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EQUITY (THE CORPORATE FORM (Corporate Law (No matter how much the…

- - - - Rights to share proportionately
        
        in profits and losses
        
        in management (right to vote for directors)
        
        in any any news issues of the same class share (preemptive right)
        
        to protect an existing shareholder from involuntary dilution of ownership interest
        
        in corporate assets upon liquidation
  - - - Guaranteed neither dividends nor assets upon dissolution :red_cross:
      - Control the management
      - Represent residual corporate interest that bears the ultimate risks of loss and receives the benefits of success
      - Tend to profit most if the company is successful
    - - Company assures them a dividend, usually at a stated rate, before the ordinary shareholder's
      - Doesn't have right to control the management
      - Prior claim on earnings
      - Doesn't have right to share in profits beyond the stated rate
- - - - dividend in arrears
      - If a corporation fails to pay a dividend in any year, it must make it up in a later year.
    - - Shareholders share ratably with the ordinary shareholders in any profit distributions.
      - Fully participating
      - Partially participating
    - - Shareholders have the option of converting into an ordinary shareholder
      - Shareholders could have preference claim on dividends
    - - permit the corporation at its option to call or redeem the outstanding preference shares
      - at specified future date
      - at stipulated prices
    - - debt-like securities
      - IFRS requires these securities to be classified as liabilities and be measured and accounted for similar to liabilities
      - have a mandatory redemption period that the issuer cannot control
  - - - percentage of par value
      - must pay the stated dividend rate to the preference shares before others
- - - - No-par shares
        
        Stated value
        
        minimum value below which a company cannot issue it
        
        very low par value
        
        there's share premium if exceed its stated capital
        
        Reasons
        
        Avoids the contingent liability
        
        some confusion exist over the relationship between the par value and fair value
        
        the questionable treatment of using par value as a basis for FV never arises
        
        Advantageous whenever issuing shares for property items
        
        without premium or discount
      - Shares issued in combination with other securities (lump-sum sales)
        
        Two methods of allocation
        
        Proportional method
        
        allocates the lump sum received on a proportional basis (at FV)
        
        Company could determine FV of all securities
        
        Incremental method
        
        Uses FV of the securities as a basis for those classes that it knows
        
        Allocates the remainder of the lump sum to the class for which it doesn't know the FV
        
        Company cannot determine FV of all securities
        
        Corporation issues two or more classes of securities for a single payment or lump sum
        
        Notes
        
        Company cannot determine FV for any of the classes of shares
        
        use other approach
        
        needs expert's appraisal
      - Par-values shares
        
        Par value is very low
        
        low par values help companies avoid the contingent liability
        
        Accounts
        
        Preference shares or ordinary shares
        
        reflect the par value of the corporation's issued shares
        
        no additional entries, unless it issues additional shares or retires them
        
        Share premium
        
        Indicates any excess over par value paid in by shareholders
        
        Individual shareholder has no greater claim on the excess paid in than all other holders of the same class of shares
      - Shares issued in non-cash transactions
        
        Measurement
        
        Record FV of the shares issued, if the FV of the goods or services cannot be measured
        
        Employ an appropriate valuation technique if cannot determine either FV of the shares, property or services
        
        market transactions of comparable asset
        
        discounted expected future cash flows
        
        Record at FV of the goods or services received
      - Costs of issuing shares
        
        Expense
        
        Management salaries
        
        Other indirect costs
        
        Registrar and transfer agent fees
        
        Cost of financing as a reduction of the amounts paid-in (Share Premium)
        
        Accounting and legal fees
        
        Printing costs and taxes
        
        Underwriting costs
    - - Applicable governmental agency must authorize the shares
      - Corporations offers shares for sale
      - Issues the shares
      - no entry when receives its share authorization
  - - - to increase EPS and ROE
      - to provide shares for employee compensation contracts or to meet potential merger needs
      - to thwart takeover attempts or to reduce the number of shareholders
      - to make a market in the shares
      - to provide tax-efficient distributions of excess cash to shareholders
    - - Purchase of TS
        
        Methods
        
        Cost method
        
        Records TS at the reacquisition cost
        
        Deduction from equity on the Statement of Financial Position
        
        Par-value method
        
        Records TS at par value
        
        Deduction from share capital only
      - Characteristics
        
        corporation's own shares, reacquired after having been issued and fully paid
        
        are not an asset
        
        essentially the same as unissued ordinary shares
      - Sale of TS
        
        Increases both total assets and equity
        
        Selling price
        
        Above cost
        
        Credits the difference to Share Premium-Treasury
        
        No gain recognized
        
        Share premium-Treasury arising from the sale should not include in the measurement of net income
        
        Below cost
        
        Debits the difference to Share Premium-Treasury
        
        Debits any additional excess (remainder) to Retained Earnings
      - Retiring TS
        
        Cancellation of the TS and a reduction in the number of issued shares
        
        Have the status of authorized and unissued shares
        
        Debits Share Capital-Ordinary and Share Premium-Ordinary
  - - - the amount provided by shareholders to the corporation for use in the business
      - Par value of all outstanding shares and premium less discounts on issuance
    - - capital that develops from profitable operations
      - consists of all undistributed income that remains invested in the company
      - known as retained earnings
    - - Retained earnings
        
        represents the earned capital of the company
      - Treasury shares
      - NCI
      - Accumulated OCI
      - Share premium
      - Share Capital
- - - - Cash Dividends
        
        Declared dividends
        
        Amount per share
        
        Certain percentage of par
        
        A declared cash dividend is a liability
        
        current liability
        
        Company do not declare or pay cash dividends on treasury shares :!:
        
        Debits to RE and Credit to Cash Dividend Payable
      - Property Dividends
        
        Dividend payable in assets other than cash
        
        Debit to RE and Credit to Property Dividends Payable
        
        Restate the property dividend at FV, recognize any gain or loss
        
        Debit to Property Dividends Payable and Credit to account containing the distributed asset
      - Liquidating Dividends
        
        Clear statement of the source of every dividend
        
        Dividends based on other than retained earnings
        
        Reduces amounts paid-in by shareholders
        
        Debits to RE and Share Premium-Ordinary and Credit to Dividends Payable
      - Share Dividends
        
        Company distributes no assets
        
        The book value per share is lower because each shareholder holds more shares
        
        Debits to RE and Credit to Ordinary Share Dividend Distributable
        
        Debits to Ordinary Share Dividend Distributable and Credit to Share Capital-Ordinary
        
        Doesn't change the total equity
        
        Doesn't change the proportion of the total shares outstanding held by each shareholder
    - - legality of dividend distributions
      - economic condition
      - liquidity
      - availability of funds to pay the dividend
  - - - to meet corporation requirements
      - to retain assets that would otherwise be paid out as dividends, to finance growth or expansion
      - To maintain agreements with specific creditors
      - to smooth out dividend payment from year to year
      - to build up a cushion or buffer against possible losses or errors in the calculation of profits