EQUITY PART 2EQUITY PART 2

ISSUES IN SHARE CAPITALISSUES IN SHARE CAPITAL

AND AND

STATEMENT OF CHANGES IN STATEMENT OF CHANGES IN EQUITYEQUITY

22

Learning Outcomes

1.1. Discuss the issue of repurchase or buyback Discuss the issue of repurchase or buyback of equity sharesof equity shares

2.2. Explain share dividend (bonus issue).Explain share dividend (bonus issue).

3.3. Explain share splits.Explain share splits.

4.4. Differentiate between share dividend and Differentiate between share dividend and share split. share split.

5.5. Describe share right.Describe share right.

6.6. Prepare Statement of Changes in EquityPrepare Statement of Changes in Equity

33

Share BuybacksShare Buybacks

Prior 1997, companies in M’sia were not allowed by Prior 1997, companies in M’sia were not allowed by Companies Act 1965 to repurchase their own shares.Companies Act 1965 to repurchase their own shares.

After 1997, Sec. 67 of Companies Act was amended and After 1997, Sec. 67 of Companies Act was amended and allows a public listed companies to purchase their own shares.allows a public listed companies to purchase their own shares.

44

Motivation for Share BuybacksMotivation for Share Buybacks To support share prices in times when the prices are To support share prices in times when the prices are

depresseddepressed To distribute surplus cash to shareholders in lieu of To distribute surplus cash to shareholders in lieu of

cash dividendscash dividends To improve the capital structure of the companyTo improve the capital structure of the company To provide a means of utilizing surplus cashTo provide a means of utilizing surplus cash Defense against hostile take-over attemptsDefense against hostile take-over attempts

55

Accounting Methods for share Accounting Methods for share buybacksbuybacks

With the amendment to Section 67A, two alternative methods of With the amendment to Section 67A, two alternative methods of accounting for share buybacks are permissible:accounting for share buybacks are permissible:

(a)(a) Share retirement methodShare retirement method

(b)(b) Treasury share methodTreasury share method

66

Share Retirement MethodShare Retirement Method Appropriate when the company intends to cancel the Appropriate when the company intends to cancel the

shares repurchased and retired immediatelyshares repurchased and retired immediately

The nominal value of the shares repurchased should be The nominal value of the shares repurchased should be cancelled by: cancelled by: debiting the share capital account and debiting the share capital account and crediting the Capital redemption reservecrediting the Capital redemption reserve..

The consideration for shares repurchased should be The consideration for shares repurchased should be adjusted to the adjusted to the share premium account.share premium account.

Retained earningsRetained earnings are used whenever the total amount are used whenever the total amount of Share Premium is insufficient for the retirement of Share Premium is insufficient for the retirement exercise. exercise.

77

Illustration 1: Share Buyback Illustration 1: Share Buyback using share retirement methodusing share retirement method

Year 2000Year 2000Issued and fully paid ordinary share capital: Issued and fully paid ordinary share capital: 50,000,000 unit of RM1 each. 50,000,000 unit of RM1 each.

Year 2005Year 2005-Repurchased 5,000,000 of the equity from the -Repurchased 5,000,000 of the equity from the open market at RM3 each.open market at RM3 each.-Brokerage fees amounting to RM150,000.-Brokerage fees amounting to RM150,000.-Bal in Share premium account: RM10,000,000-Bal in Share premium account: RM10,000,000-Bal in Retained profits: RM20,000,000-Bal in Retained profits: RM20,000,000

88

Journal Entries for Journal Entries for Illustration 1Illustration 1

Dr Share capitalDr Share capital RM5,000,000RM5,000,000

Cr Capital Redemption ReserveCr Capital Redemption Reserve RM5,000,000RM5,000,000

(to record the repurchase of ordinary share of 5million units at (to record the repurchase of ordinary share of 5million units at par value of RM1 each)par value of RM1 each)

