(aacounting for issuance and forfieture of share)(Australian accounting standard board AASB)

HA2032 Corporate Accounting (T3, 2012)

Assignment (20 marks 20% of Final Mark)

The assignment has two parts namely Part A(13 marks) & B(7 marks). Part A will require the student to provide the necessary journal entries with explanations to record the business transactions relating to shares. Part B will have two questions adapted from the textbook, Financial Accounting 7^th edition by Deegan and Samkin.

Part A of the assignment aims to enhance the practical accounting skills of the student in the preparation of journal entries in the issuance and forfeiture of shares. Part B aims to introduce the student on the importance of the role of the Australian Accounting Standards Board (AASB). However, it is well encouraged to include any additional information that students may think will be useful in completing the task.

General Rules and Requirements:

This is an individual assignment. It is required to be submitted in both soft and hard-copy by Friday, 14 December 2012. Total marks applied to this assessment are 20%.

Please ensure that you attach an assignment submission sheet to your hard copy only. Late submissions draw a penalty of 5% per day of the value of the assessment (1 mark in this case) up to a maximum of fourteen (14) days. After that date, your assessment will not be accepted unless prior and special consideration has been granted.

This is NOT a report but it is expected that your submission will be in an appropriate format. There is no word limit applied but you should ensure that each question is appropriately answered. Where references are used, ensure they are recognised (refer to student handbook or your lecturer if unsure)

Part A – Accounting for Issuance and Forfeiture of Shares (13 marks)

ABC Ltd needed funds to finance the expansion of its retailing business. After consulting the Finance Director, the Board of Directors decided to offer their shares to the public. In its prospectus, it notes that the shares are to be issued at $2.00 per share. The shares are to be paid in three instalments. The first payment of $0.80 is to be made on application. A second amount of $0.80 will be due in one month of allotment, and the last amount of $0.40 will be due within one month of the first and final call, which will be made within six months of the shares being allotted. ABC Ltd will seek to issue 20 million shares. The closing date for applications is 31 August 2012.

By the closing date, applications have been received for 28 million shares. To deal with the oversubscriptions, ABC Ltd has decided to issue shares to all subscribers on a pro rata basis.

All amounts due on allotment are paid by the due date. The first and final call for $0.40 is made on November 2012, with the amounts being due by 31 December 2012. Holders of four million shares fail to pay the amount due on the call by the due

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date, and on 15 January these holders have their shares forfeited. The forfeited shares are auctioned on 15 February. An amount of $1.40 per share is received. The cost of holding the auction is $10,000. The shares are sold as “fully paid”.

Required:

Provide the accounting journal entries with explanations necessary to account for the above business transactions and events.

Part B – Australian Accounting Standards Board (AASB) (7 marks)

Part B1 (5 marks)

Assuming that a company declares a final dividend to shareholders, under what circumstances would such a declaration of dividend create a liability that will be required to be disclosed in the statement of financial position? Cite the specific Australian Accounting Standards Board regulation(s) to explain your answer.

Part B2 (2 marks)

Would you expect the total equity of an entity to increase following a share split? Why do companies need to split their shares? Is there any effect on the market value of the

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