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– LECTURER LECTURER Noel BrownNoel Brown

– ROOM ROOM L418L418

– E-mail brownn@usq.edu.auE-mail brownn@usq.edu.au

– Phone 07 46 311264 Phone 07 46 311264

– TUTORTUTOR

Mrs Debra JankeMrs Debra Janke

Unit 51115/52115Unit 51115/52115 Company/Corporate AccountingCompany/Corporate Accounting

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Introduction to CompaniesIntroduction to Companies

Module 1Module 1–Leo & Hoggett- Chaps 1, 2 & 3Leo & Hoggett- Chaps 1, 2 & 3

(refer to the study guide as to the required (refer to the study guide as to the required reading)reading)

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ObjectivesObjectives1. Complete the entries for the formation of a company, forfeiture & re-issue of shares

2. Differentiate between different types of shares

3. Account for movement in reserve accounts and account for provisions & payment of Dividend

4. Prepare financial statements for managers

1. Complete the entries for the formation of a company, forfeiture & re-issue of shares

2. Differentiate between different types of shares

3. Account for movement in reserve accounts and account for provisions & payment of Dividend

4. Prepare financial statements for managers

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Corporate FormCorporate Form

The corporate form arose during the The corporate form arose during the industrial revolution where large sums industrial revolution where large sums of money were required to purchase of money were required to purchase machinerymachinery

Individuals contributed small amounts Individuals contributed small amounts which resulted in large totals which resulted in large totals contributed to companiescontributed to companies

Highly successful - today companies Highly successful - today companies are economically & financially are economically & financially successful - examples ??successful - examples ??

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Limited liabilityLimited liability

The feature of companies limited liabilityThe feature of companies limited liability

– shareholders liable for unpaid amount on shareholders liable for unpaid amount on their sharestheir shares

Compare with partnerships & sole traders Compare with partnerships & sole traders where each partner joint & severally liablewhere each partner joint & severally liable

Advantages over partnerships & sole tradersAdvantages over partnerships & sole traders

– Limited liabilityLimited liability

– perpetuity ie continued existenceperpetuity ie continued existence

–members can sell their sharesmembers can sell their shares

– raise large amounts of moneyraise large amounts of money

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Corporate legislationCorporate legislation

Companies formed, administered and Companies formed, administered and wound up by Corporations Act 1989 wound up by Corporations Act 1989 which includes the Corporations Law which includes the Corporations Law

The law is administered by the The law is administered by the Australian Securities & Investments Australian Securities & Investments Commission (ASIC)Commission (ASIC)

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Accounting standard settingAccounting standard setting

Under corporations law the companies must Under corporations law the companies must comply with standards as set by AASBcomply with standards as set by AASB

AASBAASB– Australian Accounting Standards Board - reports to the FRC Australian Accounting Standards Board - reports to the FRC

(Financial Reporting Council)(Financial Reporting Council)

– functions to make accounting standards for Corporations functions to make accounting standards for Corporations LawLaw

UIGUIG– Urgent issues group reports to AASB its role is to make Urgent issues group reports to AASB its role is to make

decisions on existing accounting standardsdecisions on existing accounting standards

ASXASX– Australian Stock ExchangeAustralian Stock Exchange

– sets requirements for listed companiessets requirements for listed companies

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Different CompaniesDifferent Companies 2 types of Companies - 2 types of Companies -

– registered as per Corporations Lawregistered as per Corporations Law

Proprietary companiesProprietary companies– limited by shareslimited by shares

– unlimited with a share capitalunlimited with a share capital

Public CompaniesPublic Companies– limited by shareslimited by shares

– limited by guaranteelimited by guarantee

– unlimitedunlimited

– no-liabilityno-liability

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Proprietary CompaniesProprietary Companies Classified as either large or SmallClassified as either large or Small test for small (meet 2)test for small (meet 2)

– revenue < $10 mrevenue < $10 m

– assets < $5 massets < $5 m

– < than 50 employees< than 50 employees

Small company does not have to Small company does not have to prepare accounts unless requestedprepare accounts unless requested

