notes i Statements W4 Equity Flashcards
Equity
Equity-
Residual interest from asset less liabitlies
2 broad components Contributed equity Issued capital, shared capital, paid-up capital Contributed by investors Retained earnings Reserves Financial performacne
Contributed equity
Def
Disclosure
💙 Contributed equity
Firms issue shares at their discretion
At inception, then anytime after to raise capital
Investors inject cash or other assets in exchange for shares
Shares traded in public exchange have no impact on firm
Paid in lump sum or installments
= liability if collapse
Authorised capital
Under previous corporations law
Nominal limit to amount of share capital it could issue
Discountines Australia 1998
Disclosure
Prescribe line item SoFPos
Issues capital
Notes Details about each class Orignary, preferences Number on issue and movements during periood Fully or not paid Rights restrcitions
Ordinary shares
Ordinary shares
Entitle holders to
A share of net assets
A share of profit distrubtions i.e. dividends
A vote at general meeting
Preference shares
Preference shares
Give the holder preference over ordinary shareholders:
Dividend distributions
Often fixed rates
Return of capital (but not assets) upon liquidation
Could be non voting with no entitlement to net assets
Could be redeemable or convertile after defined period
Often described as a hybrid of capital
Preference vs Orindary
Spectrum
Preference vs Orindary
Spectrum
Reserve (type 1)
Reserve (type 1)
Profits that have been appropriated for a particular purpose, reducing need for future investment/ borrowings
Retained earnings
Undistributed profits
Accumulation of all profits, losses and net transfers to and from other reserves that have not been distributed as dividends
Reserves arising from net transfer from retained profits
Signal to shareholders that part of retained profits is unable for distributions
Must be designated as having a specific purpose e.g. asset replacement, plant maintenance, general purse
Amounts can be transferred back to retained profits
Reserve type 2
Def
Disclosure
Reserve type 2
Required by accounting standards arising from unrealized gains and losses
e.g. revaluation surplus from revealing assets to fair value
Hedging reserves from entering hedge contracts
Foreign currency translations from consolidation for subsidiaries
Disclosure
Prescribed SoFPos
Reserves
Not prescribed
Retained earnings
Notes
Disaggregated amount of each reserve, description of nature and purpsoe of each ereserve, movements in rever duirng period
Ordinary dividends
Def
Disclosure
Ordinary dividends
Distribute retained profits (or reserves) in form of cash or other assets (e.g. share dividends)
Aus: x2 interim and final
annual or more
Discretion of directors
Determine if payable and speify amount,payment time and method
Firm must have sufficient cash or other assets to distribute to shareholders without putting undue strain on ability of girm to continue operate efficiently
Disclosure
Statement of changes in equity
Movements in retained profits
Preference dividends
Preference dividends
Applicable where preference shares have been issues
Importance of classification
If classified as debt therefore dividends = expense = decrease profits
Paid before ordinary dividends
If √ Cumulative
Undeclared dividends accumulate
Accumulated amount plus current years preference divs must be paid before any ordinary divs
Non-controlling interest
Def
Disclosure
Non-controlling interest
From consolidation process when parent holds less than 100% of shares in subsidiary
Aggregates 100% of subsidiary’s net assets
Parents holds e.g. 90% of shares = controlling interest
Other 10% = non controlling interest, held by shareholders who aren’t members of parents entity
Disclosure
Prescribe line
Non-controlling interest
