Company Accounting Lecture Notes Oct 2024 PDF

**DIPLOMA IN ACCOUNTANCY** **CORPORATE REPORTING** **Lecture : Company Accounting** **Week commencing 21 Oct 2024** **LECTURE NOTES** 1. Bonus Issue - Reasons for Bonus Issue - Accounting for Bonus Issue 2. Rights Issue - Reasons for Rights Issue - Accounting for Rights Issue 3....

**DIPLOMA IN ACCOUNTANCY** **CORPORATE REPORTING** **Lecture : Company Accounting** **Week commencing 21 Oct 2024** **LECTURE NOTES** 1. Bonus Issue - Reasons for Bonus Issue - Accounting for Bonus Issue 2. Rights Issue - Reasons for Rights Issue - Accounting for Rights Issue 3. Share Split 4. Share Buy-Back - Reasons for Share buy-back - Characteristics of Treasury Shares - Accounting for Share Buy-Back 5\. Note to the Financial Statements -- Share Capital 6. Financial statements of companies - Statement of Comprehensive Income **BONUS ISSUE** =============== **1.1 REASONS FOR BONUS ISSUE** 1.1.1 Company's viewpoint: a. b. [\ ] c. d. 1.1.2 Shareholders' viewpoint: a. b. c. d. Issue of bonus shares is usually perceived positively by the investors trading on the stock market. This tends to create greater demand for the company\'s shares. In fact, historical records and trends indicate that share prices generally rise at the declaration of bonus shares. **\ ** **1.2 ACCOUNTING FOR BONUS ISSUE** ================================== +-----------------------------------+-----------------------------------+ | | \$ | +-----------------------------------+-----------------------------------+ | Net Assets (Total assets less | 300,000 | | liabilities) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Equity | | +-----------------------------------+-----------------------------------+ | Share Capital and Reserves | | +-----------------------------------+-----------------------------------+ | Issued and Paid-up Capital | | +-----------------------------------+-----------------------------------+ | **60,000 Ordinary shares** | **120,000** | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Reserves | | +-----------------------------------+-----------------------------------+ | **Dividend reserve** | **10,000** | +-----------------------------------+-----------------------------------+ | **General reserve** | **60,000** | +-----------------------------------+-----------------------------------+ | **Retained profit** | **110,000** | +-----------------------------------+-----------------------------------+ | Total Share Capital and Reserves | 300,000 | +-----------------------------------+-----------------------------------+ a. Calculate the number of new bonus shares to be issued. Determine the dollar value of the bonus share issue. b. Prepare journal entries to record the bonus share issue. c. Prepare an extract of the Statement of Financial Position for ABC Ltd after the bonus share issue. d. What will your journal entries for part (b) be if each bonus share is valued at \$4.00? +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | | \$ | +-----------------------------------+-----------------------------------+ | Net Assets (Total assets less | 300,000 | | liabilities) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Equity | | +-----------------------------------+-----------------------------------+ | Share Capital and Reserves | | +-----------------------------------+-----------------------------------+ | Issued and Paid-up Capital | | +-----------------------------------+-----------------------------------+ | 80,000 Ordinary shares (\$120,000 | 170,000 | | + \$100,000) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Reserves | | +-----------------------------------+-----------------------------------+ | **Dividend reserve** | **10,000** | +-----------------------------------+-----------------------------------+ | **General reserve** | 10,000 | +-----------------------------------+-----------------------------------+ | **Retained profit** | **110,000** | +-----------------------------------+-----------------------------------+ | Total Share Capital and Reserves | 300,000 | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ (To record issue of 20,000 bonus shares valued at \$4.00 each) **2. RIGHTS ISSUE** =================== **2.1 REASONS FOR RIGHTS ISSUE** a. The company needs funds and yet it does not want to issue shares via the conventional means as it does not want the proportion of the majority shareholdings to be diluted. This is because only existing shareholders are entitled to the rights issue according to the proportion of their existing shareholdings. b. This is a method of raising new long-term capital, at a much reduced cost compared to a fresh issue of shares. Rights issues are targeted only at existing shareholders of the company and therefore it is cheaper to administer and execute the process. **2.2 ACCOUNTING FOR RIGHTS ISSUE** =================================== ###### Illustrative Example 2 +-----------------------------------+-----------------------------------+ | | \$ | +-----------------------------------+-----------------------------------+ | Net Assets (Total assets less | 300,000 | | liabilities) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Equity | | +-----------------------------------+-----------------------------------+ | Share Capital and Reserves | | +-----------------------------------+-----------------------------------+ | Issued and Paid-up Capital | | +-----------------------------------+-----------------------------------+ | **60,000 Ordinary shares** | **120,000** | +-----------------------------------+-----------------------------------+ | Reserves | | +-----------------------------------+-----------------------------------+ | **Dividend