Fundamental Share Rights
Right to vote.
Preemptive right to maintain percentage ownership.
Right to share in profits when dividends are declared.
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Net holding gains (losses) on investments. Gains (losses) from and amendments to post retirement benefit plans.
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Deferred gains (losses) from derivatives. Gains (losses) from foreign currency translations.
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Hybrid Organizations
S Corporation
• • • •
Double taxation avoided.
Limited liability protection of a corporation. Maximum number of owners. Limited liability protection of a corporation. All owners may be involved in management without losing limited liability protection.
Limited liability company
• No limit on number of owners.
Limited liability partnership
•
Owners are liable for their own actions but not entirely liable for actions of other partners.
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• Total equity. • Often presented before liabilities.
The Corporate Organization
Advantages of a corporation
Continuous Existence
Easy ownership transfer
Easy to raise capital
Limited liability
Disadvantages of a corporation
Double taxation
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Government regulation
Types of Corporations
Not-for-profit corporations include hospitals, charities, and government agencies such as FDIC. Publicly-held corporations whose shares are widely owned by the general public. Privately-held corporations whose shares are owned by only a few individuals.
• Share capital:
Ordinary shares. Preference shares. Share premium, ordinary shares. Share premium, preference shares.
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U.S. GAAP vs. IFRS
Chap10 Shareholders’ Equity
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The Nature of Shareholders’ Equity
Assets – Liabilities = Shareholders’ Equity
Net Assets
Sources of Shareholders’ Equity Amounts earned Amounts invested
by shareholders by corporation Other gains and losses not included in net income
Shareholders’ Equity
Paid-in Capital
Retained Earnings Accumulated Other Comprehensive Income
• Single statement of comprehensive income. • Two statements: a separate income statement and statement of comprehensive income. • In the statement of shareholders’ equity.
Accumulated Other Comprehensive Income
Comprehensive income is reported periodically as it is created and also is reported as a cumulative amount.
There are 3 options for reporting comprehensive income created during the reporting period. The accumulated amount of comprehensive income is reported as a separate item of shareholders’ equity in the balance sheet.
Authorized Shares Outstanding shares are issued shares that are owned by stockholders.
Issued Shares
Retired shares have the same status as authorized but unissued shares.
• Same
• Same
• Not permitted
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U.S. GAAP vs. IFRS
Use of the Term Reserves and Other Terminology Differences
• Capital stock:
Common stock. Preferred stock. Paid‐in capital—excess of par, common. Paid‐in capital—excess of par, preferred .
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The Model Business Corporation Act
• Nature and location of business activities. • Number and classes of shares authorized. • Number and classes of shares authorized.
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Financial Reporting Overview
Shareholders' Equity Paid-in-capital: Captial stock: Preferred stock - $100 par value; 1,000 shares authorized; 400 shares issued and outstanding $ 40,000 Common stock - $10 par value; 60,000 shares authorized; 20,000 shares issued and outstanding 200,000 Additional paid-in capital in excess of par value From issuance of preferred stock 10,000 From issuance of common stock 300,000 Total paid-in capital $ 550,000 Retained earnings 121,500 Accumulated other comprehensive income: Net unrealized holding gains (losses) on investments (35,000) Gains (losses) from foreign currency translation 22,000 (13,000) Treasury stock (at cost) (10,000) Total shareholders' equity $ 648,500
• Reserves:
Investment revaluation reserve. Translation reserve. Revaluation reserve.
Retained Earnings.
• Retained earnings. • Total shareholders’ equity. • Presented after liabilities
Use of the Term Reserves and Other ccumulated other comprehensive income:
Net gains (losses) on investments—AOCI. Net gains (losses) foreign currency translation —AOCI. Fair value adjustments not permitted.