Financial Accounting 9th Edition

Hoggett Solutions Manual

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 Solutions Manual
to accompany

Financial Accounting
9e
by

John Hoggett
Lew Edwards
John Medlin
Keryn Chalmers
Andreas Hellmann
Claire Beattie
Jodie Maxfield

© John Wiley & Sons Australia, Ltd 2015

 Chapter 9: Companies: formation and operations

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CHAPTER 9
COMPANIES: FORMATION AND OPERATIONS

DISCUSSION QUESTIONS

SOLUTIONS

1. Two partners in a business are discussing the possibility of incorporating their business as a
proprietary company. Discuss the advantages and disadvantages that this move would
potentially bring to them. Briefly discuss the impact that the Corporations Act would have on
their decision.
• Advantages of forming a proprietary company are discussed at the beginning of this
chapter. Specific benefits for a proprietary company of the Corporations Act will depend
on whether the proprietary company is classified as large or small. If large, the company
will have more onerous reporting requirements, (as provided in accounting standards),
and the requirements for audit (assurance services) of the company’s accounts are also
more onerous.
The main advantages of incorporating a business as a proprietary company are:
a) limited liability of shareholders
b) the continuity of legal existence;
c) the easy transferability of shares;
d) potential tax benefits if personal income tax rates exceed company tax
rates.
Disadvantages are:
a) companies (including proprietary companies) are generally subject to greater
governmental regulation;

2. What is the difference between a small proprietary company, a large proprietary company
and a public company?

Public companies are those whose shares are widely held and traded through a securities
exchange. Proprietary companies are those whose shares are held by a few shareholders, often
members of the same family. A public company has a major advantage in that it is allowed to
invite the public to subscribe for any shares, debentures, notes or loans, and to have these
shares, debentures, etc. listed on the nation’s securities exchanges. A public company must
have ‘Limited’ or ‘Ltd’ at the end of its name; a proprietary company must have ‘Proprietary
Limited’ or ‘Pty Ltd’. A proprietary company must have a share capital whereas a public
company can also be limited by guarantee.
A small proprietary company is distinguished in the law from a large proprietary company if
it satisfies at least two of the following tests:
a) the consolidated operating revenue for the company and the entities it controls is less
than $25 million for the financial year
b) the value of consolidated gross assets at the end of the financial year is less than $12.5
million

© John Wiley & Sons Australia, Ltd 2015 9.1

Solutions manual to accompany Financial Accounting 9e by Hoggett et al

c) the company and the entities it controls have fewer than 50 full-time equivalent
employees at the end of the financial year.
3. What are the contents of an application form to register a company?

The contents of the application form are specified as follows:

• the type of company that is proposed to be registered under the Corporations Act
• the company’s proposed name (unless the ACN is to be used in its name)
• the name and address of each person who consents to become a member
• the given and family names, and the date and place of birth of each person who consents
in writing to become a director
• the given and family names, and the date and place of birth of each person who consents
in writing to become a company secretary
• the address of each person who consents in writing to become a director or company
secretary
• the address of the company’s proposed registered office
• for a public company — the proposed opening hours of its registered office
• the address of the company’s proposed principal place of business (if it is not the address
of the proposed registered office)
• for a company limited by shares or an unlimited company — the following:
(i) the number and class of shares each founding member agrees, in writing, to take
up
(ii) the amount each founding member agrees, in writing, to pay for each share
(iii) if that amount is not paid in full on registration, the amount each founding
member agrees in writing to be unpaid on each share.
• for a public company that is limited by shares or is an unlimited company, if shares will
be issued for a non-cash consideration — the prescribed particulars about the issue of the
shares, unless the shares are issued under a written contract and a copy of the contract is
lodged with the application
• for a company limited by guarantee — the proposed amount of the guarantee that each
member agrees to in writing.

If the company is to be a public company and is to have a constitution on registration, a

copy of the constitution must be lodged with the application. To register a company in
accordance with these requirements, all of the details above are to be provided on a single
prescribed application form.

4. ‘It is better for a company to have a constitution rather than rely on the replaceable rules in
the Act.’ Discuss.

▪ Discuss the basic contents of the replaceable rules under the law. For a guide to contents,
see Section 141 of the Corporations Act. Maybe these are satisfactory, as is expected
with most small companies, but in larger companies, more complex rules are desired, and
so a constitution becomes necessary.

5. Explain the purpose of each of the following accounts used in a public share issue:
Share Capital, Application, Cash Trust, Allotment, Call, Calls in Advance.

