Week03_Practice_Question_Solutions

Week03_Practice_Question_Solutions - Week 3 Practice...

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Week 3 Practice Questions 4.10 Under what circumstance must a disclosure document be lodged with ASIC? What information is contained in such a disclosure document? A disclosure document must be lodged with the ASIC whenever a regulated offer of securities is made. The disclosure document is usually a prospectus , though in some cases a shorter document called a brief profile can be used, or a document called an offer information statement. The differing content depends on the amount being raised, the information previously lodged by the company with ASIC, the type of securities, the circumstances of the issue, and whether securities of the class being offered are already listed on a securities exchange such as the ASX. The prospectus sets out information relevant to the potential investor’s understanding of the prospects of the company. There is no express requirement to include reports by experts; however, their inclusion will reduce potential third-party liability of the directors. Generally, the prospectus is required to include all the information that investors and their professional advisers would reasonably require to make an informed assessment of: the assets and liabilities, financial position and performance, profits or losses and prospects of the body that is to issue the shares; the rights and liabilities attaching to the shares, including the terms and conditions of the offer, the issue price, number of shares to be issued, how to deal with an oversubscription of the issue; the interests of directors and other persons named in the disclosure document, in assets to be acquired by or previously acquired by the company (Act, s. 710). 4.11 Under which circumstances may a company issue more than one type of share? There are various types of shares, such as ordinary, preference and redeemable preference shares. A company generally has the power to issue different types of shares according to its requirements. Normally this power is exercised by the directors. In some cases there may be restrictions, for example, where a debt agreement prohibits the directors from issuing redeemable preference shares that are in-substance debt.
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4.14 Briefly outline the requirements of accounting standards dealing with transaction costs incurred when issuing new shares. In making a share issue, the company will incur costs such as stamp duties and taxes, fees of professional advisors and brokerage fees that are directly related to the issue. Under the Framework, they would appear to meet the definition of an expense, and should be included in the profit or loss. However, under AASB 132.35, they must instead be ‘accounted for as a deduction from equity’, the rationale being that they are then accounted for as part of the transaction to which they relate – the issue of the shares. This seems to be an application of substance over form; however here it is questionable if the substance is any different from the form; the potential shareholder is not a party to that transaction involving the transaction cost
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Week03_Practice_Question_Solutions - Week 3 Practice...

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