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Equity: Tifani Danisa 17812144012 M. Ikhsan Siregar 178121440
Equity: Tifani Danisa 17812144012 M. Ikhsan Siregar 178121440
Equity
Corporate Preference
Equity
Form Shares
– Corporate Law - Issuance Of Share - Features
– Share System - Reacquisition Of Shares - Accounting for
– Variety Of Ownership and Reporting of
Interest Preference Shares
The Corporate Form
Organization
– Three main forms of business organization
– To show the required information for issuance of par value shares, corporations
maintain accounts for each class of shares as follows.
1. Preference Shares or Ordinary Shares. Together, these two share accounts
reflect the par value of the corporation’s issued shares. The company credits
these accounts when it originally issues the shares. It makes no additional
entries in these accounts unless it issues additional shares or retires them.
2. Share Premium. The Share Premium account indicates any excess over par
value paid in by shareholders in return for the shares issued to them.
No-Par Shares
– Ravonette Corporation issued 300 shares of $10 par value ordinary shares and
100 shares of $50 par value preference shares for a lump sum of $13,500. The
ordinary shares have a market price of $20 per share, and the preference shares
have a market price of $90 per share.
Number Amount Total
Ordinary shares 300 X $20 $6.000 (40%)
Preference shares 100 X $90 $9.000 (60%)
Fair Market Value 15.000 (100%)
Allocation: Ordinary Preference
Issue price $13.500 $13.500
Ordinary 40% 60%
Total $5.400 $8.100
Journal
– Cash 13.500
Share Capital - Preference (100 X $50) 5.000
Share Premium - Preference 3.100
Share Capital – Ordinary (300 X 10 $) 3.000
Share Premium – Ordinary 2.400
Incremental Method
– Ravonette Corporation issued 300 shares of $10 par value ordinary shares and
100 shares of $50 par value preference shares for a lump sum of $13,500. The
ordinary shares have a market price of $20 per share, and the preference shares
no have a market price .
Number Amount Total
Ordinary shares 300 X $20 $6.000
Preference shares 100 X- -
Fair Market Value $6.000
Allocation: Ordinary Preference
Issue price $13.500
Ordinary 6000 (6000)
Total $6000 $7.500
Journal
– Cash 13.500
Share Capital - Preference (100 X $50) 5.000
Share Premium - Preference 2.500
Share Capital - Ordinary (300 X 10 $) 3.000
Share Premium - Ordinary 3.000
Shares Issued in Non-Cash
Transactions
– Accounting for the issuance of shares for property or services involves an issue of valuation. The general rule is companies should record shares issued for services or
property other than cash at the fair value of the goods or services received, unless that fair value cannot be measured reliably. If the fair value of the goods or
services cannot be measured reliably, use the fair value of the shares issued.
– Marlowe cannot readily determine the fair value of the patent, but it knows the fair value of the
shares is €140,000.
Patents 140,000
Share Capital—Ordinary (10,000 shares 3
€10 per share) 100,000
Share Premium—Ordinary 40,000
– Marlowe cannot readily determine the fair value of the shares, but it determines the fair value of
the patent is €150,000.
Patents 150,000
Share Capital—Ordinary (10,000 shares 3
€10 per share) 100,000
Share Premium—Ordinary 50,000
– Marlowe cannot readily determine the fair value of the shares nor the fair value of the patent. An
independent consultant values the patent at €125,000 based on discounted expected cash flows.
Patents 125,000
Share Capital—Ordinary (10,000 shares 3
€10 per share) 100,000
Share Premium—Ordinary 25,000
Costs of Issuing Shares
– Companies often buy back their own shares. Corporations purchase their
outstanding shares for several reasons:
1. To provide tax-efficient distributions of excess cash to shareholders.
2. To increase earnings per share and return on equity.
3. To provide shares for employee compensation contracts or to meet potential
merger needs.
4. To thwart takeover attempts or to reduce the number of shareholders.
5. To make a market in the shares.
Purchase of Treasury Shares
– The following features are those most often associated with preference share
issues.
1. Preference as to dividends.
2. Preference as to assets in the event of liquidation.
3. Convertible into ordinary shares.
4. Callable at the option of the corporation.
5. Non-voting.
Features of Preference
Shares
1. Cumulative Preference Shares
2. Participating Preference Shares
3. Convertible Preference Shares
4. Callable Preference Shares
5. Redeemable Preference Shares
Accounting for and Reporting of
Preference Shares
– To illustrate, assume that Bishop Co. issues 10,000 shares of £10 par value
preference shares for £12 cash per share. Bishop records the issuance as
follows.
Cash 120,000
Share Capital—Preference 100,000
Share Premium—Preference 20,000
Thank You