reserve** | **10,000** | +-----------------------------------+-----------------------------------+ | **General reserve** | **60,000** | +-----------------------------------+-----------------------------------+ | **Retained profit** | **110,000** | +-----------------------------------+-----------------------------------+ | Total Share Capital and Reserves | 300,000 | +-----------------------------------+-----------------------------------+ a. Calculate the number of ordinary shares to be issued. Determine the dollar value of the rights issue. b. Prepare journal entries to record the rights issue. Assume rights are fully subscribed. c. Prepare an extract of the Statement of Financial Position for DEF Ltd after the rights issue exercise. +-----------------------------------+-----------------------------------+ | | \$ | +-----------------------------------+-----------------------------------+ | Net Assets (Total assets less | 318,000 | | liabilities) | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Equity | | +-----------------------------------+-----------------------------------+ | Share Capital and Reserves | | +-----------------------------------+-----------------------------------+ | Issued and Paid-up Capital | | +-----------------------------------+-----------------------------------+ | **72,000 Ordinary shares | **138,000** | | (\$120,000 + \$18,000)** | | +-----------------------------------+-----------------------------------+ | | | +-----------------------------------+-----------------------------------+ | Reserves | | +-----------------------------------+-----------------------------------+ | **Dividend reserve** | **10,000** | +-----------------------------------+-----------------------------------+ | **General reserve** | **60,000** | +-----------------------------------+-----------------------------------+ | **Retained profit** | **110,000** | +-----------------------------------+-----------------------------------+ | Total Share Capital and Reserves | 318,000 | +-----------------------------------+-----------------------------------+ **3. SHARE SPLIT** ================== **4. SHARE BUY-BACK** ===================== **\ ** \(iii) Not to be included in the computation of outstanding shares. **4.1 REASONS FOR SHARE BUY-BACK** a. b. c. Return excess cash to shareholders in an expedient and cost-efficient manner. As share buy-backs are targeted at existing shareholders of the company, there is no need to spend large amount of resources to carry out share buy-back exercise. d. Increase "Return on Equity" (ROE) and "Earnings Per Share" (EPS) through the decrease in number of shares and reduction in the value of share capital. e. **4.2 Illustrative Example 3** ------------------------------------------------ ---------------------- ------------- \$ \$ **Net Assets (Total Assets less Liabilities)** **320,000** [Shareholders Equity (Extract)] [Share Capital and Reserves] [Issued and Paid-up Capital] 50,000 Ordinary shares 100,000 10,000 Non-redeemable preference shares [20,000] 120,000 [Reserves] Dividend reserve 10,000 General reserve 60,000 Retained profits 130,000 200,000 **Total Share Capital and Reserves** **320,000** ------------------------------------------------ ---------------------- ------------- a. Assume SIQ Ltd bought back 2,000 of its ordinary shares at \$1.50 per share. The re-purchased shares are to be [cancelled immediately]. Prepare journal entries to record this transaction. Prepare an extract of the Statement of Financial Position for SIQ Ltd after the share buy-back exercise. b. Assume SIQ Ltd bought back 2,000 of its ordinary shares at \$1.50 per share. The re-purchased shares are to be [held as treasury shares]. Prepare journal entries to record this transaction. Prepare an extract of the Statement of Financial Position for SIQ Ltd after the share buy-back exercise. c. Assume that on 31 January 20X5, SIQ Ltd sold the 2,000 treasury shares in (b) at \$2.50 per share. Prepare journal entries to record this transaction. Prepare an extract of the Statement of Financial Position for SIQ Ltd after this exercise. a. ------------------------------------------------ ---------------------- ------------- \$ \$ **Net Assets (Total Assets less Liabilities)** **317,000** [Shareholders Equity (Extract)] [Share Capital and Reserves] [Issued and Paid-up Capital] 48,000 Ordinary shares (\$100,000 - \$3,000) 97,000 10,000 Non-redeemable preference shares [20,000] 117,000 [Reserves] Dividend reserve 10,000 General reserve 60,000 Retained profits 130,000 200,000 **Total Share Capital and Reserves** **317,000** ------------------------------------------------ ---------------------- ------------- b. --------------------------------------------- ----------------------- ------------- \$ \$ **Total Assets less Liabilities** **317,000** [Shareholders Equity (Extract)] [Share Capital and Reserves] [Issued and Paid-up Capital] 50,000 Ordinary shares 100,000 10,000 Non-redeemable preference shares 20,000 2,000 Treasury shares [(3,000)] 117,000 [Reserves] Dividend reserve 10,000 General reserve 60,000 Retained profits 130,000 200,000 **Total Share Capital and Reserves** **317,000** --------------------------------------------- ----------------------- ------------- ------------------------------------------------ ---------------------- ------------- \$ \$ **Net Assets (Total Assets less Liabilities)** **322,000** (\$317,000 + \$5,000) [Shareholders Equity (Extract)] [Share Capital and Reserves] [Issued and Paid-up Capital] 50,000 Ordinary shares 100,000 10,000 Non-redeemable preference shares [20,000] 120,000 [Reserves] Capital reserve - reissue of treasury shares 2,000 Dividend reserve 10,000 General reserve 60,000 Retained profits 130,000 202,000 **Total Share Capital and Reserves** **322,000** ------------------------------------------------ ---------------------- ------------- 5. **NOTES TO FINANCIAL STATEMENTS** **5.1 Function of Disclosure Notes** - - - - - - - indicated as first sentence in the Notes to the Financial Statements: **5.2 Share Capital Note** - Details of different [classes] of shares e.g. ordinary shares, non-redeemable preference shares, treasury shares. - Issued and paid-up share capital: [number] of shares issued and paid up for each class of shares. - Show the movement of the shares from the beginning of the period to the end of the period and [comment] on the changes (if any). 