has the legal powers of a natural person
has financing advantages
has the right to own assets and enter contracts
has the right to sue and be sued
10
Australian
School of
Business
Types of companies
Types of companies
Australian
School of
Business
12
Australian
School of
Business
Listed corporations
Disclosing entities
Foreign companies
No-liability companies
13
Australian
School of
Business
14
Australian
School of
Business
15
Australian
School of
Business
Accounting regulation
16
Australian
School of
Business
18
Australian
School of
Business
AASB 1-99
equivalent to IFRS standards issued by the IASB
have same number as equivalent IASB standard
e.g. IFRS 2 > AASB 2 Share-Based Payment
AASB101-199
equivalent to IAS standards issued by the IASC
(predecessor to the IASB) before 2001
have same number (+100) as the IAS standards on
which they are based
e.g. IAS 16 > AASB 116 Property, Plant & Equipment
21
Australian
School of
Business
22
Board (IASB)
Business
23
24
Australian
School of
Business
25
Corporate regulators
Australian
School of
Business
Australian
School of
Business
Australian
School of
Business
Reporting Entity:
a reporting entity is an entity in respect of which it is
reasonable to expect the existence of users dependent on
general-purpose financial reports for information useful for
making and evaluating decisions about the allocation of
scarce resources
All reporting entities must prepare GPFRs
Public companies and large proprietary companies
are deemed to be reporting entities
Non-reporting entities are not required to prepare GPFRs
Classes of users are set out in The Framework
28
Australian
School of
Business
29
Australian
School of
Business
Australian
School of
Business
Publicly accountable
Tier 2
Non-publicly
Reduced
accountable
Disclosure Regime
(RDR) (entities may
choose to apply Tier
1, that is, full IFRSs
as adopted in
Australia)
All not-for-profit
private sector
entities have a
choice of applying
Tier 1 or Tier 2
requirements
unless the relevant
regulator requires
application of Tier 1
Australian
School of
Business
For-profit and notfor-profit public
Federal, state and
territory
government, local
governments
Entities other than
Tier 1 entities noted
above, unless the
relevant regulator
required application
of Tier 1
Australian
School of
Business
Australian
School of
Business
Issue of shares
Australian
School of
Payable in full on application (Example 1)
Business
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 shares 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.
Issue of shares
Payable in full on application
Australian
School of
Business
(Example 1)
Cash trust
500,000
(100,000
(100,000shares
sharesxx$5)
$5)
Cash
Cashaccount
accounttrust
trustisisused
usedto
torecord
recordcash
cashprior
priorto
tothe
theshares
sharesbeing
beingissued
issued
- -the
cash
is
held
in
a
trust
account
on
behalf
of
the
applicants
the cash is held in a trust account on behalf of the applicants
Cr Application
500,000
Represents
Representsaaliability
liabilityof
ofthe
thecompany
companyprior
priorto
tothe
theshares
sharesbeing
beingissued
issued
Issue of shares
Payable in full on application
(Example
Australian
School of
Business
1)
31 January 2012
Dr
Application
500,000
Cr Share capital
500,000
Issue of shares applied for
Dr
Cash
500,000
Cr Cash trust
500,000
Transfer from cash trust on issue of shares
TIP:
TIP:T-accounts
T-accountsare
arehelpful
helpfulto
toensure
ensurethat
thattemporary
temporaryaccounts
accountsare
arecleared
clearedout
outcorrectly
correctly
Australian
School of
Business
Australian
School of
Business
1 January 2012
(120,000
(120,000shares
sharesxx$3)
$3)
Dr
Cash trust
360,000
Cr Application
360,000
To record receipt of application monies prior to
issuing the shares
31 January 2012
Dr
Dr
Application
300,000
Allotment
200,000
The
Theallotment
allotmentaccount
accountisisaatemporary
temporaryaccount
accountused
usedwhen
whenfurther
furtheramounts
amounts
are
owing
when
shares
are
issued
represents
a
receivable
of
the
are owing when shares are issued represents a receivable of thecompany
company
Cr Share capital
500,000
Issue of shares applied for
(100,000
(100,000shares
sharesxx$5)
$5)
Australian
School of
Business
31 January 2012
Dr
Application
60,000
Cr Cash trust
60,000
Refund of application monies to unsuccessful
(20,000shares
sharesxx$3)
$3)
applicants (20,000
Dr
Cash
300,000
(100,000 shares x $3)
(100,000 shares x $3)
Cr Cash trust
300,000
Transfer from cash trust on issue of shares
Dr
Cash
200,000
Cr Allotment
200,000
Cash received on allotment (100,000 shares x $2)
Australian
School of
Business
Australian
School of
Business
1 January 2012
Dr
(100,000
(100,000shares
sharesxx$2.50)
$2.50)
Cash trust
250,000
Cr Application
250,000
To record receipt of application monies prior to issuing the
shares
31 January 2012
Dr
Dr
Application
250,000
Allotment
125,000
Cr Share capital
375,000
Issue of shares applied for
Dr
Cash
250,000
Cr Cash trust
250,000
Transfer from cash trust on issue of shares
(100,000
(100,000shares
sharesxx$3.75)
$3.75)
Australian
School of
Business
31 January 2012
Dr
Cash
125,000
