general exam theory Flashcards
Define significant influence (AJV)
the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over these policies
indicators of significant influence include (AJV)
- board representation
- patricipation in decisions about dividends / profit retentions
- exchange of managerial staff
If an investor holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence
A joint arangement (AJV)
arrangement between two or more entities whereby two or more entities have joint control of another entity.
if shares are oversubscribed, what can you do
Excess monies received on application for shares will be refunded to the applicant. However where shares are issued on a partly paid basis, the excess can be used as an offset in reducing allotment money due and in payment of any future calls, provided the company’s constitution and the terms of the prospectus allow for this treatment.
if shares are forfeited what happens to shares if owner
A company can forfeit its shares provided the rules for forfeiture are in the company’s constitution. The rules usually specify that shares would be forfeited for non-payment of calls. Where shares are forfeited, the company can, depending on the constitution, retain the funds already paid on the forfeited shares in which case the Forfeited Shares account will be considered a reserve and part of equity. Alternatively, the forfeited shares can be reissued and the amount received, less the costs of forfeiture and reissue of shares, may then be refunded to the former shareholders
ACC runs on accrual and tax runs on cash basis
tax runs principally on a cash basis (some exceptions), so tax benefits or consequences may not be realised until actually paid whereas in the books it may be realised when consumed
ACC RUNS ON ACCRUAL TAX ON CASH BASIS EXPLAIN
LONG SERVICE LEAVE
DOUBTFUL DEBTS
Long service leave is accrued for accounting purposes resulting in the provision for employee benefits,
however, for tax purposes it is only recognised as an allowable deduction when the leave is actually taken by an employee and paid in cash.
Doubtful debts are accrued as an accounting expense resulting in the contra-asset Allowance for Doubtful Debts.
In contrast, the deduction is only allowed for tax purposes when the debt is written off accounts receivable as bad indicating that the cash from the customer is not going to be collected.
WHAT is private placement of shares
A private placement is an issue of shares to a large institutional investor.
The main advantages are speed, price and direction.
The disadvantage is that existing shareholders
experience a dilution of their ownership as well as an ability to make a profit if there had been a rights issue instead of a private placement.
