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1 –LECTURER Noel Brown –ROOM L418 – –Phone 07 46 311264 –TUTOR Mrs Debra Janke Mrs Debra Janke Unit 51115/52115 Company/Corporate.

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Presentation on theme: "1 –LECTURER Noel Brown –ROOM L418 – –Phone 07 46 311264 –TUTOR Mrs Debra Janke Mrs Debra Janke Unit 51115/52115 Company/Corporate."— Presentation transcript:

1 1 –LECTURER Noel Brown –ROOM L418 – –Phone –TUTOR Mrs Debra Janke Mrs Debra Janke Unit 51115/52115 Company/Corporate Accounting

2 2 Introduction to Companies Module 1 Module 1 –Leo & Hoggett- Chaps 1, 2 & 3 (refer to the study guide as to the required reading)

3 3 Objectives 1. Complete the entries for the formation of a company, forfeiture & re-issue of shares 2. Differentiate between different types of shares 3. Account for movement in reserve accounts and account for provisions & payment of Dividend 4. Prepare financial statements for managers 1. Complete the entries for the formation of a company, forfeiture & re-issue of shares 2. Differentiate between different types of shares 3. Account for movement in reserve accounts and account for provisions & payment of Dividend 4. Prepare financial statements for managers

4 4 Corporate Form The corporate form arose during the industrial revolution where large sums of money were required to purchase machinery The corporate form arose during the industrial revolution where large sums of money were required to purchase machinery Individuals contributed small amounts which resulted in large totals contributed to companies Individuals contributed small amounts which resulted in large totals contributed to companies Highly successful - today companies are economically & financially successful - examples ?? Highly successful - today companies are economically & financially successful - examples ??

5 5 Limited liability The feature of companies limited liability The feature of companies limited liability –shareholders liable for unpaid amount on their shares Compare with partnerships & sole traders where each partner joint & severally liable Compare with partnerships & sole traders where each partner joint & severally liable Advantages over partnerships & sole traders Advantages over partnerships & sole traders –Limited liability –perpetuity ie continued existence –members can sell their shares –raise large amounts of money

6 6 Corporate legislation Companies formed, administered and wound up by Corporations Act 1989 which includes the Corporations Law Companies formed, administered and wound up by Corporations Act 1989 which includes the Corporations Law The law is administered by the Australian Securities & Investments Commission (ASIC) The law is administered by the Australian Securities & Investments Commission (ASIC)

7 7 Accounting standard setting Under corporations law the companies must comply with standards as set by AASB Under corporations law the companies must comply with standards as set by AASB AASB AASB –Australian Accounting Standards Board - reports to the FRC (Financial Reporting Council) –functions to make accounting standards for Corporations Law UIG UIG –Urgent issues group reports to AASB its role is to make decisions on existing accounting standards ASX ASX –Australian Stock Exchange – sets requirements for listed companies

8 8 Different Companies 2 types of Companies - 2 types of Companies - –registered as per Corporations Law Proprietary companies Proprietary companies –limited by shares –unlimited with a share capital Public Companies Public Companies –limited by shares –limited by guarantee –unlimited –no-liability

9 9 Proprietary Companies Classified as either large or Small Classified as either large or Small test for small (meet 2) test for small (meet 2) –revenue < $10 m –assets < $5 m –< than 50 employees Small company does not have to prepare accounts unless requested Small company does not have to prepare accounts unless requested Large companies must prepare in accordance with accounting standards Large companies must prepare in accordance with accounting standards –lodge with ASIC

10 10 Public Companies A company that is NOT a proprietary company A company that is NOT a proprietary company Normally ownership large Normally ownership large additional rules include additional rules include –appointment of auditor –preparation of financial statement in accordance with accounting standards

11 11 Administering a company this is left to the DIRECTORS who manage the company on behalf of the shareholders this is left to the DIRECTORS who manage the company on behalf of the shareholders the law requires the keeping of registers and records eg the law requires the keeping of registers and records eg 1. Minute Book 1. Minute Book 2. Financial Records 2. Financial Records 3. Registers of Members 3. Registers of Members 4. Registers of Debenture Holders 4. Registers of Debenture Holders 5. Registers of charges 5. Registers of charges

12 12 Companies have to furnish Annual Returns Annual Returns Financial Statements Financial Statements Director’s Report Director’s Report Auditor’s Report Auditor’s Report shareholders (owners) directors (prepare accounts) auditors (check accounts) shareholders (owners) directors (prepare accounts) auditors (check accounts)