Large companies must prepare in Large companies must prepare in accordance with accounting standardsaccordance with accounting standards– lodge with ASIClodge with ASIC

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Public CompaniesPublic Companies

A company that is NOT a proprietary A company that is NOT a proprietary companycompany

Normally ownership largeNormally ownership large additional rules includeadditional rules include

– appointment of auditorappointment of auditor

– preparation of financial statement in accordance preparation of financial statement in accordance with accounting standardswith accounting standards

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Administering a companyAdministering a company

this is left to the DIRECTORS who manage the this is left to the DIRECTORS who manage the company on behalf of the shareholderscompany on behalf of the shareholders

the law requires the keeping of registers and the law requires the keeping of registers and records egrecords eg

1. Minute Book1. Minute Book

2. Financial Records2. Financial Records

3. Registers of Members3. Registers of Members

4. Registers of Debenture Holders4. Registers of Debenture Holders

5. Registers of charges5. Registers of charges

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Companies have to furnishCompanies have to furnish

Annual ReturnsAnnual Returns Financial StatementsFinancial Statements Director’s Report Director’s Report Auditor’s ReportAuditor’s Report

shareholders (owners)

directors (prepare accounts)

auditors (check accounts)

shareholders (owners)

directors (prepare accounts)

auditors (check accounts)

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Funding a companyFunding a company Shares (equity)Shares (equity) Debentures (borrowings- liability)Debentures (borrowings- liability)

different types of sharesdifferent types of shares OrdinaryOrdinary PreferencePreference Redeemable preference (debt/equity?)Redeemable preference (debt/equity?)

– AASB 1034 para 8.2 if exhibit characteristics of liabilities then AASB 1034 para 8.2 if exhibit characteristics of liabilities then record as Liabilitiesrecord as Liabilities

OptionsOptions

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CompaniesCompanies

Accounting for share issueAccounting for share issue Forfeiture of sharesForfeiture of shares Reissue of sharesReissue of shares ReservesReserves DividendsDividends

TEXT CHAPS 1& 2

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the receipt Applications closed on 1 August x1 with the receipt by the company of $76,000 for 76 000 shares. The by the company of $76,000 for 76 000 shares. The shares were allotted on 15 August, with the $1 000 shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the oversubscription being refunded to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 August.All allotment monies received by 31 August.

A call of $1 was made on 1 August 19x3. All call A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the Applications closed on 1 August x1 with the receipt receipt by the company of $76,000 for 76 000 sharesby the company of $76,000 for 76 000 shares. The . The shares were allotted on 15 August, with the $1 000 shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the oversubscription being refunded to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 August.All allotment monies received by 31 August.

A call of $1 was made on 1 August 19x3. All call A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

Receipt Of Cash

Dr Cash Trust 76,000 Cr Application 76.000

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the receipt Applications closed on 1 August x1 with the receipt by the company of $76,000 for 76 000 shares. The by the company of $76,000 for 76 000 shares. The shares were allotted on 15 August, with the shares were allotted on 15 August, with the $1 000 $1 000 oversubscription being refundedoversubscription being refunded to the to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 August.All allotment monies received by 31 August.

A call of $1 was made on 1 August 19x3. All call A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

Receipt Of Cash

Dr Cash Trust 76,000 Cr Application 76.000 Return Oversubscription

Dr Application 1,000 Cr Cash Trust 1,000

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the receipt Applications closed on 1 August x1 with the receipt by the company of $76,000 for 76 000 shares. The by the company of $76,000 for 76 000 shares. The shares were allotted on 15 August, with the shares were allotted on 15 August, with the $1 000 $1 000 oversubscription being refundedoversubscription being refunded to the to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 August.All allotment monies received by 31 August.