3. **Illustrative Example 4** Assume LMN Ltd has 100,000 ordinary shares amounting to \$120,000 at the beginning of the year. During the year, LMN issued additional ordinary shares of 200,000 shares at \$1.50 per share to raise funds for business expansion. The shares were fully subscribed and paid up. Prepare the note to financial statement for share capital. **[Solution:]** **Share Capital**     --------------------------------------------------------- ----------------------------- ------------------- **[Issued and fully paid ordinary shares]**     ** ** [No. of Shares] [\$ ] As at 1 January 20X5 100,000 120,000 Issue of shares 200,000 300,000 As at 31 December 20X5 300,000 420,000 **\ ** **5.** **FINANCIAL STATEMENTS OF COMPANIES** ============================================ **- Statement of profit or loss and other comprehensive income (SPLOCI)** ========================================================================= {#section-14} Items that [may be reclassified] subsequently to profit or loss: 1. 3. i. **in a single statement of comprehensive income, or** ii. **in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).** +-----------------+-----------------+-----------------+-----------------+ | **XYZ Pte Ltd** | | | | +-----------------+-----------------+-----------------+-----------------+ | **Statement of | | | | | Comprehensive | | | | | Income for the | | | | | year ended | | | | |.......** | | | | +-----------------+-----------------+-----------------+-----------------+ |   | \$ |  \$ | \$ | +-----------------+-----------------+-----------------+-----------------+ | **Sales** | | | XXXXX | +-----------------+-----------------+-----------------+-----------------+ | Less: Cost of | | | [(XXXXX)]{.unde | | goods sold | | | rline} | +-----------------+-----------------+-----------------+-----------------+ | **Gross |   |   | **XXXXX** | | Profit** | | | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | Add: Other | | | | | income | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX |   |   | [XXXXX]{.underl | | | | | ine} | +-----------------+-----------------+-----------------+-----------------+ |   |   |   | XXXXX | +-----------------+-----------------+-----------------+-----------------+ | Less: Expenses | | |   | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **[Distribution | | | | | costs]{.underli | | | | | ne}** | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | | (XXXXX) |   | +-----------------+-----------------+-----------------+-----------------+ |   |   |   |   | +-----------------+-----------------+-----------------+-----------------+ | **[Administrati | | |   | | ve | | | | | costs]{.underli | | | | | ne}** | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | (XXXXX) | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | (XXXXX) | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | [(XXXXX)]{.unde | (XXXXX) | | | | rline} | | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **[Finance | | | | | costs]{.underli | | | | | ne}** | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | | (XXXXX) | [(XXXXX)]{.unde | | | | | rline} | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **Net Profit | | | [XXXXX]{.underl | | Before Tax** | | | ine} | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | Less: Income |   |   |   | | tax expenses | | | | +-----------------+-----------------+-----------------+-----------------+ | - Current | | (XXXXX) |   | | year's tax | | | | +-----------------+-----------------+-----------------+-----------------+ | - Adjustment | [ ] | [XXXXX]{.underl | [(XXXXX)]{.unde | | of prior | | ine} | rline} | | years' tax | | | | +-----------------+-----------------+-----------------+-----------------+ | **Net Profit / | ** ** | ** ** | [XXXXX]{.underl | | (Loss) For The | | | ine} | | Year** | | | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | **Other | | | | | comprehensive | | | | | income:** | | | | +-----------------+-----------------+-----------------+-----------------+ | Items that may | | | | | be reclassified | | | | | subsequently to | | | | | profit or loss: | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | | **XXXXX** | | +-----------------+-----------------+-----------------+-----------------+ | | | | | +-----------------+-----------------+-----------------+-----------------+ | Items that will | | | | | not be | | | | | reclassified | | | | | subsequently to | | | | | profit or loss: | | | | +-----------------+-----------------+-----------------+-----------------+ | XXXXXXXXXX | | [XXXXX]{.underl | | | | | ine} | | +-----------------+-----------------+-----------------+-----------------+ | **Other | | | [XXXXX]{.underl | | comprehensive | | | ine} | | income for the | | | | | year** | | | | +-----------------+-----------------+-----------------+-----------------+ | **Total | | | **[XXXXX]{.unde | | comprehensive | | | rline}** | | income for the | | | | | year** | | | | +-----------------+-----------------+-----------------+-----------------+ {#section-15} **THe End**