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Module 3 Shareholders’ Equity

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1 Module 3 Shareholders’ Equity
Financial Accounting 3 Module 3 Shareholders’ Equity

2 Theoretical Foundation
“Equity is the ownership interest in the assets of a profit oriented enterprise after deducting its liabilities. While equity of a profit oriented enterprise in total is a residual, it includes specific categories of items, for example, types of share capital, contributed surplus and retained earnings.” CICA Handbook

3 Aspects of share capital
Authorized share capital Issued share capital Outstanding share capital Treasury shares Subscribed shares

4 Issuance of share capital
Cash sale of share capital DR Cash and CR share capital Non-cash sale of share capital At the FMV of the asset. At the value of the shares if the value of the asset is not established. ASPE – at the more reliable of the two sources Share issue costs DR to either the RE or the share capital account.

5 Retirement of share capital
DR Share Capital for the BV of the shares CR Cash for the amount paid To balance entry CR Contributed Capital, share capital DR Contributed Capital, until the balance is zero Remainder to the retained earnings account

6 Treasury shares Company may purchase its own shares on the open market. The shares are still issued, but no longer outstanding. They do NOT earn dividends. JE Entry DR Treasury Shares CR Cash

7 Reselling Treasury shares
DR Cash – amount received CR Treasury shares – BV of shares To balance JE CR Contributed Capital, treasury shares DR Contributed Capital, treasury shares until balance is zero, Remaining amount directly to retained earnings

8 Retained Earnings Topic 5 in lesson notes Text book page 766

9 Dividend Distribution
Preferred dividends in arrears Current PS dividends O/S matching P/S and O/S participating Ratio of the current year dividends

10 Subscriptions Shares paid for over time
DR Subscription Receivable CR O/S subscribed Shares are issued once they have been paid in full DR O/S subscribed CR O/S

11 Stock Splits This is recorded with a MEMO only. No JE is made
The number of shares changes, but the dollar amount does not The residual value in the company is divided into smaller pieces

12 Stock Dividends Market value Stated value Memo entry
Recorded at the market value of the shares Stated value Recorded at the book value of the shares Memo entry Only a memo of the dividend is made

13 Fractional Rights 10% share dividend implies that for every share owned you will get the right to 1/10th of a new share. You will need 10 of the rights to get one new share. Activity 3.7-1

14 Stock Dividend JE’s Dividend Rights subsequently converted
Lapse of rights

15 Relevant dividend dates
Declaration date Record date Ex-dividend date Payment date

16 Other Equity Components
Additional contributed capital Comprehensive income Other comprehensive income Accumulated other comprehensive income

17 Disclosures, Cash flow & QOE
ASPE disclosure - only terms and conditions of issued share classes are disclosed. QOE – Topic 9 pay attention to the changes to each component in equity, the continuity schedules, and dividend levels

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