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Chapter4S - (5thedition AtrillandMcLaney Exercisesolution...

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Financial accounting for decision makers (5th edition) Atrill and McLaney Exercise solution 1 Chapter 4 (a) The price at which shares are traded on the Stock Exchange (SE) has no direct effect on the company concerned. The SE is simply a market in which shareholders can sell their shares to other people or organisations, who then replace them as part owners of the business. The price paid by the buyer is paid to the seller – the company is simply not involved in the transaction. The transaction involves a transfer of existing shares from one owner to another. It is only when a company issues new shares, for a price above their nominal or par value, that an increase in the company’s share premium account arises. When a company issues new shares for cash, it is directly involved in the transaction and receives the cash. Here we are talking about shares that have only just come into existence. (b) A reserve is part of the owners’ (shareholders’) claim against the company, that
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