Dr Share PremiumDr Share Premium RM10,000,000RM10,000,000

Dr Retained profitsDr Retained profits RM 5,150,000RM 5,150,000

Cr Cash Cr Cash RM15,150,000RM15,150,000

( to record for the considerations of shares repurchase : ( to record for the considerations of shares repurchase : 5million x RM3 plus RM150,000 brokerage fees)5million x RM3 plus RM150,000 brokerage fees)

99

Movement in Balance SheetMovement in Balance Sheet

RM’000RM’000Share capital:Share capital:Issued and fully paid ordinary shares of RM1 eachIssued and fully paid ordinary shares of RM1 each Balance at 1 Jan 2005 – 50,000,000Balance at 1 Jan 2005 – 50,000,000 50,00050,000 Shares cancelled on repurchasedShares cancelled on repurchased (5,000)(5,000) Balanced at 31 DecBalanced at 31 Dec 20052005 45,00045,000Capital Red. ReserveCapital Red. Reserve 5,000 5,000Share premium account:Share premium account: Balance on Jan 1Balance on Jan 1 10,00010,000 Consideration paidConsideration paid (10,000)(10,000) Balance at 31 DecBalance at 31 Dec - -Retained Earnings:Retained Earnings: Balance bought forwardBalance bought forward 20,00020,000

Amount utilized for shares repurchasedAmount utilized for shares repurchased 5,1505,150 Balance carried forwardBalance carried forward 14,85014,850Total shareholders’ equityTotal shareholders’ equity 64,85064,850

1010

Disclosure in Balance SheetDisclosure in Balance Sheet

RM’000RM’000

Share capital:Share capital:

Issued and fully paid ordinary sharesIssued and fully paid ordinary shares

of RM1 eachof RM1 each 45,00045,000

Capital Red. ReserveCapital Red. Reserve 5,000 5,000

Retained EarningsRetained Earnings 14,85014,850

Total shareholders’ equityTotal shareholders’ equity 64,85064,850

1111

Treasury MethodTreasury Method More appropriate when a company, which More appropriate when a company, which

repurchases its own shares, intends to reissue the repurchases its own shares, intends to reissue the repurchased shares subsequentlyrepurchased shares subsequently

Shares repurchased are held as Shares repurchased are held as treasury sharestreasury shares Measured at the cost of repurchaseMeasured at the cost of repurchase Should not be revalued for subsequent changes in Should not be revalued for subsequent changes in

the fair value or market pricethe fair value or market price Amount of treasury shares should be Amount of treasury shares should be set off against set off against

equityequity in the balance sheet in the balance sheet

1212

Illustration 2: Treasury Illustration 2: Treasury methodmethod

Based on Illustration 1, the journal entry will be:Based on Illustration 1, the journal entry will be:

The entry for Treasury shares:The entry for Treasury shares:

Dr Treasury shares,at costDr Treasury shares,at cost 15,150,00015,150,000

Cr Cash Cr Cash 15,150,00015,150,000

( to record purchase of treasury shares )( to record purchase of treasury shares )

1313

Disclosure in Balance SheetDisclosure in Balance SheetRM’000RM’000

Share capital of RM1 eachShare capital of RM1 each 50,00050,000

Share premium accountShare premium account 10,00010,000

Retained EarningsRetained Earnings 20,00020,000

Less: 5,000,000 treasury shares, Less: 5,000,000 treasury shares,

at costat cost (15,150)(15,150)

64,85064,850

1414

Subsequent Sale or Subsequent Sale or Distribution of Treasury Distribution of Treasury

SharesShares If If distributed asdistributed as share dividendsshare dividends, cost of the , cost of the

treasury shares would reduce the share treasury shares would reduce the share premium account or the distributable premium account or the distributable reserves or bothreserves or both

If the shares were If the shares were reissued reissued in the open in the open market, the difference between the sales market, the difference between the sales consideration and the carrying amount of consideration and the carrying amount of the shares should be taken directly to equity the shares should be taken directly to equity ( debit/credit share premium account) ( debit/credit share premium account)

