Share capital represents the interest of shareholders in the company share capital Retained earnings Other reserves Key features of a corporation Separate legal existence Limited liability of shareholders Free transferability of ownership rights Perpetual existence Government regulation share capital is divided into number of units called shares which represent right of ownership Authorised capital is the number of shares that may be issued by company. Subscribed capital is number of shares taken by public paid up capital is amount of share capital received by the company. Par value or face value is the minimum amount that must be paid by
Share capital represents the interest of shareholders in the company share capital Retained earnings Other reserves Key features of a corporation Separate legal existence Limited liability of shareholders Free transferability of ownership rights Perpetual existence Government regulation share capital is divided into number of units called shares which represent right of ownership Authorised capital is the number of shares that may be issued by company. Subscribed capital is number of shares taken by public paid up capital is amount of share capital received by the company. Par value or face value is the minimum amount that must be paid by
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Share capital represents the interest of shareholders in the company share capital Retained earnings Other reserves Key features of a corporation Separate legal existence Limited liability of shareholders Free transferability of ownership rights Perpetual existence Government regulation share capital is divided into number of units called shares which represent right of ownership Authorised capital is the number of shares that may be issued by company. Subscribed capital is number of shares taken by public paid up capital is amount of share capital received by the company. Par value or face value is the minimum amount that must be paid by
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
shareholders in the company Share capital Retained earnings Other reserves Key features of a corporation
Separate legal existence
Limited liability of shareholders Free transferability of ownership rights Perpetual existence Common seal Professional management Government regulation Share Capital Capital stock is divided into number of units called shares which represent right of ownership Authorised capital which is the maximum number of shares that may be issued by company as specified in memorandum of association Issued capital is the number of shares issued by the company Subscribed capital is the number of shares taken by public Paid up capital is the amount of share capital received by the company Par value or face value is the minimum amount that must be paid by the shareholder Dividends Dividend is distribution of cash to shareholders. Paid by special cheque-Dividend Warrant Date of record -to determine the right of shareholder to receive dividend Cum-dividend and ex-dividend Accounting for dividend Assuming that on June 10 the BOD recommended a dividend of 10% on 40,000 shares of Rs.10 each.The shareholders declared the dividend at AGM on July18.The date of record was August 1.Dividend warrants were issued on August 10.
June10 Dividend 40,000
Proposed Dividend 40,000 July18 Proposed Dividend 40,000 Dividend Payable 40,000 August10 Dividend Payable 40,000 Cash 40,000 Accounting for Share Capital Par value/Face value stock and No-par stock Share premium-Any amount in excess of par value
X company issues 1000 shares for Rs.10 equity shares at
par. Cash 10,000 Equity share capital 10,000 If shares are issued at Rs.15 each Cash 10,000 Equity share capital 10,000 Share premium 5000 If 1000 shares are issued of no-par value at Rs.15 each Cash 15,000 Equity share capital 15,000 Receipt of Share Capital in Instalments The offer of shares to existing shareholders of a company in pursuance of the right of pre-emption is called rights issue.
