CHAPTER 15

Equity

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Describe the corporate form 3. Explain the accounting and

and the issuance of shares. reporting issues related to

dividends.

2. Explain the accounting and

reporting for treasury shares. 4. Indicate how to present and

analyze equity.

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PREVIEW OF CHAPTER 15

Intermediate Accounting

IFRS 3rd Edition

Kieso ● Weygandt ● Warfield

15-2


‫رأس مال الشركة‬

LEARNING OBJECTIVE 1

Corporate Capital Describe the corporate form

and the issuance of shares.

Three primary forms of business organization.

.‫عمال‬%‫ثة أشكال أساسية من تنظيم ا‬4‫ث‬

Proprietorship Partnership Corporation

‫ملكية‬ ‫شراكة‬ ‫مؤسسة‬
=

Special characteristics of the corporate form: :‫الخصائص الخاصة لشكل الشركة‬

1. Influence of corporate law.

‫ تأثير قانون الشركا‬.1
‫ت‬

‫شاركة‬K‫ استخدام نظام ا‬.2 .

2. Use of the share system. .‫ تنمية مصالح ملكية متنوعة‬.3 .

3. Development of a variety of ownership interests.

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Corporate Form ‫نموذج الشركة‬

1- Corporate Law ‫ قانون الشركات‬-1

 Corporation must submit articles of incorporation to

the appropriate governmental agency for the country in

which incorporation is desired. ‫ناسبة للبلد الذي يرغب‬K‫يجب على الشركة تقديم عقد التأسيس إلى الوكالة الحكومية ا‬
.‫فيه التأسيس‬

 Governmental agency issues a corporation charter.

.‫وكالة حكومية تصدر ميثاق الشركة‬

 Advantage to incorporate where laws favor the

corporate form of business organization.

.‫عمال‬%‫ؤسسي لتنظيم ا‬K‫ الشكل ا‬e‫ميزة لدمج حيث تفضل القوان‬

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Corporate Form

2-Share System ‫شاركة‬K‫ نظام ا‬- 2

In the absence of restrictive provisions, each share

carries the following rights: :‫ يحمل كل سهم الحقوق التالية‬، ‫في حالة عدم وجود أحكام تقييدية‬

1. To share proportionately in profits and losses.

.‫رباح والخسائر‬%‫شاركة بشكل متناسب في ا‬K‫ ا‬.1

2. To share proportionately in management (the right to vote

for directors). .(‫دارة‬u‫عضاء مجلس ا‬% ‫دارة )حق التصويت‬u‫شاركة بشكل متناسب في ا‬K‫ ا‬.2

3. To share proportionately in assets upon liquidation.

.‫صول عند التصفية‬%‫تناسبة في ا‬K‫شاركة ا‬K‫ ا‬.3

4. To share proportionately in any new issues of shares of

the same class—called the preemptive right.

‫ يسمى حق الشفعة‬- ‫سهم من نفس الفئة‬% ‫شاركة بشكل متناسب في أي إصدارات جديدة‬K‫ ا‬.4

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Corporate Form

3-Variety of Ownership Interests ‫لكية‬K‫ تنوع مصالح ا‬- 3

Ordinary shares represent the residual corporate interest.

.‫تبقية‬K‫سهم العادية حصة الشركة ا‬%‫تمثل ا‬

 Bears ultimate risks of loss.

.‫يتحمل مخاطر الخسارة النهائية‬

 Receives the benefits of success.

.‫يحصل على فوائد النجاح‬
.‫• توجد أرباح مضمونة و• أصول عند الحل‬

 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. ‫ساهمون بحقوق معينة مقابل حقوق‬K‫ عندما يضحي ا‬، ‫متازة بموجب عقد‬K‫سهم ا‬%‫يتم إنشاء ا‬
.‫رباح‬%‫أو امتيازات أخرى عادةً ما يتم تفضيل توزيعات ا‬

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Components of Equity

Equity is often subclassified on the statement of financial

position into the following categories ‫ركز‬K‫لكية فرعيًا في بيان ا‬K‫غالبًا ما يتم تصنيف حقوق ا‬
‫الي إلى الفئات التالية‬K‫ا‬

1. Share capital.

.
‫ حصة قسط‬.2 .‫ال السهمي‬K‫ رأس ا‬.1

‫حتجزة‬K‫رباح ا‬%‫ ا‬.3

2. Share premium.
.‫ تراكم الدخل الشامل ا‚خر‬.4 .

‫ أسهم الخزينة‬.5
.(‫قلية‬%‫سيطرة )حقوق ا‬K‫ الحقوق غير ا‬.6 .

