Company Accting

Question 1

what can company issue shares?

Answer 1

• on any terms or conditions it determine

can be issued at any price, payable in full or instalment

Question 2

share capital include;

Answer 2

different classes:

ordinary and preference

Question 3

Key features of share capital:

Answer 3

• shares have different rights in respect to voting, sharing profits, return capital
• rights of shareholders include:
  right to vote, share in assets and in new share issue

Question 4

what rights do ordinary shareholders not have?

Answer 4

no specific right to dividends

Question 5

most assume shares are issued via

Answer 5

an IPO (initial Public Offering) 
- via prospectus process

Question 6

what do processes involve?

Answer 6

involve the shareholders applying for a number of shares in response to a prospectus issued by the company.

The company will then issue the shares to new shareholders based on the applications it has received

Question 7

what are shares accompanied by?

Answer 7

disclosure doc

Question 8

The Corporations Act requires:

Answer 8

minimum subscription be achieved within 4 months of the issue of the disclosure document; and
shares be allotted within 13 months of the issue of the disclosure document.

Question 9

On issuing new shares the company may require:

Answer 9

• full amount to be paid at application

- or portion to be paid with balance due at later time

Question 10

what are some temporary accounts used during accounting processes:

Answer 10

• cash trust (temporary account debited to record receipt of cash prior to issue of share)
• application (liability account credited when application money received before shares allocated)
• allotment (receivable acct used to record further amounts)
• call (receivable account when further instalments required after allotment)

Question 11

what happens when number of shares applied exceed number available?

Answer 11

• reduce number of share issued to each applicant

- issue only to certain applicants

Question 12

what is debenture?

Answer 12

a medium to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest

Question 13

debentures issued at:

Answer 13

at par/premium/discount

Issue preceded by disclosure document – such as a prospectus

Application monies held in trust until allotment

Accounting treatment similar to issuing shares

Question 14

redemption of debentures?

Answer 14

Redeemable on a set date or after a set period of time

May be redeemable at company’s option before maturity

May be redeemed at par/premium/discount
Premiums (loss to the company) treated as expenses
Discounts (gains to the company) treated as revenues

Funds to redeem debentures may come from:
Proceeds of new share issue or borrowing
Proceeds of asset sale
Assets currently held

May be convertible into shares