ACCOUNTING FOR COMPANY

STATEMENT OF FINANCIAL POSITION

(EQUITY)

Capital Structure

Capital Equity:

Authorised/Nominal/Registered Capital Unissued Capital Called-up Capital Uncalled Capital Paid-Up Capital

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Equity

Definition: Equity is the residual interest in the assets of the entity after deducting all its liabilities. [F 4.4(c)]

Cont.

AUTHORISED CAPITAL

Maximum number of shares that a company is permitted to issue and the par value per share.

Must be stated in MOA. The company is not required to issue the total

amount immediately. Authorised capital = no. of shares X par value per

share *Par value – an amount per share attached on each

unit of share at the time of formation Company can increase it’s authorised capital by

altering its memorandum at a company general meeting

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Cont.

ISSUED CAPITAL

The nominal capital that has been issued to the public for cash.

It can be either be partly or fully paid.

Cont.

UNISSUED CAPITAL

Represents that part of the company’s authorised capital which has not been issued to shareholders

Also know as unallotted shares

The difference between authorised capital and unissued capital is the total amount of issued capital

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Cont.

UNCALLED CAPITAL

A company, when it decides to issue shares, may not require the shareholders to pay in the total par value of the shares all at one time.

The pay value may be called up by the company in installments.

Uncalled capital represents the amount of issued capital which has not yet been called up by the company

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Cont.

PAID-UP CAPITAL

The amount of called up capital that has been paid up by the subscribers.

CALL IN ARREARS/UNPAID CAPITAL

This is the amount of called up capital that the subscribers failed to pay

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Cont.

Under the Corporate Act 1965, paid up capital is determined using the following approach:

RMAuthorised capital XXLess: Unissued capital XIssued capital XXLess: Uncalled capital XCalled up capital XXLess: Unpaid capital XPaid up capital XX

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Types of Equity Instrument

Ordinary shares Usually, ordinary shares comprise

significant portion of the company’s equity It carries the right to vote The shareholders are entitled for dividend

after the dividends have been paid to other classes of shares

Risk taker- because if the business fail, they can lose their capital

Cont.

Preference shares It carries preferential rights as to the

payment of dividends and repayment of capital in the event of liquidation

No voting rights Nature – cumulative, non-cumulative,

participating, non-participating, redeemable or convertible

Capital Structure

Statement of Financial Position (Extract)

Authorized Capital RM

200,000, 10% Preference shares of RM1/each 200,000

500,000, Ordinary shares of RM1/each 500,000 700,000

Issued and Paid-Up Capital

100,000, 10%preference shares of RM1/each, fully paid up 100,000

200,000, Ordinary shares of RM1/each, called and paid up to 70sen each 140,000

240,000ReservesShare Premium 40,000Retained Profits 150,000 Total Shareholders Equity

430,000

Cont.

Loan capital (Debenture/Bond)

Companies Act 1965 allowed companies to obtain fund to finance their operations through borrowings

One form of borrowing is by issuing debentures or bonds

A debenture or a bond is a document issued by the company which acknowledges the company’s debt to the creditors called debenture holders or bondholders

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Cont.

DEBENTURES Fixed rate of interest Debenture holder are

creditors Debenture holder do

not have right to vote Debenture holder have

priority to claim over to asset of company

Debenture interest is expenses

SHARES Dividend of ordinary

shares not compulsory Shareholders are

owners of the company Shareholders have

right to vote Dividend are

distribution of profit

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Reserves

Definition: reserves are amount retained in the business and not distributed to owners

Disclosure in the SFP

Authorised capital This can shown on the face of the SFP or as part

of the notes. Shown in detail distinguishing between classes of

shares, par value, etc.

Issued share capital Particulars of the issued capital, showing

movements in the issued capital, distinguishing between different classes of shares are to be disclosed

Cont.

Reserves The description of the nature and purpose of each

reserve shown either on the face of the SFP or in the notes

Must be classified under separate heading: Share premium Revaluation surplus Profit and loss balance/Retained earnings Other reserves

Movements to and from reserves during a financial period are to be disclosed in the SFP or in the notes to the SFP and in other Comprehensive Income (in SCI)

Cont.

Any dividends that have been proposed but not approved for payment and not considered as liability- to be disclosed by way of notes.