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Financial Accounting
Semester 1, 2018
Week 3 Lecture A
Company formation and share capital
Learning Outcomes
1. Brief outline of company formation
Dr Cash XXX
Cr Loan XXX
Dr Cash XXX
Cr Share Capital XXX
Raising finance through equity
Raising Finance: Public Offering
• To recognise receipt of application monies
Debit Bank trust
Credit Application
1 July 2019
Dr First call 5250 000 (15,000,000 x $0.35)
Dr Second call 2 250 000 (15,000,000 x $0.15)
Cr Share capital 7 500 000
1 September 2019
Dr Cash 5 250 000
Cr First call 5 250 000
1 December 2019
Dr Cash 2 250 000
Cr Second call 2 250 000
Oversubscription of shares
• When more shares are applied for than the number to be
issued—quite common
1 August 2019
Dr Application 5 000 000
Cr Share capital 5 000 000
(10,000,000 x $0.50)
30 August 2019
Dr Cash at bank 3 000 000
Cr Allotment 3 000 000
(4,000,000 – 1,000,000)
(to recognise the receipt of amounts due on allotment)
1 September 2019
Dr Cash at bank 3 000 000
Cr Call 3 000 000
Forfeited shares
• Shares can be forfeited if:
– shares are issued as partly paid and shareholders
do not subsequently pay the amounts due on
allotment or on calls
– a shareholder ceases to be a member of the
company at that time
• Shareholders who have forfeited shares might be
entitled to a full or partial refund of monies paid
before forfeiture
Forfeited shares (cont.)
• Various outcomes
– If company is listed on the ASX or if company’s
operating rules allow it, a refund is paid to the
investor less costs incurred in reissuing shares
Bank $500
Bank Trust $500
August
15 Share Capital (20 x 10) $ 200.00
Call (20 x $5) $ 100.00
Forfeited share liability (20 x $5) $ 100.00