X company issued 10,000 shares of Rs.10 each at par
payable as follows: Rs.3 with application,Rs.2 on allotment,and the balance when called.On April 3,the company received applications for 15,000 shares.On May 20,the company board allotted 10,000 shares and refunded the application money for remaining shares.The amounts payable on allotment were received on June 25.On August 7,the board made the first call for Rs.3 per share and the amounts were received on September 16.The second and final call was made on November 22 and the amounts were received on December 29.Assume that X company did not receive the amount on second call on 100 shares and the shares were forfeited on January 17. April 3 Cash 45,000 Share application and allotment 45,000
May 20 Share application and allotment 65,000
Equity share capital 50,000 Cash 15,000
June 25 Cash 20,000
Share application and allotment 20,000
Aug 7 First share call 30,000
Equity share capital 30,000
Sep 16 Cash 30,000
Share first call 30,000 Nov 22 Share second and final call 20,000 Equity share capital 20,000
Dec 29 Cash 20,000
Share second and final call 20,000
Jan 17 Equity share capital 1000
Shares second and final call 200 Shares forfeited 800 Preference Share Capital Preference over equity shareholders with respect to dividend payments and distribution of assets on liquidation Fixed rate of dividend Cumulative and non-cumulative preference shares Participating and non-participating preference shares Redeemable and non-redeemable preference shares Convertible and non-convertible preference shares Reserves Capital reserve is one that is not available for dividend payment.e.g.share premium and capital redemption reserves Revenue reserves arise from business operations and distributed as dividends.e.g.P/L account and general reserves Statutory reserves are created to comply with requirement of laws.e.g.investment allowance reserves and export profit reserves Realised reserves represent cash or other assets received in exchange transactions.e.g.Profit on sale of equipment Unrealised reserves are accounting entries without any exchange transactions.e.g.Revaluation reserves
Appropriation is the process of transfer of amounts from the
current P/L account to various reserve accounts such as general reserve,contingency reserve,dividend equalisation reserve and development reserve. Buy-Back of shares Companies are allowed to re-acquire their own shares Reasons: to avoid hostile takeover,to maintain favourable market price of shares,to be given to employees as bonuses,to reduce the share capital Act stipulates buyback shall not exceed 25% of paid-up capital and free reserves X company has 10,000 shares of Rs.10 each and a balance of Rs.50,000 in the share premium account.The company decides to buy back 200 shares at Rs.25 each. Equity share capital 2000 Share premium 3000 Cash 5000 Companies Act require transfer to capital redemption reserve account of a sum equal to nominal values of buy back shares Share premium 2000 Treasury stock Operations Treasury stock is company’s own share capital that was issued and reacquired by company as investment It may be equity or preference shares,held for any period of time,reissued or retired Dividends and voting rights are not there Excluded for calculation of EPS Purchase of treasury stock: X company purchases 1000 of its fully paid shares at Rs.22 per share Treasury stock 22,000 Cash 22,000 Reissuance of treasury stock: Reissued at cost,above cost or below cost X company sells 500 of the treasury shares purchased at Rs.22 for Rs.25 Cash 12,500 Treasury stock 11,000 Share premium,treasury stock 1,500 Bonus Shares Additional shares of a company’s share capital distributed to its shareholders without having to pay for them Also known as capitalisation of reserves Reasons:To avoid strain on cash by payment of dividend,to reduce the market price of shares by increasing the number of shares,to signal to shareholder’s their belief about company prospects Issued out of R.E. or other reserves(issued by capitalising share premium and P/L account) X company issues 1,00,000 shares of Rs.10 par value and has Rs.4,00,000 in share premium account,Rs.2,30,000 in revaluation reserve and Rs.2,50,000 in P/L account.BOD declares 50% bonus on August 10,distributable on September 30. Sept 30 Share premium,Equity 4,00,000 R.E.(or/L account) 1,00,000 Equity share capital 5,00,000 Stock split:it results in the increase in the number of share in the market but does not affect the shareholder’s equity Stock-based compensation:The employees receives shares of stock or stock options,or the employer incurs a liability to the employee in amounts based on the price of the employer’s stock A stock option plan gives the employees the right to acquire shares in future at less than market price It is used to attract,motivate and retain employees by fast-growing,knowledge-based companies that do not pay large salaries A minimum service period is required to be eligible for options EPS Important measure of corporate performance for shareholders and potential investors EPS= PAT/ Number of equity shares(only equity share capital) EPS= PAT-preference dividend/ Number of equity shares(equity and preference share capital) Issue and buy back of share: X issued 1,00,000 shares on April 1,2004and issued 50,000 shares on July 1,2004 and brought back 30,000 shares on March 31,2005 100000 X 3/12= 25,000 150000 X 6/12 =75,000 120000 X 3/12= 30,000 TOTAL =130000 EPS =500000/130000=Rs.3.85 Bonus issue and share split: X company issued 50% bonus issue on October 1,2005 and PAT for the year is 5,22,000 Total shares=2,40,000+1,20,000 =3,60,000 EPS = 5,22,000/3,60,000 = Rs.1.45
Diluted EPS : In companies having complex capital
structure that includes securities that may be converted into equity share capital.Examples of potentially dilutive securities include convertible preference shares,convertible debentures,options,and warrants. Assumption is that all potentially dilutive securities were converted into equity shares