Nama: Sannia Rahma Masrura

NIM: 4112001049

Resume AKM – Chapter 15 Equity

Three primary forms of business organization

1. Proprietorship
2. Partnership
3. Corporation

Special characteristics of the corporate form:

1. Influence of corporate law.

2. Use of the share system.

3. Development of a variety of ownership interests.

Corporate Law

• Corporation must submit articles of incorporation to the appropriate governmental

agency for the country in which incorporation is desired.
• Governmental agency issues a corporation charter.
• Advantage to incorporate where laws favor the corporate form of business
organization

Share System
1. To share proportionately in profits and losses.
2. To share proportionately in management (the right to vote for directors).
3. To share proportionately in assets upon liquidation.
4. To share proportionately in any new issues of shares of the same class—called the
preemptive right.
Variety of Ownership Interests
Ordinary shares represent the residual corporate interest.

• Bears ultimate risks of loss.

• Receives the benefits of success.
• Not guaranteed dividends nor assets upon dissolution
Preference shares are created by contract, when shareholders’ sacrifice
certain rights in return for other rights or privileges, usually dividend preference.

EQUITY
Equity is often subclassified on the statement of financial position into the
following categories

1. Share capital.
2. Share premium.
3. Retained earnings.
4. Accumulated other comprehensive income.
5. Treasury shares.
6. Non-controlling interest (minority interest).

Issuance of Shares

Accounting problems involved in the issuance of shares:

1. Par value shares.

Low par values help companies avoid a contingent liability.
Corporations maintain accounts for:
• Preference Shares or Ordinary Shares.
• Share Premium
2. No-par shares.
Reasons for issuance:
• Avoids contingent liability.
• Avoids confusion over recording par value versus fair market value.
A major disadvantage of no-par shares is that some countries levy a high tax on these issues.
In addition, in some countries the total issue price for no-par shares may be considered legal
capital, which could reduce the flexibility in paying dividends.
3. Shares issued in combination with other securities.
Two methods of allocating proceeds:
• Proportional method.
• Incremental method
4. Shares issued in non-cash transactions.
The general rule: Companies should record shares issued for services or
property other than cash at the
• fair value of the goods or services received.
• If the fair value of the goods or services cannot be measured
reliably, use the fair value of the shares issued.
5. Costs of issuing shares.
Direct costs incurred to sell shares, such as:
• underwriting costs,
• accounting and legal fees,
• printing costs, and
• taxes
should reduce the proceeds received from the sale of the shares.