1. Chapter 2
Share Issues

2. 2.1
The Issue Price
of Shares

3. Directors Determine the Issue Price
Factors to Consider
Number of shares
Amount of funds to raise
Dilution of shares
Profit expectations

4. Issue Price
A company listed on the stock exchange could have multiple issues over a period at varying prices.
In buoyant market conditions, issue prices of new shares will be higher.

5. 2.2
Types of Capital

6. Issued Capital Issued Capital = No. of shares * issue price per share.
Example:
A company issues 200,000 shares at $2.50.
Issued Capital is 200,000 x $2.50 = $500,000

7. Uncalled Capital
When a company issues shares the total amount is not always paid initially.
Example:
A company issues 500,000 $1.50 shares payable
$1.00 on application and
$0.50 at a later date
The uncalled capital amount is 500,000 x $0.50 = $250,000.

8. Share Capital
Share capital (or paid up capital) is the amount that bas been paid on shares.
Example:
A company issues 500,000 $1.50 shares payable
$1.00 on application and
$0.50 at a later date
Paid-up capital is 500,000 x $1.00 = $500,000

9. 2.3
Classes of Shares

10. Classes of Shares
Companies may issue a range of shares, each with its own distinctive features.

11. Classes of Shares Ordinary Shares Most common
Right to vote and right to receive dividends
Paid after other shareholders
Preference Shares
Rank above ordinary shares
Usually no voting rights
Deferred Shares
Rights and dividend deferred until the company generates profits
Usually issued to company founders

12. 2.4
Partly Paid Shares
and Calls

13. What is a Call?
Partly paid shares are issued shares that still have some portion yet to be purchased.
The company can request that shareholders make a payment: this is known as a call.

14. Unpaid Calls
If a call is not paid, the company may have the right to forfeit the shares.
The shareholder may be entitled to a refund of any paid up capital.

15. 2.5
Accounting Entries

16. Accounting Entries
Issue of fully paid Ordinary and Preference Shares to initial subscribers:

17. Accounting Entries
Issue of fully paid Ordinary and Preference Shares to the public:

18. Accounting Entries
Issue of Ordinary and Preference Shares payable in two stages

19. Calls
The journal entries to account for a call are:

20. Oversubscriptions and Undersubscriptions
Undersubscribed
Where subscriptions are more than the shares required:
Oversubscribed
Where subscriptions are less than the share required:

21. Excess Application Money
When there is an oversubscription the directors have to decide whether to scale back applications or give refunds.

22. Excess Application Money
Journal entries to account for excess applications are:

23. Commission and Expenses
2.6
Commission and Expenses

24. Underwriting commission
Share Issue Expenses
Transaction costs arising from the issue include:
Brokerage
Underwriting commission
Stamp duty and tax
Advisors’ fees
Printing

25. Share Issue Expenses
The journal entry required for share issue expenses is

26. Preliminary Expenses
Preliminary expenses or formation costs are those costs associated with forming a company.
These costs will come out of profit and are transferred to the Income Statement.

27. 2.7
Other Terms

28. Bookbuilding Investment bank receives bids from investors
Investor will pick a price range that they are willing to pay
The bank examines investor bids and produces an issue price based upon demand

29. Stapled Securities
Stapling of securities are attached to each other and treated as one share.