Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download corporations - WordPress.com
Document related concepts
Transcript
CORPORATIONS Advantages of forming a Company: -Limit of owner’s liability: Shareholders of companies are limited by shares, have the protection of limited liability- the liability is limited to the amount owing on their shares. The directors of proprietary companies often have to give personal guarantees for loans to the company. -Capacity to contract in the business name: to own land and licence vehicles in the name of a legal entity not dependent on individuals being at the business. Transfer of ownership: A shareholder in a public company can sell their shares at any time, without restriction. A shareholder in a proprietary company may be prevented by the constitution of a company from selling their shares without approval of other shareholders. Continuity of existence The ownership of a company will change from time to time as shareholders sell their shares or die but the company continues to exist until it is deregistered. This is very different from a partnership or sole trader. Companies Benefits Taxation : A company like a person pays income tax on the profit that it makes. The income tax is calculated annually and entered into the Income statement as an expense and the balance sheet as a liability. The current rate is 30%. Access to capital : A Proprietary company can not raise funds from the public but a public company can. They can raise large amounts of money from the public. Separation of ownership and management: In a company there is a separation of ownership and management are shareholders . The shareholders appoint directors to supervise the management of the company. In a proprietary company a person can be the only shareholder and the only director but legally the two positions must be considered separate. Numbers of members and directors: In a proprietary company you can have 1-50 shareholders and at least 1 director. A Public company can have 1 to any number of shareholders and at least 3 directors. Types of companies Companies limited by shares form under the controls and restrictions of The Corporations Act 2001 and have the word “Limited” or “Ltd” after their name. All companies must – notify the Australian Securities and Investments Commission –ASIC, of changes to the registered office ,principal place of business, directors or company secretary, have at least 1 shareholder, keep an up do date register of shareholders and charges on the companies assets, pay ASIC an annual fee, keep proper systematic and sufficient financial records. Proprietary Companies They are divided into Proprietary companies- These can not raise funds from the public but can from existing shareholders and employees , they must have at least 1 shareholder and less than 50, they must have at least 1 director who is normally resident in Australia and the word “Proprietary” or “Pty” , in their name , they may but are not required to have a company secretary who can also be a director. Proprietary companies are split into small proprietary companies and Large proprietary companies. Proprietary companies A large Proprietary company satisfies any two of the following requirements : Total revenue for a financial year is $25 million or more. Total gross assets on the last day of a financial year is 12.5 Million or more. the company at the end of the financial year has 50 employees or more. If they are a large proprietary company they must: Lodge a financial report with ASIC each year. These include a statement of comprehensive income ( income statement) a statement of cash flows and a balance sheet. The accounting records of the company must be audited each year unless ASIC grants an exemption The attraction to being a small proprietary company is that less reporting is required and the costs associated with auditing and an increased reporting requirements. Shareholders holding over 5% of shared can call an AGM and must be notified of any meetings of the shareholders. They can ask to peruse the reports and ask ASIC to investigate that the board are acting with the best interests of the shareholders Public companies A public company is any company that is not a proprietary company They must have at least 1 and no upper limit of shareholders A public company can issue shares and offer debentures to the public A public company must have at least 3 directors Must have the word limited “ Ltd” in its name Control of Companies The rules for the management of a company are contained in either the a document known as the Replaceable Rules or the companies constitution. The Corporations Act contains a set of rules which can be used to govern the management of the company. The company can choose to have it’s own constitution or use the replaceable rules or a combination of both. The Replaceable rules cover: - how directors are appointed - the powers of directors - how voting is carried out at a meeting of shareholders- a show of hands unless a written vote is required - -How many votes each shareholder has at a meeting Control of companies The Company Constitution This set of rules for the management of a company and can replace some or all of the replaceable rules. The Constitution and replaceable rules or any parts of them chosen are a contract between the company, the shareholders and the directors. All agree to follow these rules in forming the