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Unformatted text preview: ACIS211 Week 5 ACIS211 Week 5 Lecture one
Equity Accounting for start up Objectives Objectives To become familiar with equity To be able to calculate average share value To account for share issue The Equity ‘Bucket’ The Equity ‘Bucket’
Accounts that reflect owners input to the business through Initial contributions Operating surpluses (or losses) Various reserves GAAP requires presentation of components and allows for aggregation as well Equity Accounts Equity Accounts Contributed capital Retained earnings Asset revaluation reserve Capital replacement reserve Exchange fluctuation reserve Dividend equalisation reserve Contributed Capital Contributed Capital
Is the amount contributed by owners when issuing shares It does not apply to share value traded after initial issue (unless purchased or issued by the company) Contributed capital can be made up of share values of different prices Contributed Capital (cont) Contributed Capital (cont)
Example Issue 1 100,000 shares @ $1.00 = $100,000 Issue 2 200,000 shares @ $1.80 = $360,000 Contributed capital 300,000 shares issued at $460,000 Average issue price = $1.53 per share Important Terms Important Terms Full payment on application Part payment on application (minimum 10%) Uncalled capital Calls in arrears Calls in advance Underwriters Brokers Accounting Treatment for Share Accounting Treatment for Share Issue
Step 1 2 3 4 5 S equence Accounti ng Entry Prospectus issued Receipt of application mon ies Share issue (Allot ment) Transfer of funds to company Refund oversubscriptions None Dr Cr Dr Cr Dr Cr Dr Cr Bank -Trust A pplication A pplication Contributed Capital Bank Bank -Trust A pplication Bank -Trust Note: Trust account no longer required but is still best practice Oversubscription Oversubscription
Options for directors include Refusing some applications Allocating prorata Combination Securities Act requirements for Share Securities Act requirements for Share Issue Minimum application amount to be fully paid is 10% of the issue price (s37A (2)) All application monies need to be held in a separate trust account until allotment of shares is complete Now optional but still best practice Consideration other than cash Consideration other than cash
Provision for in Companies Act 1993 (s46) Types of consideration Promissory notes Future service contracts Property claims Other securities such as convertible debentures S47 states that fair and reasonable consideration must be exchanged Consideration other than cash Consideration other than cash (cont) NZ IAS 16 (par 35.3) states that this is obtained through market values or independent valuations Consideration other than cash (cont) Consideration other than cash (cont)
Accounting Treatment Dr / Cr assets / liabilities taken over Cr Issued capital Direct Share Issue Costs Direct Share Issue Costs
These include: Legal costs Promotional costs Accounting costs Underwriting costs/commissions Brokerage commissions Direct Share Issue Costs Accounting Direct Share Issue Costs Accounting Treatment
Direct costs are offset against the capital raised from the share issue. Therefore: Dr Contributed Capital Cr Bank Indirect Share Issue Costs Indirect Share Issue Costs
These include: Management time Research costs Finance negotiating costs Feasibility study costs Indirect Share Issue Costs Accounting Indirect Share Issue Costs Accounting Treatment
Indirect costs are recorded as expenses in the period incurred Therefore: Dr Administration Overhead Cr Bank ...
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- Spring '09