1515

Illustration 4: Treasury Illustration 4: Treasury SharesSharesBased on Illustration 2:Based on Illustration 2:

If the company subsequently distributed If the company subsequently distributed the treasury shares as the treasury shares as share dividendsshare dividends, , the journal would appear as below:the journal would appear as below:

Dr Share premiumDr Share premium RM10,000,000RM10,000,000

Dr Retained profitsDr Retained profits RM 5,150,000RM 5,150,000

Cr Treasury shares Cr Treasury shares RM15,150,000RM15,150,000

1616

Disclosure in Balance SheetDisclosure in Balance SheetShare premium accountShare premium account::

RM’000 RM’000Balance at Jan 1Balance at Jan 1 10,00010,000Distr. of shares as share div.Distr. of shares as share div.

(10,000)(10,000)Balance at 31 DecBalance at 31 Dec - -Retained profits:Retained profits:Retained profits availableRetained profits available 20,00020,000Distr. of shares as share div.Distr. of shares as share div.

(5,150)(5,150)Balance at 31 DecBalance at 31 Dec 14,85014,850

1717

Illustration 4: Treasury Illustration 4: Treasury SharesShares

Based on Illustration 2:Based on Illustration 2: If the company If the company resoldresold the 5,000,000 shares the 5,000,000 shares

in the open market for in the open market for RM4 per shareRM4 per share, the , the journal entry would be:journal entry would be:

Dr CashDr Cash RM20,000,000RM20,000,000Cr Share premiumCr Share premium RM RM

4,850,0004,850,000Cr Treasury sharesCr Treasury shares RM15,150,000 RM15,150,000

1818

Illustration 5: Treasury Illustration 5: Treasury sharesshares

Based on Illustration 2:Based on Illustration 2: If the treasury shares were If the treasury shares were resoldresold at at RM2 per RM2 per

shareshare, the journal entry would appear as , the journal entry would appear as below:below:

Dr Cash accountDr Cash account RM10,000,000RM10,000,000

Dr Share premiumDr Share premium RM 5,150,000RM 5,150,000

Cr Treasury shares,Cr Treasury shares,

at costat cost RM15,150,000 RM15,150,000

1919

Disclosure Requirements

Disclose the purpose, nature and terms of share repurchase transactions undertaken

The funding of the shares repurchased Methods applied to account for shares

repurchased The amount of treasury shares distributed as

share dividends The reason, terms and amount of treasury

shares reissued

2020

Cash Dividends:Cash Dividends: Important Dates Important Dates

• There are three important dates:There are three important dates:• the declaration date (the declaration date (dividends are declared dividends are declared

and accrued)and accrued)• the date of record (the date of record (list of stockholders to whom list of stockholders to whom

dividends are to be paid is finalized)dividends are to be paid is finalized)• the payment date (the payment date (dividends are paid to dividends are paid to

stockholders of recordstockholders of record))• Dividend becomes a current liability Dividend becomes a current liability

on the declaration dateon the declaration date

2121

Cash Dividends: Journal EntriesCash Dividends: Journal Entries

Date of Record No Entry

Date Declared Dr Retained EarningsCr Dividends Payable

Date of Payment Dr Dividends PayableCr Cash

2222

Illustration 6: Cash DividendIllustration 6: Cash Dividend

ABC BHD declares a $2,000 cash dividend; the ABC BHD declares a $2,000 cash dividend; the following journal entries should be made:following journal entries should be made:

Declaration DateDeclaration Date

Retained EarningsRetained Earnings 2,0002,000

Dividends PayableDividends Payable 2,000 2,000

Payment DatePayment Date

Dividends PayableDividends Payable 2,0002,000

CashCash 2,000 2,000

2323

Why Issuing bonus share Why Issuing bonus share /share dividend instead of /share dividend instead of

cash?cash? The usual reason for issuing a share dividend The usual reason for issuing a share dividend is to give the shareholders returns in the form is to give the shareholders returns in the form of dividend due to insufficient cash on a of dividend due to insufficient cash on a dividend date and yet conserve net asset.dividend date and yet conserve net asset.