contract or taking up positions. Company Formation steps Company formationIn looking to form a company , a prospectus is issued inviting the public to purchase the shares or debentures. It must contain all information that an investor would reasonably expect to be informed of when making an investment decision – future prospects. It also contains an application form so those applying can be assumed to have been informed before entering into the contract. Duties and Powers of Directors Directors are people selected and appointed by shareholders to act on their behalf, the directors in turn appoint managers who are responsible for the day to day running of the business. The directors supervise the management of the company including hiring and firing of senior managers and approving the issuing of shares or the borrowing of money. Duties of Directors A director must carry out his or her duties with a reasonable level of skill and care. They must act in the best interests of the company Directors must declare a conflict of interest between their interests and any of the company. Shares Companies issue two main types of shares: preference shares and ordinary shares. Preference shares have different rights such as a set higher dividend rate and sometimes repayment in the instance of the company collapsing. This course covers ordinary shares. Ordinary shareholders do not have the right to a dividend at a special rate. If the company is closed down the shareholders have a right to be paid out after creditors are paid. The constitution may allow that preference shareholders are paid first. The right to vote at meetings and to elect board members The right to receive a copy of the annual financial statements of the company including the statement of comprehensive income ( P and L) and the balance sheet. Share Issue To record the issue of shares a series of general journal and general ledger entries are required. Sequence of events: shares offered to the public, full subscription by closing date ( all shares applied for),Shares allotted, share issue costs recorded. Firstly we issue the prospectus, on receiving applications the cash sits in the bank account debited and an account called Application is credited as we have not yet issued the shares , if we do not receive full subscription the issue may not go ahead. On the closing date when the shares are issued , we transfer the liability( application) to the Share Capital account. Share issue expenses are paid – Bank credited and recorded in a Share Issue Costs account. Share Issue Costs are then closed off to the Share capital account decreasing it. Profit Profit can come from an excess of revenue over expenses and from gains from increases in the value of saleable assets on the sale of those assets. If from revenue less expenses the amount in the Profit and Loss summary account will be transferred to retained earnings. The directors will decide how much of this amount will stay invested and how much paid to the owners as a dividend. After taxation is deducted this profit figure sits in the Retained Earnings Account. Once the director recommend a dividend it is recorded as a note in the Statement of Financial position until approved by the shareholders at the AGM. Once approved it is recorded as a liability and paid straight away. The directors will then decide what amount is paid as a dividend , if an amount is left in as retained earnings to be used for future dividends and what amount if any will be transferred to reserves. Reserves can be for asset replacement, debenture redemption or as a general reserve to add stability. There can also be an asset revaluation reserve if assets are re valued and found to be worth more. These reserve amounts are all credited to their accounts and the Retained Earnings account is debited. Dividends The directors will decide on how much profit is to be allocated to be paid out in dividends. This is recommended to the shareholders and they can vote to decrease , accept or not allow this to be paid, they can not vote to increase it. Some companies the directors do not need shareholder approval. Once the amount is approved , preference shareholders will receive their dividends before any ordinary shareholders if there is enough profit to do this. Preference shareholders will have a set percentage that they are entitled if dividends are allocated as a % of their face value. Ordinary shares are allocated a figure decided, not linked to face value ie 12 c per share. Dividends are paid per share and once the Directors decide on payment the amount required goes fro approval at the AGM from the shareholders. If this is received it becomes a liability as it is due to be paid to the shareholders. Interim dividends can be paid to the shareholders so that they do not have to wait until the end of the year and shareholder approval. If the dividend is not paid before the financial reports , a note recorded as to the director intentions. The mechanics of recording dividend payment. On the declaration of a dividend a liability is created – Dividend payable credited and retained earnings or Dividend declared debited. Dividend payable Retained earnings X X Dividends pg 245 Until the recommended dividends are approved by the shareholders the dividends do not get recorded in the accounts as they do not meet the frameworks definition of a liability. We record the Directors intention to pay these