Module 1 – Introduction to

Shareholders’ Equity
Learning Outcomes
• Understand that the equity of an organisation can consist of several
different accounts
• Understand that within equity there can be various classes of shares,
each providing different rights to holders
• Be able to provide the journal entries to recognise the issue of both
fully paid and partly paid shares by a company
Equity as a residual claim on net assets
• What is equity?
• The Conceptual Framework defines equity as:
• the residual interest in the assets of the entity after deducting all of its liabilities

• What are Shareholders’ funds?

• What makes up total owners’ equity?

Retained earnings
• Retained earnings often makes up a significant proportion of
shareholders’ funds
Accounting for the issue of share capital
• Share capital
• Balance of owners’ equity within a company comprising the capital contributions made by
owners
• When shares are issued then the amount received from the issue is added to ‘share capital’
Accounting for the issue of share capital
(cont.)
• To recognise receipt of application monies
Debit Bank trust
Credit Application
Accounting for the issue of share capital
(cont.)
• To recognise the issue of shares and to close application account
Debit Application
Credit Share capital
Accounting for the issue of share capital
(cont.)
• To transfer cash from trust account to general operating bank account

Debit Cash at bank

Credit Bank trust
Partly paid shares
• A company might issue shares on an instalment basis

• What needs to be done?

• Call accounts
• which are amounts receivable in the future for the shares, meet
the AASB Framework definition of an asset.
Issue of shares other than for cash
• Where shares are to be issued for a consideration other than cash,
the fair value of the consideration for the issue must be determined
• Fair value is defined in the accounting standards as ‘the amount for
which an asset can be exchanged between knowledgeable, willing
parties in an arm’s length transaction’
Now…
• Refer to the next Podcast
Worked Example: Issue of Partly Paid Shares