Issuing a share dividend to achieve these Issuing a share dividend to achieve these ends would be a public relations gesture in ends would be a public relations gesture in that the public would be less likely to criticize that the public would be less likely to criticize the corporation for high profits or undue the corporation for high profits or undue retention of earnings.retention of earnings.

A share dividend also may be issued for the A share dividend also may be issued for the purpose of obtaining a wider distribution of purpose of obtaining a wider distribution of the sharethe share

2424

Share DividendShare Dividend Example:Example:

-- Company ABC has 1 million shares of outstanding share. Company ABC has 1 million shares of outstanding share. The company has five investors who each own 200,000 shares. The company has five investors who each own 200,000 shares. The share currently trades at RM100 per share. Management The share currently trades at RM100 per share. Management decides to issue a 20% share dividend.decides to issue a 20% share dividend.

-- It results in an additional 200,000 shares of ordinary It results in an additional 200,000 shares of ordinary share (20% of 1 share (20% of 1 million) and send these to the shareholders million) and send these to the shareholders based on their current ownership.based on their current ownership.

- - all of the investors own 200,000 or 1/5 of the co, so they all of the investors own 200,000 or 1/5 of the co, so they each receive 40,000 of the new shares (1/5 of the 200,000 new each receive 40,000 of the new shares (1/5 of the 200,000 new shares issued).shares issued).

-- Now, the company has 1.2 million shares outstanding, Now, the company has 1.2 million shares outstanding, each investor owns 240,000 shares of the ordinary share.each investor owns 240,000 shares of the ordinary share.

2525

Illustration 7 : Share Illustration 7 : Share DividendDividend Assume the following about XYZ Bhd.:Assume the following about XYZ Bhd.:

Ordinary Share (RM1 par, 100,000Ordinary Share (RM1 par, 100,000

shares outstanding)shares outstanding) $100,000 $100,000 Share PremiumShare Premium $80,000 $80,000 Retained EarningsRetained Earnings $152,000 $152,000

Share Dividend DeclaredShare Dividend Declared 2:1 basis2:1 basis

(100,000 existing units x 2 = 200,000 units share dividend)(100,000 existing units x 2 = 200,000 units share dividend)

Assume the following about XYZ Bhd.:Assume the following about XYZ Bhd.: Ordinary Share (RM1 par, 100,000Ordinary Share (RM1 par, 100,000

shares outstanding)shares outstanding) $100,000 $100,000 Share PremiumShare Premium $80,000 $80,000 Retained EarningsRetained Earnings $152,000 $152,000

Share Dividend DeclaredShare Dividend Declared 2:1 basis2:1 basis

(100,000 existing units x 2 = 200,000 units share dividend)(100,000 existing units x 2 = 200,000 units share dividend)

2626

Illustration 8.5 : Share Illustration 8.5 : Share DividendDividend

Declaration DateDeclaration DateShare premiumShare premium 80,00080,000Retained EarningsRetained Earnings 120,000120,000

Dividends DistributableDividends Distributable 200,000200,000

Issuance DateIssuance DateDividends DistributableDividends Distributable 200,000200,000

Ordinary ShareOrdinary Share 200,000200,000

Debit Debit distributable reservesdistributable reserves for the for the PARPAR value of the value of the shares.shares.

2727

Implications of share dividend to Implications of share dividend to equity structure:equity structure: Increase in the share capital account, Increase in the share capital account,

decrease in the distributable reserve decrease in the distributable reserve accountaccount

Net change to shareholders’ equity is nilNet change to shareholders’ equity is nil The number of outstanding shares The number of outstanding shares

increasesincreases

2828

Extra exerciseExtra exerciseRamadhan Bhd had issued 100,000 ordinary Ramadhan Bhd had issued 100,000 ordinary

shares at RM1 nominal price. Share shares at RM1 nominal price. Share premium and retained earnings balance premium and retained earnings balance were RM40,000 and RM270,000 were RM40,000 and RM270,000 respectively. respectively.