A call of $1 was made on 1 August 19x3. All call A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

Receipt Of Cash

Dr Cash Trust 76,000 Cr Application 76.000 Return Oversubscription

Dr Application 1,000 Cr Cash Trust 1,000

Dr Bank 75,000 Cr Cash Trust 75,000

Dr Application 75,000 Cr Share Capital 75,000

Dr Bank 75,000 Cr Cash Trust 75,000

Dr Application 75,000 Cr Share Capital 75,000

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the receipt Applications closed on 1 August x1 with the receipt by the company of $76,000 for 76 000 shares. The by the company of $76,000 for 76 000 shares. The shares were allotted on 15 August, with the $1 000 shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the oversubscription being refunded to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 AugustAll allotment monies received by 31 August..

A call of $1 was made on 1 August 19x3. All call A call of $1 was made on 1 August 19x3. All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

Receipt Of Allotment

Dr Allotment 75,000 Cr Share Capital 75,000

Dr Bank 75,000 Cr Allotment 75,000

Receipt Of Allotment

Dr Allotment 75,000 Cr Share Capital 75,000

Dr Bank 75,000 Cr Allotment 75,000

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Example ALPHA LTDExample ALPHA LTD

Alpha Ltd was incorporated on 1 July x1. On this day Alpha Ltd was incorporated on 1 July x1. On this day a prospectus was issued calling for applications for a prospectus was issued calling for applications for 75,000 shares at an issue price of $3. The shares 75,000 shares at an issue price of $3. The shares were payable $1 on application and $1 on allotment were payable $1 on application and $1 on allotment the balance in two years’ time.the balance in two years’ time.

Applications closed on 1 August x1 with the receipt Applications closed on 1 August x1 with the receipt by the company of $76,000 for 76 000 shares. The by the company of $76,000 for 76 000 shares. The shares were allotted on 15 August, with the $1 000 shares were allotted on 15 August, with the $1 000 oversubscription being refunded to the oversubscription being refunded to the unsuccessful shareholders.unsuccessful shareholders.

All allotment monies received by 31 August.All allotment monies received by 31 August.

A call of $1 was made on 1 August 19x3A call of $1 was made on 1 August 19x3. . All call All call money except that payable on 2,000 shares was money except that payable on 2,000 shares was received by 30 September except that payable on received by 30 September except that payable on 2,000 shares2,000 shares

Call

Dr Call 75,000 Cr Share Capital 75,000

Dr Bank 73,000 Cr Call 73,000

Call

Dr Call 75,000 Cr Share Capital 75,000

Dr Bank 73,000 Cr Call 73,000

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ALPHA LTD BALANCE SHEET AS AT XX/XX/XX

SHARE CAPITAL & RESERVESSHARE CAPITAL 75,000 SHARES called to $3 225,000 LESS- CALLS IN ARREARS 2,000 2,000 Shares @ $1 ------------ 223,000

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Other IssuesOther Issues OversubscriptionOversubscription

- Common for power to be given to the - Common for power to be given to the directors to use excess money towards directors to use excess money towards future allotment or call moniesfuture allotment or call moniesDr ApplicationDr Application

CR AllotmentCR Allotment

CR Call AccountCR Call Account

- Otherwise money refunded to the - Otherwise money refunded to the shareholders- as per previous exampleshareholders- as per previous exampleDR ApplicationDR Application

CR Cash TrustCR Cash Trust

OversubscriptionOversubscription

- Common for power to be given to the - Common for power to be given to the directors to use excess money towards directors to use excess money towards future allotment or call moniesfuture allotment or call moniesDr ApplicationDr Application

CR AllotmentCR Allotment

CR Call AccountCR Call Account

- Otherwise money refunded to the - Otherwise money refunded to the shareholders- as per previous exampleshareholders- as per previous exampleDR ApplicationDR Application

CR Cash TrustCR Cash Trust

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Other IssuesOther Issues UndersubscriptionUndersubscription–Where applications received for fewer than Where applications received for fewer than

the number of shares offered to the publicthe number of shares offered to the public

