ACCOUNTING FOR COMPANY STATEMENT OF FINANCIAL POSITION (EQUITY)

Capital Structure Capital Equity:  Authorised/Nominal/Registered Capital  Unissued Capital  Called-up Capital  Uncalled Capital  Paid-Up Capital 2

Equity  Definition: Equity is the residual interest in the assets of the entity after deducting all its liabilities. [F 4.4(c)]

Cont. AUTHORISED CAPITAL  Maximum number of shares that a company is permitted to issue and the par value per share.  Must be stated in MOA.  The company is not required to issue the total amount immediately.  Authorised capital = no. of shares X par value per share  *Par value – an amount per share attached on each unit of share at the time of formation  Company can increase it’s authorised capital by altering its memorandum at a company general meeting 4

Cont. ISSUED CAPITAL  The nominal capital that has been issued to the public for cash.  It can be either be partly or fully paid.

Cont. 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 6

Cont. 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 7

Cont. PAID-UP CAPITAL  The amount of called up capital that has been paid up by the subscribers. CALL IN ARREARS/UNPAID CAPITAL  This is the amount of called up capital that the subscribers failed to pay 8

Cont. 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 9

Types of Equity Instrument Ordinary shares  Usually, ordinary shares comprise significant portion of the company’s equity  It carries the right to vote  The shareholders are entitled for dividend after the dividends have been paid to other classes of shares  Risk taker- because if the business fail, they can lose their capital

Cont. Preference shares  It carries preferential rights as to the payment of dividends and repayment of capital in the event of liquidation  No voting rights  Nature – cumulative, non-cumulative, participating, non-participating, redeemable or convertible

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

Cont. 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 13

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 shares not compulsory  Shareholders are owners of the company  Shareholders have right to vote  Dividend are distribution of profit 14

Reserves  Definition: reserves are amount retained in the business and not distributed to owners

Disclosure in the SFP Authorised capital  This can shown on the face of the SFP or as part of the notes.  Shown in detail distinguishing between classes of shares, par value, etc. Issued share capital  Particulars of the issued capital, showing movements in the issued capital, distinguishing between different classes of shares are to be disclosed

Cont. Reserves  The description of the nature and purpose of each reserve shown either on the face of the SFP or in the notes  Must be classified under separate heading:  Share premium  Revaluation surplus  Profit and loss balance/Retained earnings  Other reserves  Movements to and from reserves during a financial period are to be disclosed in the SFP or in the notes to the SFP and in other Comprehensive Income (in SCI)

Cont.  Any dividends that have been proposed but not approved for payment and not considered as liability- to be disclosed by way of notes.