13 13 Funding a company Shares (equity) Shares (equity) Debentures (borrowings- liability) Debentures (borrowings- liability) different types of shares Ordinary Ordinary Preference Preference Redeemable preference (debt/equity?) Redeemable preference (debt/equity?) –AASB 1034 para 8.2 if exhibit characteristics of liabilities then record as Liabilities Options Options

14 14 Companies Accounting for share issue Accounting for share issue Forfeiture of shares Forfeiture of shares Reissue of shares Reissue of shares Reserves Reserves Dividends Dividends TEXT CHAPS 1& 2

15 15 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares

16 16 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares Receipt Of Cash Dr Cash Trust 76,000 Cr Application

17 17 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares Receipt Of Cash Dr Cash Trust 76,000 Cr Application Return Oversubscription Dr Application 1,000 Cr Cash Trust 1,000

18 18 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares Receipt Of Cash Dr Cash Trust 76,000 Cr Application Return Oversubscription Dr Application 1,000 Cr Cash Trust 1,000 Dr Bank 75,000 Cr Cash Trust 75,000 Dr Application 75,000 Cr Share Capital 75,000 Dr Bank 75,000 Cr Cash Trust 75,000 Dr Application 75,000 Cr Share Capital 75,000

19 19 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares Receipt Of Allotment Dr Allotment 75,000 Cr Share Capital 75,000 Dr Bank 75,000 Cr Allotment 75,000 Receipt Of Allotment Dr Allotment 75,000 Cr Share Capital 75,000 Dr Bank 75,000 Cr Allotment 75,000

20 20 Example ALPHA LTD Example ALPHA LTD Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment the balance in two years’ time. Applications closed on 1 August x1 with the receipt by the company of $76,000 for shares. The shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the unsuccessful shareholders. All allotment monies received by 31 August. A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was received by 30 September except that payable on 2,000 shares Call Dr Call 75,000 Cr Share Capital 75,000 Dr Bank 73,000 Cr Call 73,000 Call Dr Call 75,000 Cr Share Capital 75,000 Dr Bank 73,000 Cr Call 73,000

21 21 ALPHA LTD BALANCE SHEET AS AT XX/XX/XX SHARE CAPITAL & RESERVES SHARE CAPITAL 75,000 SHARES called to $3 225,000 LESS- CALLS IN ARREARS 2,000 2,000 $ ,000

22 22 Other Issues Oversubscription Oversubscription - Common for power to be given to the directors to use excess money towards future allotment or call monies Dr Application CR Allotment CR Allotment CR Call Account CR Call Account - Otherwise money refunded to the shareholders- as per previous example DR Application CR Cash Trust CR Cash Trust Oversubscription Oversubscription - Common for power to be given to the directors to use excess money towards future allotment or call monies Dr Application CR Allotment CR Allotment CR Call Account CR Call Account - Otherwise money refunded to the shareholders- as per previous example DR Application CR Cash Trust CR Cash Trust

23 23 Other Issues Undersubscription Undersubscription –Where applications received for fewer than the number of shares offered to the public 1. Cancel the offer –AND refund money to shareholders 2. Where allowed to offer less than the original number –Allot only the number applied for 3. If issue underwritten –Allotment the balance of the number of shares to the underwriter (Payment may be deducted from fee owing) Undersubscription Undersubscription –Where applications received for fewer than the number of shares offered to the public 1. Cancel the offer –AND refund money to shareholders 2. Where allowed to offer less than the original number –Allot only the number applied for 3. If issue underwritten –Allotment the balance of the number of shares to the underwriter (Payment may be deducted from fee owing)

24 24 Companies Accounting for share issue Accounting for share issue Forfeiture of shares Forfeiture of shares Reissue of shares Reissue of shares Reserves Reserves Dividends Dividends TEXT CHAPS 1& 2

25 25 Entry for forfeiture DR Share Capital DR Share Capital CR Call Account CR Call Account CR Forfeited Shares Reserve CR Forfeited Shares Reserve

26 26 Example GAMMA LTD Gamma Ltd’s Capital consists of 10,000 shares issued at $1 paid to 50c. On 1 November the company made a call of 25c per share payable 18 November. At that date all shareholders had paid the call except the holders of 2,000 shares. On 18 December Gamma Ltd decided to forfeit the shares on which the call was unpaid. Dr Share Capital 1,500 (2000*75c) CR Call (2000*25c) 500 CR Call (2000*25c) 500 CR F.S.R (2000*50c) 1,000 CR F.S.R (2000*50c) 1,000