3. Retained earnings.

4. Accumulated other comprehensive income.

5. Treasury shares.

6. Non-controlling interest (minority interest).

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Components of Equity

Ordinary
OrdinaryShares
Shares

Account
Account
Contributed
Contributed

Share
SharePremium
Premium

Capital
Capital Account

Account

Preference
PreferenceShares
Shares

Account
Account

Two Primary

Sources of Retained
RetainedEarnings
Earnings

Account
Account

Equity Assets –

Liabilities =

Equity

Less:
Less:

Treasury
TreasuryShares
Shares

Account
Account

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Corporate Capital

Issuance of Shares ‫سهم‬%‫إصدار ا‬

Accounting problems involved in the issuance of shares:

:‫سهم‬%‫حاسبية التي ينطوي عليها إصدار ا‬K‫شاكل ا‬K‫ا‬

1. Par value shares.

‫سهم ذات القيمة ا•سمية‬%‫ ا‬.1

.‫سهم ا•سمية‬%‫ ا‬- • .2 .

‫صدرة مع أوراق مالية أخرى‬K‫سهم ا‬%‫ ا‬.3

2. No-par shares.
‫ت غير‬4‫صدرة في معام‬K‫سهم ا‬%‫ ا‬.4 .

‫نقدية‬

.‫سهم‬%‫ تكاليف إصدار ا‬.5 .

3. Shares issued in combination with other securities.

4. Shares issued in non-cash transactions.

5. Costs of issuing shares.

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Issuance of Shares

1- Par Value Shares ‫سهم ذات القيمة‬%‫ ا‬-1

‫ا•سمية‬

Low par values help companies avoid a contingent

liability. .‫حتملة‬K‫نخفضة الشركات على تجنب ا•لتزامات ا‬K‫ساواة ا‬K‫تساعد قيم ا‬

Corporations maintain accounts for: :‫تحتفظ الشركات بحسابات لـ‬

 Preference Shares or Ordinary Shares.

 Share Premium. It indicates any excess over par value

paid in by shareholders ‫صدا

ر‬u‫وة ا‬4‫ ع‬.‫سهم العادية‬%‫متازة أو ا‬K‫سهم ا‬%‫ا‬
e‫ساهم‬K‫دفوعة من قبل ا‬K‫ يشير إلى أي زيادة على القيمة ا•سمية ا‬.

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2- No-Par Shares ‫سهم ا•سمية‬%‫ ا‬- • -2

Reasons for issuance: :‫صدار‬u‫أسباب ا‬

.‫حتملة‬K‫يتجنب ا•لتزامات ا‬
 Avoids contingent liability.

.‫يتجنب ا•لتباس حول تسجيل القيمة ا•سمية مقابل القيمة السوقية العادلة‬

 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. .‫تكافئة هو أن بعض البلدان تفرض ضريبة عالية على هذه القضايا‬K‫سهم غير ا‬Œ‫العيب الرئيسي ل‬

- 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.
.‫رباح‬%‫رونة في دفع ا‬K‫ مما قد يقلل من ا‬، ‫تكافئة في بعض البلدان رأس مال قانوني‬K‫سهم غير ا‬Œ‫جمالي ل‬u‫صدار ا‬u‫ يمكن اعتبار سعر ا‬، ‫ضافة إلى ذلك‬u‫ با‬-

- Legal capital refers to the portion of owners equity and assets

that cannot be distributed, ، ‫صول التي • يمكن توزيعها‬%‫لكية وا‬K‫ال القانوني إلى جزء من حقوق ا‬K‫ يشير رأس ا‬-

- States require companies to maintain legal capital in order to protect

creditor’ claims to assets. .‫صول‬%‫ با‬e‫ال القانوني من أجل حماية مطالبات الدائن‬K‫ تطلب الدول من الشركات ا•حتفاظ برأس ا‬-

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Illustration: Video Electronics AG is organized with 10,000

ordinary shares authorized without par value. If Video

Electronics issues 500 shares for cash at €10 per share, it

makes the following entry:

Cash 5,000

Share Capital—Ordinary 5,000

Video Electronics issues another 500 shares for €11 per share.

Cash 5,500

Share Capital—Ordinary 5,500

Note that:

In the No par - value shares:

- It is assumed that the issued price = face value = cash

So there is not premium , discount

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Issuance of Shares

Illustration: Some countries require that no-par shares have a

stated value.

The stated value is a minimum value below which a company

cannot issue it. Thus , instead of being no-par shares, such

stated –value shares become, in effect, shares with a very low

par value.

