Module 15: Share Capital

Question 1

Permanent capital

Answer 1

Equity section of the statement of financial position excluding distributable profits

Question 2

Basic principle of capital

Answer 2

Capital is permanent must be preserved

Question 3

Capital redemption reserve used if

Answer 3

The new issue does not replace permanent capital

Question 4

Premium on purchase use of share premium

Answer 4

New issue

Original premium

Question 5

Charge share premium account with lower of

Answer 5

Original share premium

Balance on share premium

Question 6

Step 1

Answer 6

Consider legality (sufficient distributable profits - retained earnings)

Question 7

Step 2

Answer 7

Record the purchase

Question 8

Step 2 journal

Answer 8

DR Share capital
DR Share premium
CR Bank

Question 9

Step 3

Answer 9

Record any new issue

Question 10

Step 3 journal

Answer 10

DR Bank
CR Share capital
CR Share premium

Question 11

Step 4

Answer 11

Eliminate any premium on purchase

Question 12

Step 4 journal

Answer 12

DR Share premium OR
DR Retained earnings
CR Premium on purchase

Question 13

Step 5

Answer 13

Replace the nominal value of the shares purchased

Question 14

Step 5 journal

Answer 14

DR Retained earnings

CR Capital redemption reserve

Question 15

Step 5 only needed if

Answer 15

Permanent capital is not replaced by issue of new shares

Question 16

Step 6

Answer 16

Construct statement of financial position after purchase

Question 17

Private companies CAN

Answer 17

Purchase shares out of permanent capital