11. . Cancel the offerCancel the offer– AND refund money to shareholdersAND refund money to shareholders

2. Where allowed to offer less than the 2. Where allowed to offer less than the original numberoriginal number– Allot only the number applied forAllot only the number applied for

3. If issue underwritten3. If issue underwritten– Allotment the balance of the number of shares to Allotment the balance of the number of shares to

the underwriter (Payment may be deducted from fee the underwriter (Payment may be deducted from fee owing)owing)

UndersubscriptionUndersubscription–Where applications received for fewer than Where applications received for fewer than

the number of shares offered to the publicthe number of shares offered to the public

11. . Cancel the offerCancel the offer– AND refund money to shareholdersAND refund money to shareholders

2. Where allowed to offer less than the 2. Where allowed to offer less than the original numberoriginal number– Allot only the number applied forAllot only the number applied for

3. If issue underwritten3. If issue underwritten– Allotment the balance of the number of shares to Allotment the balance of the number of shares to

the underwriter (Payment may be deducted from fee the underwriter (Payment may be deducted from fee owing)owing)

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CompaniesCompanies

Accounting for share issueAccounting for share issue Forfeiture of sharesForfeiture of shares Reissue of sharesReissue of shares ReservesReserves DividendsDividends

TEXT CHAPS 1& 2

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Entry for forfeitureEntry for forfeiture

DR Share CapitalDR Share Capital

CR Call AccountCR Call Account

CR Forfeited Shares ReserveCR Forfeited Shares Reserve

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Example GAMMA LTDExample GAMMA LTDGamma Ltd’s Capital consists of 10,000 shares Gamma Ltd’s Capital consists of 10,000 shares

issued at $1 paid to 50c. On 1 November the issued at $1 paid to 50c. On 1 November the company made a call of 25c per share company made a call of 25c per share payable 18 November. At that date all payable 18 November. At that date all shareholders had paid the call except the shareholders had paid the call except the holders of 2,000 shares. On 18 December holders of 2,000 shares. On 18 December Gamma Ltd decided to forfeit the shares on Gamma Ltd decided to forfeit the shares on which the call was unpaid.which the call was unpaid.

Dr Share Capital 1,500 (2000*75c)Dr Share Capital 1,500 (2000*75c)

CR Call (2000*25c) 500CR Call (2000*25c) 500

CR F.S.R (2000*50c) 1,000CR F.S.R (2000*50c) 1,000

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CompaniesCompanies

Accounting for share issueAccounting for share issue Forfeiture of sharesForfeiture of shares Reissue of sharesReissue of shares ReservesReserves DividendsDividends

TEXT CHAPS 1& 2

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Dr Cash At Bank (Cash Received)Dr Cash At Bank (Cash Received)

Dr F.S.R. (Amt Lost)Dr F.S.R. (Amt Lost)

Cr Share Capital (Amt Called On Shares)Cr Share Capital (Amt Called On Shares)

Assume the 2,000 shares of Gamma Ltd are sold for 40c Assume the 2,000 shares of Gamma Ltd are sold for 40c the shares being credited as paid to 75c expenses $200 the shares being credited as paid to 75c expenses $200 (NB: remember previously paid $1,000 )(NB: remember previously paid $1,000 )

Dr Cash 800 (2000*40c)Dr Cash 800 (2000*40c)

Dr F.S.R . 700 Dr F.S.R . 700

Cr Share Capital 1,500 (2000*75c)Cr Share Capital 1,500 (2000*75c)

(reissue of shares)(reissue of shares)

Dr FSR 200Dr FSR 200

Cr Cash 200Cr Cash 200

(expense of reissue)(expense of reissue)

Dr F.S.R. 100Dr F.S.R. 100

Cr Cash 100 Cr Cash 100

(money returned to defaulting shareholder)(money returned to defaulting shareholder)

REISSUE OF SHARES

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CompaniesCompanies

Accounting for share issueAccounting for share issue Forfeiture of sharesForfeiture of shares Reissue of sharesReissue of shares ReservesReserves DividendsDividends

