1 Example COMPANIES (Share issue) Reading: Ch 14 Horngren

2 Equity in a Company – 3 types Share capital –fully or partly paid shares –Ordinary shares or preference shares shares Retained earnings –Or Accumulated losses Other Reserves

3 Accounting for Share Issues Share issue to private individuals Date Cash at Bank X paid up capital(PUC) x (cash contributed to the company by its shareholders) Date Cash at Bank X paid up capital(PUC) x (cash contributed to the company by its shareholders)

4 full Share issue by a public co. payable in full on application All funds received from the public must be kept in a bank trust account until the shares have been to the applicants. The basic type of share is the ordinary share. If there is only one class of share then, by definition, they are ordinary shares. In practice, some forms of debt and some types of shares are very difficult to distinguish, for example, preference shares. Accounting for the issue of ordinary/preference shares follows the same process

5 full Share issue by a public co. payable in full on application Shares issued via a prospectus eg Brazil Ltd: Wanted to issue shares Received applications for shares Issue price of $10 per share eg Brazil Ltd: Wanted to issue shares Received applications for shares Issue price of $10 per share cash trust 1,100,000 Sept 30 cash trust 1,100,000 Application 1,100,000 Application 1,100,000 ( receipt of cash of $10/share on shares ) cash trust 1,100,000 Sept 30 cash trust 1,100,000 Application 1,100,000 Application 1,100,000 ( receipt of cash of $10/share on shares )

6 Refund of excess application monies DateApplication 100,000 Cash Trust 100,000 ( refund of excess application money to unsuccessful applicants x $10) DateApplication 100,000 Cash Trust 100,000 ( refund of excess application money to unsuccessful applicants x $10) Share issue by a public co. payable in full on application cont’d

7 Allotment of shares This closes the temporary ‘Application’ a/c, the net effect of the two stages is an increase in assets and an increase in owners equity. Cash at Bank 100,000 Cash Trust 100,000 ( transfer of application money to general bank a/c) Cash at Bank 100,000 Cash Trust 100,000 ( transfer of application money to general bank a/c) Oct 1Application 1,000,000 PUC 1,000,000 ( to record funds contributed for shares paid in full) Oct 1Application 1,000,000 PUC 1,000,000 ( to record funds contributed for shares paid in full) Share issue by a public co. payable in full on application cont’d

8 Share issue by a public company payable in instalments eg Brazil Ltd Issues shares on 15 September Payable: $4 on application $3 on 15 October (allotment) $3 on 1 December (call) eg Brazil Ltd Issues shares on 15 September Payable: $4 on application $3 on 15 October (allotment) $3 on 1 December (call) Sept 30 Cash Trust 400,000 Application 400,000 ( receipt of cash of $4 per share x shares ) Sept 30 Cash Trust 400,000 Application 400,000 ( receipt of cash of $4 per share x shares )

9 Allotment of shares Oct 1Cash at Bank 400,000 Cash Trust 400,000 ( transfer of application money) Oct 1Cash at Bank 400,000 Cash Trust 400,000 ( transfer of application money) Oct 1Application 400,000 PUC 400,000 ( application fee of $4 on shares) Oct 1Application 400,000 PUC 400,000 ( application fee of $4 on shares) Share issue by a public company payable in instalments cont’d

10 Amount due on allotment NOTE: The trust account is not required once the shares have been formally allotted. Receipt of allotment monies: Oct 1Allotment 300,000 PUC 300,000 ( allotment fee of $3 receivable on shares) Oct 1Allotment 300,000 PUC 300,000 ( allotment fee of $3 receivable on shares) Oct 15Cash at Bank 300,000 Allotment 300,000 ( cash received on allotment) Oct 15Cash at Bank 300,000 Allotment 300,000 ( cash received on allotment) Share issue by a public company payable in instalments cont’d

11 Amount due on call Nov 15Call 300,000 PUC 300,000 ( call of $3 receivable on shares) Nov 15Call 300,000 PUC 300,000 ( call of $3 receivable on shares) Dec 1Cash at Bank 300,000 Call 300,000 ( receipt of call monies on shares) Dec 1Cash at Bank 300,000 Call 300,000 ( receipt of call monies on shares) Receipt of call monies Share issue by a public company payable in instalments cont’d

12 NOTE: Application, Allotment & Call No. X are all the same type of accounts – all are call accounts and all are temporary. They exist only between the call for the funds and receipt of funds. Share issue by a public company payable in instalments cont’d