1. Accounting and Finance Unit 4
Topic 1 - Introduction to Company Accounting, share issue and distribution of company profits

2. Example of a Prospectus....
Dick Smith Prospectus
More info:

3. AGM
An annual general meeting (commonly abbreviated as AGM, also known as the annual meeting) is a meeting that official bodies, and associations involving the general public (including companies with shareholders), are often required by law (or the constitution, charter, by-laws etc. governing the body) to hold.

4. Issue of shares Example 1
On 1 July 2010 the directors of Runnalong Sports Ltd issued 1,000,000 ordinary shares payable in full on application at a price of $3 per share. By 31 July, the issue had been fully subscribed. Share issue costs were paid amounting to $25, At the meeting on 15 August, the directors resolved that the 1,000,000 shares applied for be allotted.
Required:
A) Record the above transactions in the general journal and general ledger of Runnalong Sports Ltd
B) Show the equity section of the Statement of Financial Position immediately after the events stated above.

5. 31 Jul Cash at Bank ,000,000
Applications, ordinary ,000,000
Applications for ordinary share issue
31 Jul Share Issue costs ,000
Cash at Bank ,000
Payment of costs of share issue

6. 15 Aug Applications, ordinary 3,000,000
Ordinary share capital ,000,000
Allotment of 1,000,000 ordinary
shares at $3.00 each
15 Aug Ordinary share capital ,000
Share Issue costs ,000
Transfer of share issue costs

7. 31 Jul Applications - ordinary 3,000,000 3,000,000DR
Share issue costs , ,975,000DR
31 Jul Bank ,000, ,000,000CR
15 Aug Ordinary share ,000,
capital
15 Aug Applications ,000, ,000,000CR
-ordinary
Share issue costs , ,975,000CR
31 Jul Bank , ,000DR
15 Aug Ordinary share ,
capital

8. Statement of Financial Position...
2,975,000

9. Issue of shares Example 2
Stargazers Ltd invited potential members to invest in 200,000 $5 ordinary shares through its prospectus issued on 1 March Subscriptions closed, fully paid, on 1 May. The shares were allotted on 31 May. Professional advisor fees for the share issue came to a total of $4,000.
Required:
A) Record the above transactions in the general journal and general ledger of Stargazers Ltd
B) Show the equity section of the Statement of Financial Position immediately after the events stated above.

10. 1 May Cash at Bank ,000,000
Applications, ordinary ,000,000
Applications for ordinary share issue
31 May Share Issue costs ,000
Cash at Bank ,000
Payment of costs of share issue

11. 31May Applications, ordinary 1,000,000
Ordinary share capital ,000,000
Allotment of 200,000 ordinary
shares at $5.00 each
Ordinary share capital ,000
Share Issue costs ,000
Transfer of share issue costs

12. 1 May Applications - ordinary 1,000,000 1,000,000DR
Share issue costs , ,000DR
1 May Bank ,000, ,000,000CR
31 May Ordinary share ,000,
capital
31 May Applications ,000, ,000,000CR
-ordinary
Share issue costs , ,000CR
31 May Bank , ,000DR
Ordinary share ,
capital

13. 996,000

14. Question for completion - Rustic Traders

29. Equity for a company… Made up of :
Share Capital – amounts raised by issuing shares
Reserves – 2 types
General Reserve (profits transferred for specific purposes)
Asset Revaluation reserve (created when assets are revalued)
Retained earnings – records profits, dividends and transfers to and from reserves

30. example for the ISSUE OF BONUS SHARES
At 30 June 2018, the Equity section for Margaret River Ltd appeared as below:

31. Issue of bonus shares...
Margaret River Ltd decided on 31 July 2018 to make a one-for-two bonus share issue, funded out of the asset revaluation reserve.
The nominal share price of the issue will be $1.00 per share.
The total value of the bonus share issue is therefore:
800,000/2 = 400,000 x $1.00 = 400,000

32. Accounting for bonus shares
31 Jul Asset Revaluation Reserve ,000
2018
Ordinary Share capital ,000
Issue of 400,000 bonus shares on a
1for 2 basis at $1 per share

33. 31 Jul Ordinary share ,
Capital
31 Jul Asset Revaluation , ,000CR
Reserve

34. The Equity section would now look like this (note total equity value has not changed)...

35. Questions for completion

38. 7.24…
5,000,000 shares / 5 = 1,000,000 x $1 = 1,000,000

39. Shakespeare Ltd page 51…

40. Page 52… Preparation of retained earnings ledger account,
Journal and ledger entries for profit transfer, payments of dividends, transfers to and from reserves

41. Allocation of Profit... Profit = Income less expenses
In a sole trader or partnership, profit is transferred to the owner’s capital account
The owner/s takes profit from the business in the form of drawings – these drawings are transferred to the capital account also
When a company makes a profit, the directors decide how much profit to allocate to shareholders and how much to keep invested in the company.

