Week 2 – Financing Company Operations Debt finance – repayments through interest expense Equity finance – issuing shares – inc.ing likelihood of separation of ownership from control Issues of Shares • Ordinary • Preference – constitution setting out the rights is necessary (s254A(2)) Rights of shareholders include: the right to vote for directors, right to share in assets on winding-up/liquidation, right to share in new share issues (for same class of shares). Note: ordinary shareholders have no specific right to dividends. Accounting for share issues (IPO) IPO/prospectus process involve shareholders applying for a no. of shares in response to a prospectus issued by company (full disclosure important), who will then issue shares to new shareholders based on applications received. Such share issues are accompanied by disclosure of documents, commonly specifying a min. no. of applications which must be received in order for share issue to proceed. Corporations Act require min. subscription be achieved within 4months of issue of disclosure document and shares be allotted within 13months of issue of disclosure document. Payable on full on application Eg1. ABC issued prospectus for issue of 100,000 x $5 shares on 1/1/2012 specifying $5 payable in full on application. Company received applications for 100,000 shares throughout Jan. On 31/1/2012 ABC issued 100,000 shares. 1-30 Jan DR Cash Trust 500,000 CR Application 500,000 Cash is held in trust acc. on behalf of applicants \\ application represents liability prior to share issue 31 Jan DR Application 500,000 CR SC 500,000 DR Cash 500,000 Cr Cash Trust 500,000 Deposit on application, balance on allotment Eg2. ABC issued prospectus for issue of 100,000 x $5 shares on 1/1/2012 specifying $3 payable on application with the balance payable on allotment. Company received applications of 120,000 shares throughout Jan. Directors refunded money to unsuccessful applications. On 31/1/2012 ABC issued 100,000 shares. 1-30 Jan DR Cash Trust 360,000 CR Application 360,000 31 Jan DR Application 300,000 Cr SC 300,000 DR Cash 300,000 CR Cash Trust 300,000 DR Allotment 200,000 CR SC 200,000 DR Cash 200,000 CR Allotment 200,000 Dr Application 60,000 CR Cash Trust 60,000 Deposit on application, instalment on allotment, balance on call Eg3. ABC issued prospectus for issue of 100,000 x $5 shares on 1/1/2012 specifying $2.50 payable on application, $1.25 payable on allotment and $1.25 payable at call. On 31/1/2012 ABC issued 100,000 shares. On 31.5.2012 company made call for outstanding balance of $1.25 per share, payable by 30/6/2012. At 30/6/2012, call on 10,000 shares were unpaid.
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- DR Cash, Cr Cash trust, cr sc