On 1 Sept 2008, the company declares bonus On 1 Sept 2008, the company declares bonus shares of 1:2 to its existing shareholders.shares of 1:2 to its existing shareholders.

On 15 Sept 2008, the company distributes On 15 Sept 2008, the company distributes the bonus shares.the bonus shares.

Prepare the journal entry and shareholders’ Prepare the journal entry and shareholders’ equity section.equity section.

2929

1 Sept 20081 Sept 2008Dr. Share premiumDr. Share premium 40,00040,000Dr. Retained earningsDr. Retained earnings 10,00010,000

Cr. Dividend distributableCr. Dividend distributable 50,00050,000(100,000/2 = 50,000 units bonus share)(100,000/2 = 50,000 units bonus share)

15 Sept 200815 Sept 2008Dr Dividend distributableDr Dividend distributable 50,00050,000

Cr Share capitalCr Share capital 50,00050,000

Shareholder’s EquityShareholder’s EquityIssued and paid up share capitalIssued and paid up share capital150,000 ordinary shares at RM1150,000 ordinary shares at RM1 150,000150,000ReservesReservesShare premiumShare premium --Retained earningsRetained earnings 260,000260,000TOTALTOTAL 410,000410,000

3030

Share splitShare split Made when fair value of shares are too high Made when fair value of shares are too high Reason for share split:Reason for share split:

- when price of a share getting higher – the - when price of a share getting higher – the price is too high for investor to buy price is too high for investor to buy (unaffordable).(unaffordable).- splitting the share brings the share price - splitting the share brings the share price down to a more attractive level.down to a more attractive level.- splitting the share also gives exciting - splitting the share also gives exciting shareholders the feeling that they suddenly shareholders the feeling that they suddenly have more shares than they did before. And have more shares than they did before. And of course if the price rises, they have more of course if the price rises, they have more share to trade.share to trade.

3131

Share splitShare split A share split is a company action that A share split is a company action that

increasesincreases the the number of the company’s number of the company’s outstanding sharesoutstanding shares by dividing each share, by dividing each share, which in turn which in turn reduces its pricereduces its price. .

The The share capitalshare capital remains the remains the samesame.. Ex; with a 2-for-1 share split, each Ex; with a 2-for-1 share split, each

shareholder receives an additional share for shareholder receives an additional share for each share held, but the value of each share each share held, but the value of each share is reduced by half, two shares now equal the is reduced by half, two shares now equal the original value of one share before the split. original value of one share before the split.

3232

Share splitShare split Example:Example:

- Share of Abbey Bhd is trading at RM40 and has 10 - Share of Abbey Bhd is trading at RM40 and has 10 million shares issued, which gives it a share capital million shares issued, which gives it a share capital of RM400 million (RM40 x 10 million shares). The of RM400 million (RM40 x 10 million shares). The company then decides to implement a 2-for-1 company then decides to implement a 2-for-1 share split.share split.- For each share shareholders currently own, they - For each share shareholders currently own, they receive one share. They now have two shares for receive one share. They now have two shares for each one previously held, but the price of the share each one previously held, but the price of the share is split by 50% from RM40 to RM20.is split by 50% from RM40 to RM20.- Notice that the market capitalization stays the - Notice that the market capitalization stays the same. It has doubled the amount of shares same. It has doubled the amount of shares outstanding to 20 million while simultaneously outstanding to 20 million while simultaneously reducing the share price by 50% to RM20 for a reducing the share price by 50% to RM20 for a capitalization of RM400 million. The true value of capitalization of RM400 million. The true value of the company hasn’t changed one bit.the company hasn’t changed one bit.