amounts in the notes to the reports so people can see what has been recommended. When the dividends are paid they are debited and bank credited and then the dividend accounts transferred to the retained earnings account. Bank 2xxx Retained earnings DividendPayable 1xxx 2xxx 1xxx Interim Dividend Many companies have a clause in their constitution that enables the directors to declare an interim dividend so that share holders do not have to wait for the end of year and AGM approval. This is done in the following way: Bank 2xxx Interim Dividend 2xxx 1xxx Retained earnings 1xxx Rights issues Subsequent share issues will be at the chosen value of the company and it is a balancing act between what the value of the current shares is and not underselling those but still enticing investors. The initial share float will be at a chosen price but subsequent share issues will be at a chosen rate in relation to the market price. These shares are often offered to the existing shareholders with a right to buy. That right can then be sold or renounced these rights are tradeable and people would usually pay the difference between the share market value of the existing shares and the new share issue value. Share issue costs These costs are usually fees for under writing, stockbrokers, accountant’s, and consultants and not the costs of incorporation. The costs of incorporation are legal fees , registration fee and ASIC and will be written off in the first year of the companies life. Issue of Bonus Shares They can also be offered to existing shareholders to keep the ownership of the company at the same dollar value an to convert reserves to shares. Bonus shares are issued when the company has significant reserves that appear in the Shareholders Equity section of the Balance sheet. By issuing bonus shares the shareholders are rewarded and the cash in the reserves stays in the company. As the reserves and the shareholders capital are all forms of owners equity, the transfer of what is listed as a reserve to what is listed as share Capital is just to make the shares more representative of what they own of the company. If a shareholder has 100 shares at 50c they then may be issued a further 100 shares at 50c but the reserve containing this money is credited and the amount debited to Shareholders Equity. Issue of Bonus Shares General reserve xxxx Shareholders Equity xxxx Bonus share calculation and dividend calculation These calculations are done based on the rights per share as an example therefore for every 10 shares a bonus share valued at 10c may be issued . If there were 400000 shares we would be issuing 40 000 10c shares for a total of $4000 to be transferred from the General Reserve to Share Capital. General reserve Share Capital $4000 $4000 The calculations can also be broken into a total amount as part of the profit ie $400000 or $4 per share of which there are 100000. You need to be able to work out from a per share figure or a total of all of the dividends divided among what is due to each share. Reserves A reserve is any equity item other than share capital. Retained Earnings is a reserve as are the General Reserve and an Asset Revaluation Reserve. Transfer to a general reserve just sees Retained Earnings debited and General Reserve credited. Retained Earnings General Reserve xxxx xxxx Asset Revaluation reserve occurs when an asset is revalued and found to be worth more than listed. AASB116 states that when an asset is revalued but not sold it must be acknowledged in a reserve not as profit. We then debit the account with the difference between its historic cost and its new valuation and we credit the Asset Revaluation Reserve with the same figure. Eg if the 100000 land was found to be worth 300 000 Land Bal 100000 200000 Asset Revaluation Reserve 200000 Statement of Changes in Equity This report is prepared by a company and records all changes in Equity. It records all changes in the equity section of the balance sheet over an accounting period. Firstly it shows the profit for the year and then gain in revaluation of assets records changes in Share Capital. The share capital at the start plus additional share issues less share issue costs. To give us total Share Capital ZooZoo ltd Statement of Changes in Equity( extract) For year ended 30/June 2019 Profit for the period Gain on revaluation of assets Comprehensive income for the year Share Capital Ordinary Shares Balance at start of period Issue of share capital Share issue costs Total Share Capital 15 000 20,000 (1000) 34 000 Statement of comprehensive Income Revenue Cost of sales Gross Profit Other Income Expenses ( excluding finance costs) Finance costs ( excluding Doubtful debts , bad debts) Profit before income tax Income tax expense Profit for the period Other comprehensive income Gains on asset revaluation Foreign exchange differences Gains ( losses) on available for sale assets ( investments) Income tax on other comprehensive income Other comprehensive income for the period net of income tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Notes 1 Other income Interest Rent 2 Expenses Selling and distribution Administration Other expenses Notes 1 2 2011 2010 Statement of Financial Position This is the Balance sheet of old with this suggested but not stipulated format: This enables people to form an opinion of the liquidity of the firm AASB 101 requires assets and liabilities to be listed as current or non