27 27 Companies Accounting for share issue Accounting for share issue Forfeiture of shares Forfeiture of shares Reissue of shares Reissue of shares Reserves Reserves Dividends Dividends TEXT CHAPS 1& 2

28 28 Dr Cash At Bank (Cash Received) Dr F.S.R. (Amt Lost) Cr Share Capital (Amt Called On Shares) Cr Share Capital (Amt Called On Shares) Assume the 2,000 shares of Gamma Ltd are sold for 40c the shares being credited as paid to 75c expenses $200 (NB: remember previously paid $1,000 ) Assume the 2,000 shares of Gamma Ltd are sold for 40c the shares being credited as paid to 75c expenses $200 (NB: remember previously paid $1,000 ) Dr Cash 800 (2000*40c) Dr Cash 800 (2000*40c) Dr F.S.R. 700 Dr F.S.R. 700 Cr Share Capital 1,500 (2000*75c) Cr Share Capital 1,500 (2000*75c) (reissue of shares) Dr FSR 200 Dr FSR 200 Cr Cash 200 Cr Cash 200 (expense of reissue) Dr F.S.R. 100 Dr F.S.R. 100 Cr Cash 100 Cr Cash 100 (money returned to defaulting shareholder) (money returned to defaulting shareholder) REISSUE OF SHARES

29 29 Companies Accounting for share issue Accounting for share issue Forfeiture of shares Forfeiture of shares Reissue of shares Reissue of shares Reserves Reserves Dividends Dividends TEXT CHAPS 1& 2

30 30 Reserves Reserves are appropriations of profits examples:- Retained Profits Asset Revaluation Reserve * Foreign Currency Translation Reserve * * covered in a later topic * covered in a later topic Provisions are NOT reserves - Earmark of future funds against current profits eg Provision for Doubtful Debts Provision for Depreciation Provision for Long Service Leave

31 31 Reserves RETAINED PROFITS RETAINED PROFITS Interim dividend bal fwd Provision for Net profit dividend dividend bal c/fwd bal /fwd bal /fwd

32 32 Companies Accounting for share issue Accounting for share issue Forfeiture of shares Forfeiture of shares Reissue of shares Reissue of shares Reserves Reserves Dividends Dividends TEXT CHAPS 1& 2

33 33 Dividends INTERIM DIVIDEND (Dividend paid) INTERIM DIVIDEND (Dividend paid) dr Interim dividend declared dr Interim dividend declared cr Dividend payable cr Dividend payable dr Dividend payable dr Dividend payable cr Cash cr Cash dr Retained profits dr Retained profits cr Interim dividend declared cr Interim dividend declared FINAL DIVIDEND (Dividend provided) FINAL DIVIDEND (Dividend provided) dr Final dividend declared dr Final dividend declared cr Dividend payable cr Dividend payable dr Retained profits dr Retained profits cr Final dividend declared cr Final dividend declared

34 34 Preparation of Financial statements In this week we are looking at preparing accounts for managers In this week we are looking at preparing accounts for managers –Refer example in the text Bulldog Ltd Entry for taxation Entry for taxation –Dr Tax Expense – Cr Tax Payable

35 35 A Ltd A Ltd Profit & Loss for the year ended 30/6/99 Profit & Loss for the year ended 30/6/99 Sales Less - Cost of Sales Gross Profit Less - Expenses Net Profit Less Tax Expense Net profit after tax Add Retained profits -from 1/7/ Less:- Dividend Declared Dividend Declared Dividend Paid Dividend Paid Retained Profits - 30/6/99 $ 9 000

36 36 A Ltd Balance Sheet as at 30/6/99 Current Assets ? Current Assets ? Non-Current Assets ? Non-Current Assets ? Less Liabilities Less Liabilities Tax Payable Tax Payable Dividend Payable ? Dividend Payable ? $ $ Equity Equity Share Capital Share Capital Retained Profits Retained Profits $ $

37 37 Tutorial Questions Exercise 2.1 Exercise 2.1 Exercise 2.2 Exercise 2.2 Exercise 2.5 Exercise 2.5 Exercise 3.1 Exercise 3.1 Exercise 3.4 Exercise 3.4 Problem 3.5 Problem 3.5


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