Financial Accounting 1 Lecture – 37 Share capital Authorized Share Capital is the maximum capital, a company may raise. It can be increased with the approval.

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Presentation transcript:

Financial Accounting 1 Lecture – 37 Share capital Authorized Share Capital is the maximum capital, a company may raise. It can be increased with the approval of SECP.

Financial Accounting 2 Lecture – 37 Share capital Shares can be issued against cash or assets such as land etc. Share certificate is an evidence of ownership of number of shares held by a member.

Financial Accounting 3 Lecture – 37 Share capital Shares sold at a price higher than their face value are termed as Shares Issued at Premium. Shares sold on a price lesser than their face value are termed as Shares Issued on Discount.

Financial Accounting 4 Lecture – 37 Certificate of incorporation Certificate of Incorporation is the evidence of registration (incorporation) of the company. It is issued by the SECP.

Financial Accounting 5 Lecture – 37 Separate Legal Entity A company is a Separate Legal Entity. It can sue in its own name and be sued in its own name. It can purchase assets and contract liabilities in its name.

Financial Accounting 6 Lecture – 37 Dividend Profit distributed among the share holders is called Dividend. Dividend is approved by share holders in annual general meeting at the recommendation of the board of directors. Dividend is determined as a proportion of the face value of the share. Example 10% dividend means Rs. 1 on a Rs. 10 share.

Financial Accounting 7 Lecture – 37 Subscribers / Sponsors of the Company Subscribers / Sponsors are the persons who sign articles and memorandum of the company and contribute in the initial share capital of the company

Financial Accounting 8 Lecture – 37 Issuance of Further Capital Where a company wants to issue further capital (called raising of capital), shares are first offered to current shareholders. If shareholders refuse to accept these shares then these are offered to other people.

Financial Accounting 9 Lecture – 37 Issuance of further capital to current share holders Journal Entry: Shares issued against cash DebitCash / Bank Account CreditShare Capital Account Shares issued against transfer of asset: DebitAsset Account CreditShare Capital Account This is called issuance of asset in kind.

Financial Accounting 10 Lecture – 37 Right Issue The issuance of further capital to Present Shareholders is called Right Issue. This issue is in proportion to current shares held by the shareholders. The shareholders can accept or reject the offer.

Financial Accounting 11 Lecture – 37 Bonus Shares Bonus Shares are the shares issued to the shareholders in place of dividend and no cash is received from them. Bonus shares are fully paid shares. It is another way of distribution of profit.

Financial Accounting 12 Lecture – 37 Financial Statements of Limited Companies In Pakistan Financial Statements of limited companies are prepared in accordance with: International accounting standards adopted in Pakistan. Companies Ordinance In case of conflict the requirements of Companies Ordinance would prevail over Accounting Standards.

Financial Accounting 13 Lecture – 37 Components of Financial Statements Balance Sheet Profit and Loss Account Cash Flow Statement Statement of Changes in Equity Notes to the Accounts Comparative figures of Previous Period

Financial Accounting 14 Lecture – 37 Equity EQUITY Total of capital, reserves and undistributed profit OR Total of shareholders fund in the company.

Financial Accounting 15 Lecture – 37 Statement of Changes Equity Statement of changes in equity shows the movement in shareholders’ equity.

Financial Accounting 16 Lecture – 37 Statement of Changes In Equity Name of the Company Statement of Changes in Equity for Year Ended June 30, 2002 Share Capital Share Premium Account ReservesProfit & Loss A/c Total Balance On Jun 30, 2000XXXXX Movements During the YearXX Balance On Jun 30, 2001XXXXX Movements During the YearXX Balance On June 30, 2002XXXXX Note: Use Double underline.