3333

Share splitShare split The most ordinary share split are 2-for-1, 3-The most ordinary share split are 2-for-1, 3-

for-2 and 3-for-1.for-2 and 3-for-1. An easy way to determine the new share An easy way to determine the new share

price is to divide the previous share price by price is to divide the previous share price by the split ratio.the split ratio.

In the case of our example, divide RM40 by In the case of our example, divide RM40 by 2 and we get the new trading price of RM20.2 and we get the new trading price of RM20.

If a share were to split 3-for-2, we’d do the If a share were to split 3-for-2, we’d do the same thing: 40/ (3/2) = 40/1.5=RM26.6same thing: 40/ (3/2) = 40/1.5=RM26.6

3434

Extra exerciseExtra exerciseRamadhan Bhd had issued 100,000 ordinary Ramadhan Bhd had issued 100,000 ordinary

shares at RM1 nominal price. Share premium shares at RM1 nominal price. Share premium and retained earnings balance were and retained earnings balance were RM40,000 and RM270,000 respectively.RM40,000 and RM270,000 respectively.

On 23 Sept, the company decided to split its On 23 Sept, the company decided to split its ordinary share at a ratio of 4:1.ordinary share at a ratio of 4:1.

Show the effect of split share program on Show the effect of split share program on equity.equity.

3535

New # of shares = 100,000 x 4 = 400,000 unitsNew # of shares = 100,000 x 4 = 400,000 units

New Nominal price = RM1 /4 = RM0.25 per New Nominal price = RM1 /4 = RM0.25 per shareshare

Shareholder’s EquityShareholder’s Equity

Issued and paid up share capitalIssued and paid up share capital

400,000 ordinary shares at RM0.25400,000 ordinary shares at RM0.25 100,000100,000

ReservesReserves

Share premiumShare premium 40,00040,000

Retained earningsRetained earnings 270,000270,000

TOTALTOTAL 410,000410,000

3636

Extra exerciseExtra exercise Ramadhan Bhd had issued 100,000 ordinary Ramadhan Bhd had issued 100,000 ordinary

shares at RM1 nominal price. Share premium and shares at RM1 nominal price. Share premium and retained earnings balance were RM40,000 and retained earnings balance were RM40,000 and RM270,000 respectively. RM270,000 respectively.

On 1 Sept 2008, the company declares bonus On 1 Sept 2008, the company declares bonus shares of 1:2 to its existing shareholders.shares of 1:2 to its existing shareholders.

On 15 Sept 2008, the company distributes the On 15 Sept 2008, the company distributes the bonus shares.bonus shares.

On 23 Sept, the company decided to split its On 23 Sept, the company decided to split its ordinary share at a ratio of 4:1.ordinary share at a ratio of 4:1.

Prepare the journal entry and shareholders’ Prepare the journal entry and shareholders’ equity section.equity section.

3737

1 Sept 20081 Sept 2008Dr. Share premiumDr. Share premium 40,00040,000Dr. Retained earningsDr. Retained earnings 10,00010,000

Cr. Dividend distributableCr. Dividend distributable 50,00050,000(100,000/2 = 50,000 units bonus share)(100,000/2 = 50,000 units bonus share)

15 Sept 200815 Sept 2008Dr Dividend distributableDr Dividend distributable 50,00050,000

Cr Share capitalCr Share capital 50,00050,000

30 Sept 200830 Sept 2008Number of shares outstanding = 100,000+50,000 = 150,000Number of shares outstanding = 100,000+50,000 = 150,000After split, number of shares = 150,000 x 4 = 600,000After split, number of shares = 150,000 x 4 = 600,000New nominal price = RM1 / 4 = RM0.25New nominal price = RM1 / 4 = RM0.25

Shareholder’s EquityShareholder’s EquityIssued and paid up share capitalIssued and paid up share capital600,000 ordinary shares at RM0.25600,000 ordinary shares at RM0.25 150,000150,000ReservesReservesShare premiumShare premium --Retained earningsRetained earnings 260,000260,000TOTALTOTAL 410,000410,000