If a company issued 1,000 of the shares with a €5 stated value at

€15 per share for cash, it makes the following entry.

Cash 15,000

Share Capital—Ordinary 5,000

Share Premium—Ordinary(15,000 – 5,000) 10,000

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Issuance of Shares

3- Shares Issued with Other Securities ‫وراق مالية‬% ‫صدرة‬K‫سهم ا‬%‫ ا‬-3
‫أخرى‬

Two methods of allocating proceeds:

 Proportional method. :‫طريقتان لتوزيع العائدات‬

.‫الطريقة النسبية‬
.‫طريقة تزايدية‬

 Incremental method.

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Shares Issued with Other Securities

Ratio of or. Shares = 6,000/15.000 = 40% , R. of Pre. Shares= 9,000/15,000 = 60%

BE15-4: Ravonette Corporation issued 300 shares of $10 par value

ordinary shares and 100 shares of $50 par value preference shares

for a lump sum of $13,500. The ordinary shares have a market value

of $20 per share, and the preference shares have a market value of

$90 per share.

Proportional

Method

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Shares Issued with Other Securities

BE15-4: Ravonette Corporation issued 300 shares of $10 par value

ordinary shares and 100 shares of $50 par value preference shares

for a lump sum of $13,500. The ordinary shares have a market value

of $20 per share, and the preference shares have a market value of

$90 per share.

Journal entry (Proportional):

Cash(Issued price) 13,500

Share Capital—Preference (100 X $50) Face value 5,000

Share Premium—Preference (Diff, issued price & face value) 3,100

Share Capital—Ordinary (300 X $10)Face value 3,000

Share Premium—Ordinary 2,400

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Shares Issued with Other Securities

BE15-4 (Variation): Ravonette Corporation issued 300 shares of $10

par value ordinary shares and 100 shares of $50 par value preference

shares for a lump sum of $13,500. The ordinary shares have a market

value of $20 per share, and the value of preference shares are

unknown.

Incremental

Method

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Shares Issued with Other Securities

BE15-4 (Variation): Ravonette Corporation issued 300 shares of $10

par value ordinary shares and 100 shares of $50 par value preference

shares for a lump sum of $13,500. The ordinary shares have a market

value of $20 per share, and the value of preference shares are unknown.

Journal entry (Incremental):

Cash 13,500

Share Capital—Preference (100 X $50) 5,000

Share Premium—Preference 2,500

Share Capital—Ordinary (300 X $10) 3,000

Share Premium—Ordinary 3,000

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Issuance of Shares

Shares Issued in Noncash Transactions

‫ت غير النقدية‬4‫عام‬K‫صدرة في ا‬K‫سهم ا‬%‫ا‬

The general rule: Companies should record shares

issued for services or property other than cash at the:

‫متلكات غير النقدية في‬K‫سهم الصادرة للخدمات أو ا‬%‫ يجب على الشركات تسجيل ا‬:‫القاعدة العامة‬

 fair value of the goods or services received.

.‫ستلمة‬K‫◆ القيمة العادلة للسلع أو الخدمات ا‬

 If the fair value of the goods or services cannot be

measured reliably, use the fair value of the shares

issued. .‫صدرة‬K‫سهم ا‬Œ‫ استخدم القيمة العادلة ل‬، ‫◆ إذا تعذر قياس القيمة العادلة للسلع أو الخدمات بشكل موثوق‬

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Shares Issued in Noncash Transactions

Illustration: The following series of transactions illustrates

the procedure for recording the issuance of 10,000 shares of

€10 par value ordinary shares for a patent for Marlowe

Company, in various circumstances.

1. Marlowe cannot readily determine the fair value of the

patent, but it knows the fair value of the shares is €140,000.

Patent 140,000

Share Capital—Ordinary 100,000

Share Premium—Ordinary 40,000

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Shares Issued in Noncash Transactions

2. Marlowe cannot readily determine the fair value of the

shares, but it determines the fair value of the patent is

€150,000.

Patent 150,000

Share Capital—Ordinary 100,000

Share Premium—Ordinary 50,000

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Shares Issued in Noncash Transactions

3. Marlowe cannot readily determine the fair value of the

shares nor the fair value of the patent. An independent

consultant values the patent at €125,000 based on

discounted expected cash flows.

