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Example

Example. COMPANIES (Share issue) Reading: Ch 14 Horngren. Equity in a Company – 3 types. Share capital fully or partly paid shares Ordinary shares or preference shares shares Retained earnings Or Accumulated losses Other Reserves.

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  1. Example COMPANIES (Share issue) Reading: Ch 14 Horngren

  2. Equity in a Company – 3 types • Share capital • fully or partly paid shares • Ordinary shares or preference shares shares • Retained earnings • Or Accumulated losses • Other Reserves

  3. Accounting for Share Issues • Share issue to private individuals DateCash at Bank X paid up capital(PUC) x (cash contributed to the company by its shareholders)

  4. Share issue by a public co. payable in full on application • All funds received from the public mustbe kept in a bank trust account until the shares have been to the applicants. • The basic type of share is the ordinary share. If there is only one class of share then, by definition, they are ordinary shares. • In practice, some forms of debt and some types of shares are very difficult to distinguish, for example, preference shares. • Accounting for the issue of ordinary/preference shares follows the same process

  5. Share issue by a public co. payable in full on application • Shares issued via a prospectus egBrazil Ltd: Wanted to issue 100 000 shares Received applications for 110 000 shares Issue price of $10 per share Sept 30cash trust 1,100,000 Application 1,100,000 (receipt of cash of $10/share on 110 000 shares)

  6. Share issue by a public co. payable in full on application cont’d • Refund of excess application monies Date Application 100,000 Cash Trust 100,000 (refund of excess application money to unsuccessful applicants 10 000 x $10)

  7. Share issue by a public co. payable in full on applicationcont’d • Allotment of shares • This closes the temporary ‘Application’ a/c, the net effect of the two stages is an increase in assets and an increase in owners equity. Oct 1 Application 1,000,000 PUC 1,000,000 (to record funds contributed for 100 000 shares paid in full) Cash at Bank 100,000 Cash Trust 100,000 (transfer of application money to general bank a/c)

  8. Share issue by a public company payable in instalments egBrazil Ltd Issues 100 000 shares on 15 September Payable: $4 on application $3 on 15 October (allotment) $3 on 1 December (call) Sept 30 Cash Trust 400,000 Application 400,000 (receipt of cash of $4 per share x 100 000 shares)

  9. Share issue by a public company payable in instalments cont’d • Allotment of shares Oct 1 Application 400,000 PUC 400,000 (application fee of $4 on 100 000 shares) Oct 1 Cash at Bank 400,000 Cash Trust 400,000 (transfer of application money)

  10. Share issue by a public company payable in instalments cont’d • Amount due on allotment NOTE: The trust account is not required once the shares have been formally allotted. • Receipt of allotment monies: Oct 1 Allotment 300,000 PUC 300,000 (allotment fee of $3 receivable on 100 000 shares) Oct 15 Cash at Bank 300,000 Allotment 300,000 (cash received on allotment)

  11. Share issue by a public company payable in instalments cont’d • Amount due on call Nov 15 Call 300,000 PUC 300,000 (call of $3 receivable on 100 000 shares) • Receipt of call monies Dec 1 Cash at Bank 300,000 Call 300,000 (receipt of call monies on 95 000 shares)

  12. Share issue by a public company payable in instalments cont’d • NOTE: Application, Allotment& Call No. X are all the same type of accounts – all are call accounts and all are temporary. They exist only between the call for the funds and receipt of funds.

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