CHAPTER 12. Chapter 12Mugan-Akman 20072 Forms of Business Organizations Sole Proprietorship-natural person merchant General Partnership Limited Partnership.

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Presentation transcript:

CHAPTER 12

Chapter 12Mugan-Akman Forms of Business Organizations Sole Proprietorship-natural person merchant General Partnership Limited Partnership and Limited Partnership Divided into Shares Limited Liability Corporation Corporation

Chapter 12Mugan-Akman Corporations  limited liability of shareholders  ownership transferred easily-CAPITAL IS DIVIDED INTO SHARES private and publicly traded to be traded publicly they should get permission from Capital Markets Board  transition from a privately held corporation to a publicly traded one is called going public, and this first sale of stock to the public is called an initial public offering, or IPO

Chapter 12Mugan-Akman Shareholders/ General Assembly Board of Directors Chairman of the Board CEO / president Vice President - Sales Vice President - Manufacturing Vice President – Accounting and Finance Vice President - Personnel Secretary Controller (accounting)Treasurer (finance) Represents the corporation Authority Structure

Chapter 12Mugan-Akman Terms Related with Capital of Corporations Share Capital (Registered Capital) Unpaid Capital (Capital Commitments) Paid-in Capital Authorized Capital Issued Capital Treasury Stock Outstanding Capital Additional Paid-In Capital (share premium)

Chapter 12Mugan-Akman 20076

Chapter 12Mugan-Akman Capital Transactions Share Capital Increases –In cash –In-kind –Issuing free shares Conversion of bonds Stock dividends Stock Split Treasury Stocks

Chapter 12Mugan-Akman Convertible Bonds debt securities that may be converted under preset conditions to common stock of the issuer at the option of the bearer (investor) conversion methods: –Market price of the stock at the time of conversion (market value approach) –Book value of the bond being converted (book value approach)

Chapter 12Mugan-Akman Stock Dividends Distribution of stocks proportionately from retained earnings to the shareholders Purposes Satisfy the shareholders without cash outflows Increase the demand for the stocks in the market Valuation –less than 20-25% of the capital are valued at the market value of the stock and are met from the retained earnings –large stock dividends are declared, for example more than 20-25%, the par value is used to record the transaction

Chapter 12Mugan-Akman Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from shares of TL1 par value each on 11 April The market value of ZAM Corporation shares was TL1,50 on 11 April.

Chapter 12Mugan-Akman Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from shares of TL1 par value each on 11 April The market value of ZAM Corporation shares was TL1,50 on 11 April. increase by the difference between par and price- TL increase by par decrease by 15,000

Chapter 12Mugan-Akman Stock Split Issuance of additional stocks by decreasing the par value of the stock proportionately Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off

Chapter 12Mugan-Akman Stock Split Issuance of additional stocks by decreasing the par value of the stock proportionately Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off

Chapter 12Mugan-Akman Treasury Stocks Why? to improve the market price of the stock to have available stock to be used in the stock option plans to have available stocks of planned mergers and acquisitions to prevent a takeover to improve Earnings per Share do not have voting, or dividend rights do not have a right in the liquidation of the company Initially recorded at cost (contra equity account) Recorded at market value at re-issuance Any gains and losses are reported at the shareholders’ equity

Chapter 12Mugan-Akman Profit Appropriation 1. 1st Legal Reserves: 5% of net income before taxes (until it reaches 20% of paid-in capital) 2. 1st dividend to shareholders: 5% of paid-in capital 3. Other dividends: Dividends to shareholders other than 1st dividends; dividends to board of directors and employees 4. 2nd Legal Reserves: 10% of dividends declared, excluding 5% 1st dividends 5. Special Reserves: Appropriation of net income as a special reserve as defined in the Articles of Association 6. Retained Earnings : Any amount remaining after the above appropriations

Chapter 12Mugan-Akman Retained Earnings-Profit Appropriation Net Income After Taxes –Less: Legal Reserves (first) –Less: Dividends 1 st dividends to shareholders 2 nd dividends to shareholders Dividends to board of directors and employees –Less: Legal Reserves (second) –Retained Earnings

Chapter 12Mugan-Akman Statements of Changes in Equity Primary financial statement Summarize movements in shareholders’ equity from one accounting period to another

Chapter 12Mugan-Akman Illustration of the Statement of Changes in Equity During 2008, available for sale instruments of the company had a fair value increase of TL 5.096, and realized TL from sale of such instruments. In April 2008, ZAM Corporation decided to increase the share capital from TL The new shares with a par value of TL10 were sold at TL 18,75 each. Legal reserves from 2007 income was whereas dividends declared were Net income for 2008 is TL ZAM Corporation Partial Balance Sheet 31 December Shareholders’ Equity Paid-in Capital TL TL Share Capital Unpaid Capital-- Additional Paid-in Capital Legal Reserves Other Reserves Retained Earnings Shareholders’ Equity TL TL

Chapter 12Mugan-Akman ZAM Corporation Statement of Changes in Equity - For The Year TL

Chapter 12Mugan-Akman