The Share Capital account is used to record the net amount called up on a company’s shares at
a point in time, less any share issue costs.
An Application account is used in public share floats where the public are asked to apply for
an allotment of shares in a company during a share issue. The Application account records
any monies paid in by applicants.

© John Wiley & Sons Australia, Ltd 2015 9.2

 Chapter 9: Companies: formation and operations

The Cash Trust account is used in public share floats to record money which must be held in
trust. This is the money received from applicants for shares prior to the shares being issued.
Any refunds to unsuccessful applicants is taken out of the Cash Trust account once shares are
allotted, and any remaining money can then be transferred to general cash to be used by the
company.
An Allotment account and a Call account are used in situations where a company issues
shares payable in instalments. The Allotment account records any amount receivable from
shareholders when shares are allotted to them. A Call account records any further amounts
receivable on shares from those shareholders who received an initial allotment.
The Calls in Advance account is used in those rare circumstances where a public issue of
shares by instalments has led to some applicants paying into the company not only the
application fees but also the allotment money and one or more future calls. The Calls in
Advance account is credited for these future calls received on application. The debit entry is
to the Application account. Calls in advance, which has many of the characteristics of a
liability, is nevertheless regarded as part of share capital in an entity’s balance sheet/statement
of financial position.

6. Distinguish between a private placement, a public share issue and a rights issue. Distinguish
also between a renounceable rights issue and a non-renounceable rights issue.

A private placement is an issue of shares to a large institutional investor. The main advantages
are speed, price and direction. The disadvantage is that existing shareholders experience a
dilution of their ownership as well as an ability to make a profit if there had been a rights
issue instead of a private placement.

A public share issue requires the issue of a disclosure document inviting the public to apply
for shares. Application money is held in trust until the directors allot shares to applicants.
Money paid in by unsuccessful applicants is refunded to them. An underwriter may be
appointed to ensure that the public share float is successful.

A rights issue is an issue of new shares to existing shareholders whereby they are given the
right to purchase additional shares in proportion to their current shareholdings. Usually the
issue price is set below the current market price of the company’s shares.
A renounceable rights issue allows the shareholder to take up the rights issue, let it lapse or
sell their rights on the securities exchange. A non-renounceable rights issue only allows the
shareholder to either take up the rights by subscribing for more shares, or reject the rights,
which mean that they lapse. The shareholders cannot sell the rights.

7. How should a company account for its start-up costs, and its share issue costs? How should a
company account for the fees paid to an underwriter?

Formation or start-up costs, which represent the legal and other costs of forming a company,
were traditionally treated as an asset and then systematically amortised over an arbitrary
period. However there are no future economic benefits to be gained from these costs and they
should be written off to expense (as per the requirements of AASB 138 Intangible Assets).

Share issue costs, including underwriter’s fees, are discussed in AASB 132 Financial
Instruments: Presentation, (paras. 35 and 37). The appropriate treatment is to regard these
costs as a reduction of the share capital being raised. The rationale for this treatment is that
the incurrence of share issue costs and the raising of capital are viewed as a single transaction
and as such, the increase in equity is the net amount the company receives from the issue of
shares.

© John Wiley & Sons Australia, Ltd 2015 9.3

Solutions manual to accompany Financial Accounting 9e by Hoggett et al

8. ‘Preference shares can offer security of dividends and other advantages over ordinary shares,
and are therefore the best equity to have in a company.’ Do you agree? Explain.
What is the motive for holding shares? If the motive is to take a greater risk with the potential
of achieving significant capital gains in share prices, and potentially higher dividends than the
fixed amount payable to preference shares, then ordinary shares are the better equity to hold.
Are the preference shares participating or not? Discuss the potential benefits of preference
shares being cumulative and participating, and the fact that certain preference shares may be
more akin to long-term debt, in which case they should be treated as liabilities rather than
equity.

9. A well-established company, which wanted to raise finance for expansion, decided to issue
some preference shares. The terms of the issue were that the shareholders did not have the
right to vote at meetings, but were entitled to dividends of 12 cents per share each year, on a
cumulative basis. Discuss the merits of issuing such shares. Where should they appear in the
company’s balance sheet? Explain your reasoning.
Such shares will place burdens on the ordinary shareholders, particularly if the expansion
program is unprofitable for a few years, as cumulative dividends must be paid on these shares
before any ordinary dividends are paid. Since the new preference shareholders do not have the
right to vote, perhaps they are more appropriately treated as a liability of the company, based
on the Framework’s liability definition (see previous chapters).This would be so particularly
if the preference shares are redeemable on a fixed future date. Treating the preference shares
as liabilities means that the dividends on these shares are to be regarded as an expense and
disclosed as part of the entity’s finance costs expense.

