1 Introduction to Company Accounting Learning Outcomes:  Understand the concepts and the environments associated with companies  Understand different types of capital structures  Understand the financial reporting requirements in Malaysia  Know the presentation of financial statements for companies

2  Limited companies  A business structure in which shareholder responsibility for company debt is limited to the amount he/she has invested in the company.  Types of limited companies:  Public companies  Private companies  Exempt companies Types of Companies

3  Unlimited companies  A business structure in which shareholders are liable for all debts of the company.  It is not common in Malaysia and exists to some extent among mutual funds, a type of investment company  Special companies  Banking companies – Any bank defined in the Banking Act. Under Company Act, banks are given certain privileges and provisions.  Life insurance companies – Companies registered under the Life Insurance Act. Cont.

An entity separate and distinct from its owners. The Corporate Form of Organization Classified by Purpose Not-for-Profit For Profit Classified by Ownership Publicly held (Berhad) Privately held (Sendirian Berhad)  Petronos Berhad  Takaful Malaysia Berhad  Khazanah National Berhad  National Council of Social Welfare & Social Development Malaysia  Peace Malaysia - Malaysians For Peace  Malaysia Milk Sdn. Bhd.  Darussalam Holdings Sdn. Bhd.

5  Advantages  Limited liability  Broad source of capital  Continuity of existence  Use of professional management  Disadvantages  Greater governmental regulations  Separation of ownership and management Advantages & Disadvantages

6 Memorandum of Association (MA)  Initial legal document, represents the initial agreement between the people forming the company  regulates the company relation with outside person i.e. external affair of the business  Contents:  The name, location of the company  Activities in which the company may legally operate  Statement that the liability of the members is limited or unlimited  The amount of authorised capital for each class of shares and the nominal value of each share Forming a Company

7 Article of Association (AA)  set out the rules covering the internal affairs of the company such as the right of shareholder and the power and the duties of management  Contents:  The rights of different classes of shareholders  The duties, powers and proceedings of directors  Notice and proceedings of meetings Cont.

8 The Prospectus Any offer or invitation by a company to issue shares must be accompanied by a registrable prospectus It contains all such information as: i. assets, liabilities, financial position and prospects of the company ii. The rights attached to the securities being issued Cont.

9 The practice of accounting is governed by the following legislations: i. Companies Act 1965 Under this act, the company is required to maintain accounting and other records so as to enable its management to prepare financial statements (FS) that reflect a true and fair view of the financial results, the financial position and the cash flow. The FS are to be prepared in accordance with the approved accounting standards. Financial Reporting in Malaysia

10 The minimum disclosure requirements are set forth in the Ninth Schedule to the Act.  Statement of Comprehensive Income  Statement of Financial Position  Other Requirements ii. Accountants Act 1967 This Act provides for the establishment of MIA. The objective of MIA is to regulate the accounting profession Cont.

11 iii. Financial Reporting Act 1997 & Accounting Standards This Act provides the guidelines for accountants in the form of accounting standards and other guidelines in the preparation of FS A broad requirement of FS has provided for in the Companies Act 1965 This Act established standards setting body, Malaysian Accounting Standards Board (MASB). Cont.

12 Capital Equity:  Authorised/Nominal/Registered Capital  Unissued Capital  Uncalled Up Capital  Paid up Capital Capital Structure

13 AUTHORISED CAPITAL Maximum number of shares that a company is permitted to issue and the par value per share. Authorised capital = no. of shares x par value per share *Par value – an amount per share placed on the shares at the time of formation Company can increase it’s authorised capital by altering its memorandum at a company general meeting Cont.

14 UNISSUED CAPITAL Represents that part of the company’s authorised capital which has not been issued to shareholders Also know as unallotted shares The difference between authorised capital and unissued capital is the total amount of issued capital Cont.

15 UNCALLED CAPITAL A company, when it decides to issue shares, may not require the shareholders to pay in the total par value of the shares all at one time. The pay value may be called up by the company in installments. Uncalled capital represents the amount of issued capital which has not yet been called up by the company Cont.

16 PAID UP CAPITAL The amount of called up capital that has been paid up by the subscribers. CALL IN ARREARS This is the amount of called up capital that the subscribers failed to pay Cont.

17 Under the Corporate Act 1965, paid up capital is determined using the following approach: RM Authorised capitalXX Less: Unissued capital X Issued capitalXX Less: Uncalled capital X Called up capitalXX Less: Unpaid capital X Paid up capitalXX Cont.

Capital Structure Statement of Financial Position Extract Authorized Capital RM 200,000, 10% Preference shares of RM1/each 200, ,000, Ordinary shares of RM1/each 500, ,000 Issued and Paid Up Capital 100,000, 10%preference shares of RM1/each, fully paid up 100, ,000,ordinary shares of RM1/each, called and paid up to 70sen each 140, ,000 Reserves Share Premium 40,000 Retained Profits150,000 Total Shareholders Equity 430,000

19 Loan capital (Debenture/Bond) Companies Act 1965 allowed companies to obtain fund to finance their operations through borrowings One form of borrowing is by issuing debentures or bonds A debenture or a bond is a document issued by the company which acknowledges the company’s debt to the creditors called debenture holders or bondholders Cont.

20 Cont. DEBENTURES  Fixed rate of interest  Debenture holder are creditors  Debenture holder do not have right to vote  Debenture holder have priority to claim over to asset of company  Debenture interest is expenses SHARES  Dividend of ordinary share not compulsory  Shareholder are owners of the company  Shareholder have right to vote  Dividend are distribution of profit

21 Financial statements shall comply with: FRS101 Presentations of Financial Statements a) Statement of financial position at the end of the period b) Statement of comprehensive income for the period c) Statement of changes in equity d) Statement of cash flows e) Notes, comprising a summary of significant accounting policies and other explanatory notes Presentation of financial Statements