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LEARNING UNIT 1 - Coggle Diagram
LEARNING UNIT 1
COMPANY BACKGROUND
- Legal person
- Companies Act 71 of 2008 (''the Act'')
fulfil the following needs:
- Acquire more capital
- Continued existence
- Easy way to exchange owners
- Limit financial liability
- shares in profit
- shares are transferable,
- share certificates serves as evidence
- right to vote is determined by the number of shares held
Incorporated by lodging:
- Notice of incorporation
- Memorandum of incorporation
Profit companies include: private, public, state-owned and personal liability VS NPC(public benefit) page 488 of textbook
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SHARE TRANSACTIONS
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Types of shares
Ordinary shares (equity shareholders):
- gives full voting rights
- dividends only after provision is made for preference dividends
- Dividend depend on profits
Preference shares:
- both debt and equity
- higher claim on assets and earnings
- fixed-rate dividend
- right to pay out first (bankruptcy)
- usually no voting rights
- issued various rights
- 4 types: cumulative preferred (must be paid), non-cumulative preferred (skipped not included), participating preferred (plus extra), convertible (exchanged for ordinary)
Cumulative preference shares:
- fixed preferential dividend accumulates if not paid out
- not declared or paid should be disclosed
- paid in full before ordinary preference dividends
Redeemable preference shares:
- redemption on a specific date
- redemption is solely at discretion of the issuer
Issue of capitalization shares
- Build up reserves from profits
- capitalization shares (not in form of cash but rights to shares)
- referred to as bonus issue
- shared held increase, portfolio stays same
- reduce value per share, increase shares held
- Journal
DR Retained earnings (with capitalization amounts)
KR Share capital account
Rights issues and options
- rights issue offered to existing shareholders
- price set as below market price, sold at higher price
- can sell rights (further profits)
- refer to page 10 study guide for respect of rights issue
Underwriting of share issues
- require funds=share issue
- financial institution
- underwriters commission
- commission not exceed 10%
- not affected by shares public took up
- refer to study guide for calculation on underwritten issue
Dividends
- profit divided among shareholders
- pro rata portion of profits
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INTRODUCTION
IFRS: particular types of transactions should be recognized, measured and reported in AFS
Goal:
- global framework
- general guidance
- important for large companies
- simplify accounting standards
- cohesive view of finances
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