10. ‘A company must have made sufficient profits before it can pay dividends to its shareholders.’
Discuss.

As a result of changes in the Corporations Act in 2010, a company is no longer required to

have any profits in order to pay dividends. The requirements of the Act are that a company
must not pay a dividend unless:
(a) the company’s assets exceed its liabilities immediately before the dividend is declared and
the excess is sufficient for the payment of the dividend; and
(b) the payment of the dividend is fair and reasonable to the company’s shareholders as a
whole; and
(c) the payment of the dividend does not materially prejudice the company’s ability to pay its
creditors. The payment of a dividend is considered to materially prejudice the company’s
ability to pay its creditors if the company becomes insolvent as a result of the payment.
Assets and liabilities in (a) above are to be calculated in accordance with accounting standards
in force at the relevant time.
In essence, the Act now uses a solvency test for the payment of dividends as opposed to a
‘profits’ test in the past, which specified that dividends could only be paid out of ‘profits’.
Under the approach adopted in June 2010, it appears that dividends can be paid out of capital
as well as out of retained earnings or other reserves, so long as (a), (b) and (c) above are
satisfied.

© John Wiley & Sons Australia, Ltd 2015 9.4

 Chapter 9: Companies: formation and operations

EXERCISE SOLUTIONS

Exercise 9.1 Issue of shares payable in full

The directors of Dunedoo Ltd decided to issue 100 000 ordinary shares.

Required
A. Prepare journal entries (in general journal form) to record the issue of shares as a private
placement to Good Times Ltd for $15 per share payable in full.
B. Prepare journal entries (in general journal form) to record the issue of shares to the public at
$18 per share payable in full.

A.
Cash at Bank 1 500 000
Share Capital 1 500 000
Private placement of shares.

B.
Cash Trust 1 800 000
Application 1 800 000
Cash received on application.

Application 1 800 000

Share Capital 1 800 000
Issue of shares at $18.

Cash at Bank 1 800 000

Cash Trust 1 800 000
Transfer of cash.

© John Wiley & Sons Australia, Ltd 2015 9.5

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The Project Gutenberg eBook of Elegy in Autumn
 This ebook is for the use of anyone anywhere in the United
States and most other parts of the world at no cost and with
almost no restrictions whatsoever. You may copy it, give it away
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included with this ebook or online at www.gutenberg.org. If you
are not located in the United States, you will have to check the
laws of the country where you are located before using this
eBook.

Title: Elegy in Autumn

In memory of Frank Dempster Sherman

Author: Clinton Scollard

Release date: August 22, 2023 [eBook #71471]

Language: English

Original publication: New York: Frederick Fairchild Sherman,

1917

Credits: Charlene Taylor, David E. Brown, and the Online

Distributed Proofreading Team at https://www.pgdp.net
(This file was produced from images generously made
available by The Internet Archive/American Libraries.)