3838

No change in the share No change in the share capital or retained earnings capital or retained earnings accountsaccounts

Only change is the number Only change is the number of shares outstanding and of shares outstanding and nominal valuenominal value

Increase in the share capital Increase in the share capital account, decrease in the account, decrease in the retained earnings accountretained earnings account

Net change to shareholders’ Net change to shareholders’ equity is nilequity is nil

The number of outstanding The number of outstanding shares increasesshares increases

If the Board of Directors should declare a share dividend of 25 percent or more, this is deemed to be a share split and should be accounted for in that manner.

Share splitShare dividend

Share Dividend vs. Share Share Dividend vs. Share SplitSplit

3939

Share RightsShare Rights Investee offers additional shares to the existing Investee offers additional shares to the existing

shareholders – in accordance to the % of ownership.shareholders – in accordance to the % of ownership. Certificate of warrant will be issued to buy the right Certificate of warrant will be issued to buy the right

share.share. Warrant - stating the number of shares that the Warrant - stating the number of shares that the

holder of the right may purchase and also the price holder of the right may purchase and also the price of the right share at which they may purchase of the right share at which they may purchase (normally lower than the fair value).(normally lower than the fair value).

Before the maturity date, shares and right can be Before the maturity date, shares and right can be sold separately.sold separately.

Upon sale of right share to shareholders, the Upon sale of right share to shareholders, the accounting treatment should be similar to issuance accounting treatment should be similar to issuance of ordinary share capital but at discount price.of ordinary share capital but at discount price.

Dr. CashDr. Cash X (at price of right share)X (at price of right share)Cr. Ordinary shareCr. Ordinary share X (at par value)X (at par value)Cr. Share premium Cr. Share premium X (at premium)X (at premium)

4040

STATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITYThis statements reports the changes in each shareholder’s This statements reports the changes in each shareholder’s equity account during the year.equity account during the year.

FRS 101 Para. 96: an entity shall present a statement of FRS 101 Para. 96: an entity shall present a statement of changes in equity showing on the face of the statements:changes in equity showing on the face of the statements:a)The a)The net profit or lossnet profit or loss for the period for the period

b)Each b)Each itemitem of income and expense, gain or loss which is of income and expense, gain or loss which is recognized directly in equityrecognized directly in equity, and the total of these items;, and the total of these items;

c) total income and expense for the period (calculated as c) total income and expense for the period (calculated as the sum of (a) and (b)), showing the sum of (a) and (b)), showing separatelyseparately the total the total amounts amounts attributable to equity holders of the parentattributable to equity holders of the parent and and to to minority interest;minority interest;

d) For each component of equity, the d) For each component of equity, the effects of changeseffects of changes in in accounting policies and corrections of errors recognized in accounting policies and corrections of errors recognized in accordance with FRS 108.accordance with FRS 108.

4141

XYZ BhdXYZ BhdStatement of changes in equity for the year ended 31 Dec 2008Statement of changes in equity for the year ended 31 Dec 2008

Share capital

Share premium

Translation reserves

Retained earnings

Capital redemption reserve Total

x x (x) x x x x x

Changes in accounting policy (x) (x) (x)

Restated balance x x (x) x x x x xChanges in equity for 2008

Gain on property revaluation x x x

Available-for-sale-investment

Cash flow hedges

Exchange difference on foreign currencyTax on item taken directly to equity

Profit for the period x x x xTotal recognized income and expense for the x x x x x

Dividends (x) (x) (x)

Issue of share capital x x

Issue of bonus shares x (x)

Share buyback (x) (x) x

Balance at 31 Dec 2008 x x x x x x x x

Attributable to equity holders of the parent

Balance at 31 Dec 2007

Minority interest

Total equity

4242

Extra exerciseExtra exerciseThe following information relates to shareholders’ The following information relates to shareholders’

equity of Aa Bhd for the year ended 31 Dec equity of Aa Bhd for the year ended 31 Dec 2007:2007:

