Accounting for issue of shares and debentures

1. Accounting for issue of shares and debentures Define the issue price of shares Differentiate between preference shares, ordinary chares and deferred shares Distinguish between issued capital, uncalled capital and share capital or paid-up capital Describe the concept of partly paid shares and calls on unpaid share capital Account for public company share issues Define the various costs associated with share issues and account for those costs Differentiate between debentures, mortgage debentures and unsecured notes Account for the issue and redemption of debentures P. Chinna Sahaya Rani

2. Share Capital Owners of companies are called shareholders Founding members are also known as subscribers All shareholders are sometimes referred to as members Shares in a Public company can be purchased when the company issues a prospectus Shares in a Public company can also be traded on the stock exchange P. Chinna Sahaya Rani

3. Issue price of shares Maximization of shareholder wealth Effect on the market price of existing shares Requirement to sell a desired volume of shares Expectation of future profits and dividends to service the new shares Whether ASX listing is proposed or already exists Usage of an underwriter P. Chinna Sahaya Rani

4. Uncalled and paid up share capital Shares can be issued to be paid in full or issued partly paid with the balance paid at a future date(s) Amounts to be paid at a future date are referred to as calls A company’s share capital is also referred to as paid-up capital = number of shares issued by the amount that the directors require as payment of shares The amount not required for payment is referred to as the uncalled amount P. Chinna Sahaya Rani

5. Classes of Shares Ordinary Shares Preference Shares Deferred or founder Shares P. Chinna Sahaya Rani

6. Ordinary Shares Basic type Full voting rights Right to receive dividends P. Chinna Sahaya Rani

7. Preference Shares Preferential rights to a fixed rate of dividends before dividends to ordinary shareholders are declared Repayment of capital when company is wound up Participation in surplus assets and profits Cumulative and non-cumulative dividends Voting rights Priority of payment of capital and dividends P. Chinna Sahaya Rani

8. Deferred or Founder Shares Issued to initial subscribers Dividends usually paid after being paid to other shareholders Founders are shareholders who start up the company before shares are issued to the public Provider establishment costs and issue the prospectus P. Chinna Sahaya Rani

9. Share Issue Procedure Registration of members Disclosure of rights and liabilities of share issue The class of share being issued Share price and no of shares issued The amount that must be paid for each share with the application (on allotment and future calls) The minimum subscription The allotment process The treatment of over subscription P. Chinna Sahaya Rani

10. Procedure for issuing shares under a prospectus The Prospectus together with an application form is made available to the general public. Application monies are held in trust Minimum subscription must be received before allotment Allotment at director’s discretion Allotment advice is communicated to the applicant Allotment monies may be required at this stage. P. Chinna Sahaya Rani

11. Share capital issued upon the registration of a company P. Chinna Sahaya Rani

12. Share capital issued by prospectus Payment in full on application Part payment on application, balance payable on allotment of the shares Part payment on application and allotment, with the balance payable in calls P. Chinna Sahaya Rani

13. Shares issued fully paid on application Fully paid on application Number of shares issued by the directors agrees exactly with the no applied for All applicants have been received with the full amount P. Chinna Sahaya Rani

14. Shares issued fully paid on application Journal Entry P. Chinna Sahaya Rani

15. Shares issued fully paid on application Journal Entry P. Chinna Sahaya Rani

16. Shares issued fully paid on application Journal Entry P. Chinna Sahaya Rani

17. Under subscribed and oversubscribed share issue Jnl Entry P. Chinna Sahaya Rani

18. Under subscribed and oversubscribed share issue Jnl Entry Cont. P. Chinna Sahaya Rani

19. Under subscribed and oversubscribed share issue Jnl Entry Cont. P. Chinna Sahaya Rani

20. Under subscribed and oversubscribed share issue Jnl Entry Cont. P. Chinna Sahaya Rani

21. Shares issued partly paid on application with the balance payable on allotment P. Chinna Sahaya Rani

22. Shares issued partly paid on application with the balance payable on allotment P. Chinna Sahaya Rani

23. Shares issued partly paid on application with the balance payable on allotment P. Chinna Sahaya Rani

24. Shares issued partly paid on application with the balance payable on allotment P. Chinna Sahaya Rani

25. Shares issued partly paid on application with the balance payable on allotment P. Chinna Sahaya Rani

26. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

27. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

28. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

29. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

30. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

31. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

32. Shares issued payable on application and allotment and subject to future calls P. Chinna Sahaya Rani

33. Calls in arrears Call on shares is made Co may not receive all call monies owed Call account remains in a debit balance New account – Call in arrears and the above is transferred to this account Call in arrears = Shareholder equity account = reduction in share capital Co constitution may call for shareholders with calls in arrears to forfeit their shares and the share reissued P. Chinna Sahaya Rani

34. Retention of excess application monies Prospectus issued calls for monies to be paid on application, allotment and future calls Some applicants may forward all monies in the hope that they receive preferential treatment. Co may choose to keep this money and allocate it against money owing on allotment and future calls Directors can only make this decision if allowed by Co constitution P. Chinna Sahaya Rani

35. Retention of excess application monies P. Chinna Sahaya Rani

36. Accounting for retention of excess application money P. Chinna Sahaya Rani

37. Accounting for retention of excess application money P. Chinna Sahaya Rani

38. Accounting for retention of excess application money P. Chinna Sahaya Rani

39. Accounting for retention of excess application money P. Chinna Sahaya Rani

40. Accounting for retention of excess application money P. Chinna Sahaya Rani

41. Accounting for retention of excess application money P. Chinna Sahaya Rani

42. Accounting for retention of excess application money P. Chinna Sahaya Rani

43. Accounting for retention of excess application money P. Chinna Sahaya Rani

44. Accounting for retention of excess application money P. Chinna Sahaya Rani

45. Accounting for retention of excess application money P. Chinna Sahaya Rani

46. Costs associated with share issue • Preparation of prospectus • Lodgment with ASIC • Publication • Receipt of money • Issue of shares • Including stamp duty and taxes, professional advisers’ fees, underwriting costs, commissions and brokerage fees • The above “equity issue costs” must be recognizedin equity • Indirect costs are not included as transaction costs. P. Chinna Sahaya Rani

47. Costs associated with share issue P. Chinna Sahaya Rani

48. Bookbuilding • Occurs where an investment banker solicits bids from institutional investors prior to pricing an equity issue P. Chinna Sahaya Rani

49. Stapled securities • Stapling is an arrangement under which different securities are quoted jointly P. Chinna Sahaya Rani

50. Issuing Debentures • Issuing of debt • Attracts interest • Must be repaid in a specified time frame • Borrower • Lender = principal • Interest = Charge (Fixed or Floating) • Maturity date • Redemption • Issued via prospectus to the general public and also privately to elite few • Must appoint a trustee • Clear disclosure of all matters relating to the debentures P. Chinna Sahaya Rani