*** START OF THE PROJECT GUTENBERG EBOOK ELEGY IN

AUTUMN ***
ELEGY IN AUTUMN

IN MEMORY OF
Frank Dempster Sherman

BY
Clinton Scollard

new york
Frederic Fairchild Sherman
mcmxvii
Copyright, 1917, by
Clinton Scollard
ELEGY IN AUTUMN
 I
Brother in song, you who have gone before
Along far incommunicable ways,
Leaving me here upon this mortal shore,
A bondman to the tyrant nights and days,
Across the distance, hail!
Though Time may sever, and we meet no more,
Yet what shall Time avail!
 II
’Twas Autumn when we first set hand to hand,
And eye to eye, in loyal comradeship;
Drowsed with a draught of Beauty seemed the land,
As it had raised a golden cup to lip;
But you embodied Spring,
Its harvest hopes, its deeds in joyance planned,
Its brave adventuring.
 III
I can recall your buoyance,—can recall
The star-sown hours beneath the Cambridge trees,
When o’er us wheeled the bright processional
Of bold Orion and the Pleiades,
And how we strolled along
Laughterful, and oblivious to all
Save the sweet thrall of Song.
 IV
Youth has its visions and its fervors; yours
Were lovingly enlinked with Poesy;
You dreamed the dream that many an one allures,
The vernal dream where life is harmony.
And though the years estranged
Your full allegiance, something still assures
My heart you never changed.
 V
What merriment was ours those shut-in nights
When Winter, clamorous at the casement, cried!
What dear association, what delights
As we in friendly emulation vied,
While Aspiration’s cruse
Was brimmed for us, beholding on dim heights
The presence of the Muse!
 VI
And then there opened wider paths to tread
When Love, with Song, beguiled you on and on,
While Art around your feet unfaltering shed
Its luminous light, irradiant as the dawn;
Though you saw many part
From deities long worshipped, you were wed
Inalienably to Art.
 VII
What though the rigid chains of circumstance
Oft held you in the trammels of the town,
Your heart went woodward where the fairies dance
What time the moon its silvery sheen sifts down.
You loved the reeds and rills,
The sea, the shore, their glamour and romance,
And all the climbing hills.
 VIII
And when you made escape, and sensed the wild
Aromas beat about you, when you fared
By tracks unwonted, like an unleashed child
You gleefully your gay abandon shared.
Care from your shoulders thrown,
You seemed an Ariel spirit, long exiled,
Come back unto its own.
 IX
With gracious Memory again I go
To tread with you where meads are green and gold,
Where upland slopes are strewn with daisy-snow,
And bee-balm torches light the flocks to fold,
And willow branches wave
Above Oriskany, singing far below
Its liquid summer stave.
 X
Now south we sail where stormy currents meet
Round the wind-harassed cape of Hatteras,
Beyond whose beacons, when the tides retreat,
The wide sea-mirror is like burnished glass;
There, ’mid the drowsy calms,
As Ponce de Leon did of yore, we greet
The tall Floridian palms.
 XI
Here down the live-oak aisles ’tis ours to stray
With wraiths of many a stern conquistador,
Those vanished warriors of an elder day
When gray San Marco bore the brunt of war;
Here we in revery lean
Upon the ramparts beetling o’er the bay,
And watch the shifting scene;—
 XII
The boats that dip and dart like living things,
Seeking the open sea beyond the bar;
The graceful gulls with sunlight on their wings
Up the Matanzas soaring fleet and far
Where inlets deep beguile;
And o’er the waters undulant shimmerings
The low coquina isle.
 XIII
Then, at the drooping of the twilight hour,
We wander in the ancient plaza where
We breathe the attar of the jasmine flower
Like incense on the altar of the air;
And list, as music swells
Down drifting from the old cathedral tower,
The arpeggio of the bells.
 XIV
We linger by the sea-wall while the tide
Below us murmurs like a sad refrain,
Bearing from outer ocean reaches wide
The lore and legend of the Spanish main,
Nor leave that spot serene
Till Sleep, as with the mantle of the bride,
Wraps fair Saint Augustine.
 XV
Days dedicate to rapturous things were these;
It was as though Youth came again, and brought
Past aims, past ardors and past ecstasies,
And toward the shrine of Beauty turned our thought.
And there were after times
Of exultation, prismic harmonies,
When hours ran by in rhymes.
 XVI
Once, ’mid cathedral Carolinian pines,
We saw the Springtide, at its radiant birth,
Kindle to fragrant gold the coiling vines,
And make a garden of the wakened earth;
And every morning heard
Within the treetops, melody linked with mirth,
The hidden mocking-bird.
 XVII
And while the cardinal through the waving bredes
Of pendulous moss swift flitted like a flame,
Back flooded to our minds the illustrious deeds,
Emblazoned on the honor-scroll of Fame,
When Liberty was won,
Hearkening the Ashley whisper to its reeds
The name of Marion.
 XVIII
From Gloucester cliffs and brown Nantucket dunes
The mountains lured you, and the mountain star;
For us the Woodland sang its lyric runes
Where’er we followed it, or near or far,
In sun or shadow cool,
Or loitered through long languorous afternoons
By Dian’s darkling pool.
 XIX
Far up the valley Wittenberg’s vast form,
Its summit beckoning, with you I view,
And above sweeping slopes where wild bees swarm
Glimpse timid deer at dawn and fall of dew;
Through Panther Kill we roam,
And mark the purple streamers of the storm
Ascend behind the Dome.
 XX
And, too, in bookmen’s mines of dusty ore
Ever shall I remember how we delved,
Plucking from out the musty treasure-store
Rich rarities within the darkness shelved,
Elated if we found
Leaves that some name we long had honored bore
In frayed morocco bound.
 XXI
Thus, step by step, we trod adown the years,
Thus, side by side, with ne’er a break between;
We shared our laughter and we shared our tears,
Nor deemed inexorable Fate might intervene
To sever the strong cord
That bound us, Fate with its “abhorrèd shears,”
That is man’s over-lord.
 XXII
You that in Autumn came, in Autumn went;
How vain to say the mourning word! how vain
To beat the bars of that arbitrament
That metes to mortals pleasurement or pain!
How vain!—how vain!—and yet
We beat upon them, and we only gain
The poignance of regret!