Financial Accounting II Lecture 23

Further Issue of Capital Further issue – New shares are offered to people other than current share holders in case of public companies subject to approval of Federal Government.

Further Issue of Capital Right issue – Offer to existing share holders to subscribe new shares in the ratio of their existing holding.

Further Issue of Capital Bonus issue – Accumulated profit is capitalized by issuance of shares.

Appropriation Account CR. Share Capital Account Bonus Issue Accounting Entry: DR. Profit and Loss Appropriation Account CR. Share Capital Account

Further Issue of Capital – Section 86 (1) Where the directors of the company decide to increase the capital of the company by the issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member, irrespective of class, and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time, within which the offer, if not accepted, will be deemed to be declined:

Further Issue of Capital – Section 86 Provided that the Federal Government may, on an application made by any public company on the basis of special resolution passed by it, allow such company to raise its further capital without issue of right shares:

Further Issue of Capital – Section 86 Provided further that a public company may reserve a certain percentage of further issue of its employees under “Employees Stock Option Scheme” to be approved by the Commission in accordance with the rules made under this Ordinance.

Further Issue of Capital – Section 86 (2) The offer of new shares shall be strictly in proportion to the number of existing shares held:

Further Issue of Capital – Section 86 Provided that fractional shares shall not be offered and all fractions less than a share shall be consolidated and disposed of by the company and the proceeds from such disposition shall be paid to such of the entitled shareholders as may have accepted such offer.

Further Issue of Capital – Section 86 (7) If the whole or any part of the shares offered under sub-section (1) is declined or is not subscribed, the directors may allot and issue such shares in such manner as they may deem fit.

Shares Issued at Premium – Section 83 (1) Where a company issues shares at a premium, whether in cash or otherwise, a sum equal to the aggregate amount or the value of the premiums on those shares shall be transferred to an account, to be called "the share premium account"; and the provisions of this Ordinance relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up capital of the company.

Application of Share Premium – Section 83 (2) The share premium account may, notwithstanding anything contained in sub-section (1), be applied by the company-- In writing off the preliminary expenses of the company; (b) In writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;

Application of Share Premium – Section 83 (c) In providing for the premium payable on the redemption of any redeemable preference shares or debentures of the company; or (d) In paying up un-issued shares of the company to be issued to members of the company as fully paid bonus shares.

Share Issued at Discount – Section 84 (1) Subject to the provisions of this section, it shall be lawful for a company to issue shares in the company at a discount: Provided that-- (a) The issue of the shares at a discount must be authorised by resolution passed in general meeting of the company and must be sanctioned by the Commission; (b) The resolution must specify the maximum rate of discount, at which shares are to be issued;

Share Issued at Discount – Section 84 (c) Not less than one year must at the date of issue have elapsed since the date on which the company was entitled to commence business; and (d) The share to be issued at a discount must be issued within sixty days after the date on which the issue is sanctioned by the Commission or within such extended time as the Commission may allow.

Share Issued at Discount Discount allowed on shares will not be treated as a reduction in share capital but will be written off as expense or charged to a share premium account as allowed by Section 83.

Share Issued at Discount – Section 84 (4) Every prospectus relating to the issue of shares, and every balance sheet issued by the company subsequent to the issue of shares, shall contain particulars of the discount allowed on the issue of the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus or balance sheet.

Repurchase of Shares – Section 95 A Following are the requirements and condition of repurchase of shares: Special resolution, indicating the maximum number of shares to be repurchased and the maximum price to be offered. The purchase shall be in cash and out of the distributable profits.

Repurchase of Shares – Section 95 A In case of purchase at premium the amount of premium shall be charged to share premium account, in the absence of share premium the difference would be charged to distributable profits.

Repurchase of Shares – Section 95 A If shares are purchased at a discount the discount will be credited to “Capital Repurchase Reserve Account”. The shares purchased shall be cancelled forthwith.

Repurchase of Shares – Section 95 A The amount of paid up capital account would be reduced by the nominal amount of the shares repurchased. An amount equal to the nominal value of the shares repurchased will be transferred from distributable profits of the company and credited to “Capital Repurchase Reserve Account”.

Reduction in Share Capital – Section 96 Following are the requirements and condition of reduction in share capital: Special resolution and approval of court The company may Extinguish or reduce liability on any shares in respect of unpaid share capital. Cancel any paid up share capital that is lost or not presented by any assets. Pay off any share capital that is in excess of its needs.