current Suggested format: Title Assets Notes Non Current assets Property plant and equipment 1 Current assets Total assets Equity and Liabilities Equity Share Capital 2 Retained earnings Other components of equity 3 Total Equity Non Current Liabilities Current liabilities Total Liabilities Total equity and liabilities Notes 1 Property Plant and Equipment 2 Share capital 3 Other components of equity Things to note When attempting Companies questions they will always have some balance day adjustments from year 11- depreciation, doubtful debts, accrued adjustments , pre paid. You must make the changes to the expense and the assets involved. They will have a transfer to reserves and they will have issues of shares. You will have to note the changes to retained earnings and the reserves. With share issues , bonus or additional applications they will affect the share capital and source of the additional capital – another reserve or money going into the bank. Dividends paid if they are listed in the Trial balance on the debit side need to be transferred to the Retained earnings as they have already been paid but not taken out of our profit. Tax is not deducted from asset revaluation profits as they are until they are sold, not required to pay tax on. Things to note In the presentation of the Statement of Financial position the standard issue year 11 assets and liabilities are grouped for the simplification as the share holders reading the reports don’t need the detail. Cash and equivalents = bank+ any share issue receipts, less any overdraft, other forms of cash petty cash or maturing investments within 3 months. Property plant and Equipment = Vehicles – Accumulated Depreciation, buildings less accumulated depreciation, Land. This has a note that details these elements below it. The term Trade Receivables is often used for Accounts Receivable less any Allowance for doubtful debts plus any Accrued revenue. Remember if it appears in the Trial balance that the transaction has already occurred and the corresponding debit or credit has also been put through. If it is in the additional information or notes then it needs to be put through with both sides of the transaction. Statement of Changes in Equity The Statement of Changes in Equity lists the changes in all elements of share capital, profit, reserves, additional share issues. It shows the change from the start of the period to the end of the period. It starts by showing the profit for the period and any gains in asset revaulation. The first section is Share capital Opening balance 2 000 000 Plus additional share capital 6 000 000 Baalnce at the end 8 000 000 Statement of Changes in Equity The next section of the statement is the reserves. If the asset revaluation reserve increased during the period by $11 000 and the General Reserve increased by $2000 ZooZoo ltd Statement of Changes in Equity( extract) For year ended 30/June 2019 Reserves Asset Revaluation Reserve Balance at start of period 7 000 Gain on Revaluation 11 000 Balance at end of period 18 000 General Reserve Balance at start of period Transfer from Retained earnings Balance at end of period Total Reserves 6 000 2 000 8 000 26 000 Statement of Changes in Equity-contd. The final section of the statement shows retained earnings. The $26 000 profit is added to the opening balance . The amounts transferred to the General reserve and payment of dividends are subtracted to arrive at the final figure of retained earnings. Balance at the start of the period Profit for the period Total for the period Transfer to the General reserve Dividends Balance at the end of the period 5 000 26 000 31 000 ( 2 000) ( 8 000) 21 000 AASB Accounting Standards The AASB accounting standards are a set of rules that reporting entities must follow. These are companies listed on the Australian Securities Exchange and some other organisations. These reporting entities are defined as anyone that people must rely on their general purpose financial reports in making an investment decision, about their company. Advantages of the AASB Accounting Standards Protect the users of general purpose financial reports by ensuring that the financial reports contain the information needed to accurately assess the performance of the business. Assist the directors of companies in performing their duties. The director of a reporting entity must take reasonable steps to ensure that the financial statements accurately reflect the performance of the company. Give confidence to investors that they can invest money on the Australian Securities Exchange. The Conceptual Framework of Accounting This is a body of theory made up of three documents- Statements of Accounting Concepts 1, 2- SAC1, SAC2. They also have the Framework for the Preparation and Presentation of Financial StatementsThe Framework. Conceptual Framework Continued SAC 1 defines and explains what is meant by reporting entity. The framework only applies to reporting entities listed on the Australian Securities Exchange. Qualities – economic or political importance, management separate from owners, financial significance, they are not necessarily pubic companies SAC2 sets out the reason why a reporting entity prepares accounting reports. To help people with decisions on how to invest their money.” set out reports in a manner that assists in the discharging of their accountability” SAC2 para 43 The Framework The Framework sets out the qualitative