1.1. As at 31 Dec 2006, balance of equity accounts As at 31 Dec 2006, balance of equity accounts were as follows:were as follows:

Ordinary share capital Ordinary share capital RM17,500,000RM17,500,000

Share premiumShare premium 19,000,000 19,000,000

Revaluation reserveRevaluation reserve 80,000 80,000

Retained earnings Retained earnings 8,000,000 8,000,000

2.2. The company reported a net income of The company reported a net income of RM600,000 for the current year.RM600,000 for the current year.

4343

2.2. During 2007, the following events took place:During 2007, the following events took place:1.1. The company repurchased 50,000 shares of its The company repurchased 50,000 shares of its

own in the open market for RM1.80 per share on own in the open market for RM1.80 per share on 1 July 2007. Par value is RM1 per share. The 1 July 2007. Par value is RM1 per share. The company uses the share retirement method.company uses the share retirement method.

2.2. The company declared The company declared and distributeand distribute a 5% bonus a 5% bonus shares for shareholders on 1 November 2007. On shares for shareholders on 1 November 2007. On this date, an ordinary share was selling at RM2.this date, an ordinary share was selling at RM2.

3.3. Revaluation of a piece of land shows that there is Revaluation of a piece of land shows that there is an increase in value of RM200,000.an increase in value of RM200,000.

4.4. There is a change in accounting policy with There is a change in accounting policy with respect to development cost. The change would respect to development cost. The change would reduce the beginning retained earnings by reduce the beginning retained earnings by RM65,000.RM65,000.

REQUIRED: REQUIRED: 1. Prepare journal entry for the transactions during 1. Prepare journal entry for the transactions during

2007.2007.2. Prepare the statement of changes in equity.2. Prepare the statement of changes in equity.

4444

Answer…Answer… Journal entriesJournal entries

1.1. Dr. Ordinary shareDr. Ordinary share 50,00050,000 Cr. Capital Redemption reserveCr. Capital Redemption reserve 50,00050,000

(repurchased of ordinary share)(repurchased of ordinary share)

Dr. Share premiumDr. Share premium 90,00090,000 Cr. CashCr. Cash 90,00090,000

(Pay for the share repurchased- 50,000 x RM1.80)(Pay for the share repurchased- 50,000 x RM1.80)

2. Dr. Share premium2. Dr. Share premium 872,500872,500 Cr. Ordinary shareCr. Ordinary share 872,500872,500

(declare and distribute share dividend: 5% x (17,500,000-(declare and distribute share dividend: 5% x (17,500,000-50,000))50,000))

3. Dr. Land3. Dr. Land 200,000200,000 Cr Revaluation reserveCr Revaluation reserve 200,000200,000

(Surplus on revaluation)(Surplus on revaluation)

4. Dr Retained earnings4. Dr Retained earnings 65,00065,000 Cr Development costCr Development cost 65,00065,000

(Changes in accounting policy)(Changes in accounting policy)

4545

Answer…Answer…Attributable to equity holders of the parent

Share capitalShare premium

Revaluation reserve

Retained earnings

Capital redemption reserve Total Equity

17,500,000 19,000,000 80,000 8,000,000 0 44,580,000

Changes in accounting policy (65,000) (65)

Restated balance 17,500,000 19,000,000 80,000 7,935,000 0 44,515,000Changes in equity for 2008

Gain on property revaluation 200,000 200,000

Profit for the period 600,000 600,000

Issue of bonus shares 872,500 (872,500) 0

Share buyback (50,000) (90,000) 50,000 (90,000)

Balance at 31 Dec 2008 18,322,500 18,037,500 280,000 8,535,000 50,000 45,225,000

Balance at 31 Dec 2006

4646

The EndThe End