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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://ie.frs102.com/members/premium-toolkit/section-22/” type=”big” color=”red”] Return to Section 22 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Original issue of shares or other equity instruments
Extract from FRS 102 – Section 22.7-22.10
22.7 An entity shall recognise the issue of shares or other equity instruments as equity when it issues those instruments and another party is obliged to provide cash or other resources to the entity in exchange for the instruments.
(b) If the entity receives the cash or other resources before the equity instruments are issued, and the entity cannot be required to repay the cash or other resources received, the entity shall recognise the corresponding increase in equity to the extent of consideration received.
(c) To the extent that the equity instruments have been subscribed for but not issued (or called up), and the entity has not yet received the cash or other resources, the entity shall not recognise an increase in equity.
22.8 An entity shall measure the equity instruments at the fair value of the cash or other resources received or receivable, net of direct costs of issuing the equity instruments. If payment is deferred and the time value of money is material, the initial measurement shall be on a present value basis.
22.9 An entity shall account for the transaction costs of an equity transaction as a deduction from equity, net of any related income tax benefit.
22.10 How the increase in equity arising on the issue of shares or other equity instruments is presented in the statement of financial position is determined by applicable laws. For example, the par value (or other nominal value) of shares and the amount paid in excess of par value may be presented separately.
OmniPro comment
See the example below for illustration of the guidance above:
Example 14: Accounting treatment on original issue of shares
Company A issued 100,000 ordinary shares of CU1 each for CU200,000 (i.e. at a premium of CU1). The professional fees incurred on the issue of these shares was CU20,000 and the tax rate is 10%. In this instance the holder paid for the shares to be issued and the company then issued the holder with a share certificate. The journals required under the standard detailed above and as required by Company law are:
|
|
CU |
CU |
|
Dr Bank |
200,000 |
|
|
Cr Ordinary Share Capital |
|
100,000 |
|
Cr Share Premium |
|
100,000 |
Being journal to recognise the receipt of cash for the shares and the issuance of share capital at a premium
|
|
CU |
CU |
|
Dr Ordinary Share Capital/Share Premium |
20,000 |
|
|
Cr Bank/Trade Creditors |
|
20,000 |
Being journal required to reflect directly attributable costs of issue
|
|
CU |
CU |
|
Dr Corporation Tax in P&L |
2,000 |
|
|
Cr Ordinary Share Capital/Share Premium (CU20,000 * 10%) |
|
2,000 |
Being journal to reflect tax deduction available on issuance of shares assuming tax is originally charged to the P&L.
Therefore the net amount shown in share capital and share premium is CU182,000 (CU200,000-CU20,000+CU2,000).
Example 15: Accounting treatment on original issue of shares – left as unpaid
If we take example 14 above and assume that the individual did not pay for the share capital initially but the shares were allotted. The company would recognise a receivable for the unpaid share capital. Let us also assume that the company gives the holder 2 years to pay. Assuming the time value of money is material, although the Section does not say how the present value rate should be determined, the best rate to use would be the rate a bank/external party would charge for such a loan. If we assume a market rate is 8%. The present value of CU200,000 at a discount rate of 8% in two years time is CU171,468 (i.e. CU200,000/(1.08^2)). In this case journal 1 in example 14 would be replaced with:
|
|
CU |
CU |
|
Dr Other Debtors |
171,468 |
|
|
Cr Ordinary Share Capital (CU100,000/(1.08^2)) |
|
85,734 |
|
Cr Share Premium (CU100,000/(1.08^2)) |
|
85,734 |
Being journal to recognise the receipt of cash for the shares and the issuance of share capital at a premium
Then the interest of 8% will be released over the two year period to interest cost in the profit and loss. The journal required at the end of year 1 would be:
|
|
CU |
CU |
|
Dr Interest Cost P&L (CU171,468*8%) |
13,712 |
|
|
Cr Other Debtors |
|
13,712 |
Being journal required to build the other debtor balance up to CU200,000 by the end of the 2 year period. The interest charge for year 2 would be CU14,815 (i.e. CU171,468*1.08=CU185,184*8%)
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