Cr Allotment
125,000
Cash received on allotment
31 May 2012
Dr
Call
125,000
The
Thecall
callaccount
accountisisaatemporary
temporaryaccount
accountused
usedwhen
whenfurther
furtheramounts
amounts
are
owing
when
a
call
is
made
represents
a
receivable
of
the
are owing when a call is made represents a receivable of thecompany
company
Cr Share capital
125,000
Call of $1.25 per share on 100,000 shares issued
Balance
Balanceof
ofshare
sharecapital
capitala/c
a/cnow
now$500,000
$500,000
Australian
Issue of shares Deposit on application,
School of
instalment on allotment, balance on call (Example Business
3)
30 June 2012
Dr
Cash
112,500
Cr Call
112,500
Cash received on allotment
(100,000 10,000 = 90,000 shares x $1.25)
Under/Oversubscription
Australian
School of
Business
Oversubscription
(Example 4)
Australian
School of
Business
Oversubscription
Australian
School of
Business
(Example 4)
(125,000
(125,000xx$3)
$3)
Cash trust
375,000
Cr Application
375,000
Receipt of application monies prior to issuing the
shares
31 January 2012
Dr
Application
375,000
(25,000
(25,000xx$3)
$3)
Cr Calls in advance
75,000
Cr Share capital
300,000
Issue of shares applied for and transfer of excess to
calls in advance account
Dr
Cash
375,000
Cr Cash trust
375,000
Transfer from cash trust on issue of shares
Forfeiture of shares
Australian
School of
Business
Forfeiture of shares
Australian
School of
Business
Australian
School of
Business
Forfeiture of shares
Australian
School of
Business
(Example 5)
1 July 2012
Dr
Share capital
50,000
Cr Call
12,500
Cr Forfeited shares liability
Cancel of forfeited shares
(10,000
(10,000xx$5)
$5)
37,500
(10,000
(10,000xx$1.25)
$1.25)
(10,000
(10,000xx$3.75)
$3.75)
Dr
Dr
Cash
40,000
Discount
Forfeited shares liability 10,000
Discountofof$1/share
$1/share
Cr Share capital
50,000
(10,000
(10,000xx
Re-issue of forfeited shares for $4 per share $5$5
Dr
Dr
- -fully
fullypaid)
paid)
37
37500
50010,000
10,000- -500
500
Australian
School of
Business
Underwriting costs:
Arranging for the issue to be underwritten will avoid
having to refund monies due to under-subscription
Underwriter agrees to purchase all excess shares in
return for an upfront payment of an underwriting
commission
Treated as a reduction against contributed equity
Dr Share Issue costs [or Share Capital]
Cr Cash
Dr Formation costs
Cr Cash
Australian
School of
Business
Share buy-backs
WHY BUY BACK SHARES?
Change debt/equity ratio
Defence against takeover
Clear odd lots or employee share schemes
Australian
School of
Business
LEGAL REQUIREMENTS
Covered by Section 257A of Corporations Act
Allowed only if not prejudicial to creditors
Limited types of buy-backs allowed
ACCOUNTING FOR BUY-BACKS
Shares must be cancelled
Buy-back may generate a premium or a discount
These are adjusted against either reserves, retained
profits or both (UIG Abstract 22)
Each company must adopt an accounting policy in
respect of premiums or discount on buy-backs
Share buy-backs
Australian
School of
Business
1. At a premium:
120 000 shares initially issued at $1.20 were bought
back for $1.50 each
Dr
Dr
2. At a discount:
120 000 shares initially issued at $1.20 were bought
back for $1.00 each. The company had a general
reserve of $20 000 at the time of the buy-back.
Dr
Chapter 3
Australian
School of
Business
Australian
School of
Business
2.
3.
Australian
Liabilities current definition
School of
Business
2.
3.
59
Australian
School of
Business
Income - definition
Australian
School of
Business
Income - definition
Australian
School of
Business
Expenses - definition
Australian
School of
Business
Australian
School of
Business
Probable
Probable==more
morelikely
likelythan
thanless
lesslikely;
likely;>50%
>50%chance
chance
Australian
School of
Business
64
Australian
School of
Business
Australian
School of
Business
66
Recognition criteria
contingent liabilities and
contingent
assets
Such amount are not recognised in financial
statements
67
Australian
School of
Business
Australian
School of
Business
Measurement
Australian
School of
Business
Measurement and
classification - assets
Measurement and
classification - liabilities
Australian
School of
Business
Measurement and
classification - equity
Australian
School of
Business
71
Measurement and
classification - income
Australian
School of
Business
72
Measurement and
classification - expenses
Australian
School of
Business
73
Dividends
Australian
School of
Business
Dividends
Australian
School of
Business
Dividends
Australian
School of
Business
Retained earnings $x
Cr Cash
$x
Retained earnings $x
Cr Dividend payable
$x
Preference dividends
Australian
School of
Business
77
Australian
School of
Business
78
Reserves
Australian
School of
Business
Reserves
Australian
School of
Business
APPROPRIATION OF PROFITS
Such transfers do not involve cash transfers or
creation of secret cash balances
The transfer can signal to shareholders that these
profits will not be distributed as dividends
Creation/increase in reserves:
Dr Retained earnings (tfr to reserve) xx
Cr Reserve
xx
80
Retained earnings
Australian
School of
Business
81
Australian
School of
Business
Next Lecture
Thank you!
82