TEXT CHAPS 1& 2

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ReservesReservesReserves are appropriations of profitsReserves are appropriations of profits

examples:-examples:-

Retained ProfitsRetained Profits

Asset Revaluation Reserve *Asset Revaluation Reserve *

Foreign Currency Translation Reserve *Foreign Currency Translation Reserve *

* covered in a later topic* covered in a later topic

Provisions are NOT reserves - Provisions are NOT reserves -

Earmark of future funds against current profits Earmark of future funds against current profits egeg

Provision for Doubtful DebtsProvision for Doubtful Debts

Provision for DepreciationProvision for Depreciation

Provision for Long Service LeaveProvision for Long Service Leave

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ReservesReserves

RETAINED PROFITSRETAINED PROFITS

Interim dividend bal fwdInterim dividend bal fwd

Provision for Net profitProvision for Net profit

dividenddividend

bal c/fwdbal c/fwd

bal /fwdbal /fwd

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CompaniesCompanies

Accounting for share issueAccounting for share issue Forfeiture of sharesForfeiture of shares Reissue of sharesReissue of shares ReservesReserves DividendsDividends

TEXT CHAPS 1& 2

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DividendsDividends INTERIM DIVIDEND INTERIM DIVIDEND (Dividend paid)(Dividend paid)

dr Interim dividend declareddr Interim dividend declared

cr Dividend payablecr Dividend payable

dr Dividend payabledr Dividend payable

cr Cashcr Cash

dr Retained profitsdr Retained profits

cr Interim dividend declared cr Interim dividend declared FINAL DIVIDEND FINAL DIVIDEND (Dividend provided)(Dividend provided)

dr Final dividend declareddr Final dividend declared

cr Dividend payablecr Dividend payable

dr Retained profitsdr Retained profits

cr Final dividend declaredcr Final dividend declared

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Preparation of Financial Preparation of Financial statementsstatements

In this week we are looking at In this week we are looking at preparing accounts for managerspreparing accounts for managers– Refer example in the text Bulldog LtdRefer example in the text Bulldog Ltd

Entry for taxationEntry for taxation– Dr Tax ExpenseDr Tax Expense

– Cr Tax PayableCr Tax Payable

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A Ltd A Ltd Profit & Loss for the year ended 30/6/99Profit & Loss for the year ended 30/6/99

Sales 100 000Sales 100 000

Less - Cost of Sales Less - Cost of Sales 90 00090 000

Gross Profit 80 000Gross Profit 80 000

Less - Expenses Less - Expenses 70 00070 000

Net ProfitNet Profit 10 000 10 000

Less Tax Expense Less Tax Expense 3 0003 000

Net profit after tax 7 000Net profit after tax 7 000

Add Retained profits -from 1/7/98 Add Retained profits -from 1/7/98 5 000 5 000

12 00012 000

Less:-Less:-

Dividend Declared 2 000Dividend Declared 2 000

Dividend Paid Dividend Paid 1 000 3 0001 000 3 000

Retained Profits - 30/6/99 Retained Profits - 30/6/99 $ 9 000$ 9 000

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A Ltd A Ltd

Balance Sheet as at 30/6/99Balance Sheet as at 30/6/99

Current Assets ?Current Assets ?

Non-Current Assets ?Non-Current Assets ?

Less LiabilitiesLess Liabilities

Tax Payable 3 000Tax Payable 3 000

Dividend Payable Dividend Payable 2 0002 000 ? ?

$ 100 000$ 100 000

EquityEquity

Share CapitalShare Capital

Retained Profits Retained Profits 9 0009 000

$100 000$100 000

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Tutorial QuestionsTutorial Questions

Exercise 2.1Exercise 2.1 Exercise 2.2Exercise 2.2 Exercise 2.5Exercise 2.5 Exercise 3.1Exercise 3.1 Exercise 3.4Exercise 3.4 Problem 3.5Problem 3.5