42. Equity for a company (repeated)
The Equity for a company consists of 3 categories:
1. Share capital – this is the term used to describe the amounts that shareholders have paid to the company for the issue of shares
2. Reserves – funds retained in the organisation for specific purposes
3. Retained profits – amounts of profits earned by the company and not paid out as dividends

43. Retained earnings
Profit (after tax) is transferred to a Retained Earnings account.
In the Retained Earnings account, profit can be:
Shared out to shareholders in the form of dividends
Retained as a balance in the retained earnings account (used to pay future dividends)
Transferred to a reserve for some specific purpose
Asset revaluation reserve (upward valuation of assets)
General reserve

44. Cash dividends...
Dividends are paid to the members of the company in proportion to the number or value of shares that they hold.
The Corporations Act 2001 requires a company to pay dividends out of profits.
The Replaceable Rules sets out the requirements for the amount, timing and methodology of payment of a dividend

45. Interim and final dividends
An Interim dividend is declared by directors and paid to members during an accounting period
A Final dividend is recommended by the directors of the company but is not declared and paid until the AGM of members

46. Payment of dividends Dividends are paid in two ways:
A percentage of paid up capital
Cents per share
For example dividend paid is .04 cents per share (usually for ordinary shares)
Or 8% of the value of shares (usually for preference shares)

47. Accounting for dividends
Final dividends are recognised in the accounts on the date the directors declare them and are then paid on a later date
Interim dividends are recognised in the accounts and paid on the date the directors declare them.

48. Example...
At 30 June 2010, Margaret River Limited had the following balances in their Statement of Financial Position:

49. Example cont... Additional information: Year ended 30 June 2010
The directors recommended a $2,000 final ordinary dividend. These dividends must be approved by the shareholders before they can be paid
1 November 2010 The final dividends were paid
1 March 2011 The directors approved the following interim dividend of .04c per share. These were paid by 31 March 2011
30 June 2011 the company made a profit after tax of $70,000
The directors decided to transfer $10,000 of profits to the general reserve.

50. Example cont... Required: A) calculate the interim dividend
B) show the balance of retained earnings in the general ledger at 1 July 2010
C) Show the general journal and general ledger entries to record:
The declaration of final dividend at 30 June 2010
The payment of final dividends on 1 November 2010
The approval of interim dividends on 1 March 2011.
The payment of interim dividends on 31 March 2011
The transfer of profit to the retained earnings account on 30 June 2011
The transfer to the general reserve from retained earnings on 30 June 2011

51. Solution
A) Calculation of interim dividend 800,000 ordinary shares x .04c per share = $32,000

52. General Journal entry for The declaration of final dividend at 30 June 2010 and payment on 1 November 2010
30 June Retained earnings ,000
2010
Final Dividend payable ,000
Final ordinary dividend declared
1 Nov Final Dividend payable ,000
2010
Cash at Bank ,000
Payment of final dividend

53. General Journal entry for The approval of the interim dividend on 1 March 2010 and payment on 31 March 2010
1 March Retained earnings ,000
2011
Interim Dividend payable ,000
Interim dividend of .04c per share
31 March Interim Dividend payable ,000
2011
Cash at Bank ,000
Payment of interim dividend of .04c per share

54. General Journal entry for The transfer of profit to the Retained earnings account
30 June Profit and Loss summary ,000
2011
Retained earnings ,000
Transfer of profit

55. General Journal entry for The transfer from Retained earnings to General Reserve
30 June Retained earnings ,000
2011
General reserve ,000
Transfer to the General reserve

63. Show Equity section of the Statement of Financial Position at 30 June 2011...
37,400
10,000
438,400

64. 7.14

67. 7.16 cont..