characteristics ( qualities) that should be present in accounting reports RELEVANCE – Does the information assist people making decisions RELIABILITY- is a quality when information is free from significant errors and bias and is faithful to what it purports to represent. To be reliable the information must be 1) a faithful representation, 2) Neutral, 3)Substance over form,4)Prudent, 5)Complete, 6) Comparability. UNDERSTANDABILITY- When the users of the statement are able to comprehend the meaning of these statements. MATERIALITY- If the information is not likely to adversely affect the users decision the it is immaterial. The Development of Accounting Standards A number of organisations are involved in the development of the Australian accounting standards. The Financial Reporting Council is to supervise the work of the Australian Accounting Standards Board. The FRC : Monitors the process of adopting international accounting standards, gives advice to the Federal Treasurer on the standard setting process, gives advice to the Australian Accounting Standards Board. The International Accounting Standards Board If all countries have a standard set of standards then investors can compare the performance of major companies. Responsible for the development of a set of International Accounting Standards The Australian Accounting Standards BoardDevelop and amend standards Assist in the develop of a set of world wide accounting standards The Development of Accounting Standards continued The Australian Securities and Investments Commission ASIC , is set up to administer the Corporations Act and a number of other laws. It enforces the AASB Accounting Standards. It interprets accounting standards and issues these interpretations in documents known as regulatory guides. The Australian Securities Exchange ASX The role of the ASX is to ensure that companies listed on the ASX follow a set of standards known as Listing Rules. These set out the information that must be disclosed to the public and how often each year the information must be disclosed. Lobby Groups These are people who try to influence the development of and content of The Accounting Standards in ways that favour their views. External Auditors This group of accountants check the final reports of a public company for accuracy, they are independent of the company ad give confidence the reports have been checked by an independent third party, they are appointed by the shareholders and reappointed at the AGM. Elements of an Accounting Report The Framework for the Preparation and Presentation of Financial Statements contains definitions of the elements of accounting reports. Assets : An item is included when it satisfies the definition and the Asset recognition criteria- An asset is a resource controlled by the entity as a result of past economic events and from which future economic benefits will flow to the entity. Asset Recognition Criteria Is it probable that an inflow of future economic benefits will occur. And Can the value of the asset can be measured reliably. The Elements of an Accounting Report continued Liabilities- To be recognised as a liability in the Statement of Financial Position if it fits the definition and if it meats the requirements of the Liability Recognition Criteria. Definition: Liabilities are the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events. Recognition Criteria- Is it probable that an outflow of future economic benefits will occur And Can the value of the liability be measured reliably The Elements of an Accounting Report continued Equity is defined as the residual interest in the asset after deducting its liabilities. Assets- Liabilities = Equity. Income is included in a statement of comprehensive income as income if it satisfies the definition and the Income Recognition Criteria. Income is defined as- Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Recognition Criteria 1 : Is it probable that an inflow of future economic benefits will occur And Can the value of the income be measured reliably The Elements of an Accounting Report Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Recognition Criteria : Is it probable that an outflow of future economic benefits will occur? And Can the value of the expenses be measured reliably Forming a Company The Corporations act of 2001 establishes that there are 4 types of companies: Public no liability companies Unlimited company with share capital Public company limited by guarantee Company limited by shares Most companies are companies limited by shares. To form a company -shareholders must submit to Australian Securities and Investments Commission ASIC form 201 with the prescribed fee. This form incudes the following information- the name of the company, this may be the Australian Company number ACN. The name of the companies initial shareholder(s), director(s), and secretary ( optional in the case of a proprietary company. The companies registered office. The companies principal place of business in Australia. Whether or not the company will be governed by the Replaceable Rules of the Corporations Act or whether it will have a constitution that changes thee rules. Once ASIC is satisfied all of these requirements are completed they will issue a Certificate of Registration. From this moment the company exists as a separate legal entity. Pre established shelf companies can be purchased with all requirements pre arranged.