Patent 125,000

Share Capital—Ordinary 100,000

Share Premium—Ordinary 25,000

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Issuance of Shares

Costs of Issuing Stock ‫سهم‬%‫تكاليف إصدار ا‬

Direct costs incurred to sell shares, such as : :‫ مثل‬، ‫سهم‬%‫تكبدة لبيع ا‬K‫باشرة ا‬K‫التكاليف ا‬

 underwriting costs,

‫تكاليف ا•كتتاب‬

 accounting and legal fees,

‫حاسبة والرسوم القانونية‬K‫وا‬

‫وتكاليف الطباعة‬

، ‫والضرائب‬

 printing costs, and

 taxes,

should reduce the proceeds received from the sale of the

shares. .‫سهم‬%‫يجب أن تقلل من عائدات بيع ا‬

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Preference Shares ‫متازة‬K‫سهم ا‬%‫ا‬

.‫يزات بمشاركات التفضيل‬K‫غالبًا ما ترتبط ا‬

Features often associated with preference shares.

1. Preference as to dividends.

2. Preference as to assets in the event of liquidation.

3. Convertible into ordinary shares.

.
‫سهم‬%‫فضلية على أرباح ا‬%‫ ا‬.1

4. Callable at the option of the corporation. .‫صول في حالة التصفية‬%‫فضلية على ا‬%‫ ا‬.2

.‫ قابلة للتحويل إلى أسهم عادية‬.3

‫ يمكن ا•ستدعاء في خيار الشركة‬.4

5. Non-voting. .‫ عدم التصويت‬.5 .

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Preference Shares

Features of Preference Shares ‫ميزات أسهم التفضيل‬

‫ا أنها • تنتهك قانون التأسيس في بلدها وقد تصدر أكثر‬K‫ طا‬، ‫ت أو قيود‬4‫يجوز للشركة إرفاق أي تفضي‬
.‫متازة‬K‫سهم ا‬%‫من فئة واحدة من ا‬

 Cumulative ‫تراكمي‬

A corporation may attach

 Participating

‫شاركة‬K‫◆ ا‬
whatever preferences or

restrictions, as long as it does

 Convertible ‫قابل للتحويل‬

not violate its

 Callable ‫ستدعاء‬4‫قابل ل‬
country’s incorporation law and

may issue more than one

 Redeemable ‫سترداد‬4‫قابل ل‬

class of preference shares..

The accounting for preference shares at issuance is similar

to that for ordinary shares. .‫سهم العادية‬%‫صدار مماثلة لتلك الخاصة با‬u‫متازة عند ا‬K‫سهم ا‬%‫حاسبة عن ا‬K‫ا‬

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Preference Shares

Illustration: Bishop plc issues 10,000 shares of £10 par

value preference shares for £12 cash per share. Bishop

records the issuance as follows:

Cash 120,000

Share Capital—Preference 100,000

Share Premium—Preference 20,000

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LEARNING OBJECTIVE 2

- Reacquisition of Shares Explain the accounting and

reporting for treasury shares.

Companies purchase their outstanding shares to:

:‫تقوم الشركات بشراء أسهمها القائمة من أجل‬

1. Provide tax-efficient distributions of excess cash to

shareholders. .e‫ توفير توزيعات ضريبية فعالة للنقد الفائض للمساهم‬.1

2. Increase earnings per share and return on equity. ‫على‬ ‫ زيادة ربحية السهم والعائد‬.2
.‫لكية‬K‫حقوق ا‬

3. Provide shares for employee compensation contracts or to

meet potential merger needs. ‫ا•ندماج‬ ‫ أو لتلبية احتياجات‬e‫وظف‬K‫ تقديم أسهم لعقود تعويض ا‬.3

.‫حتملة‬K‫ا‬

4. Thwart takeover attempts or to reduce the number of

shareholders. e‫ساهم‬K‫ إحباط محاو•ت ا•ستحواذ أو تقليل عدد ا‬.4

5. Make a market in the shares (by creating a demand: This

may stabilize the share price or increase it). :‫سهم )عن طريق إنشاء طلب‬%‫ أنشئ سو ًقا في ا‬.5
.(‫قد يؤدي ذلك إلى استقرار سعر السهم أو زيادته‬

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- Treasury shares

After reacquiring shares, a company may either retire them or hold them

in the treasury for reissue. .‫عادة إصدارها‬u ‫ يجوز للشركة إما التقاعد أو ا•حتفاظ بها في الخزانة‬، ‫سهم‬%‫بعد إعادة اكتساب ا‬

If not retired, such shares are referred to as treasury shares.

.‫سهم باسم أسهم الخزينة‬%‫ يشار إلى هذه ا‬، ‫إذا لم يتم التقاعد‬

The treasury shares are the previously outstanding shares that is bought

back from stockholders by the issuing company , ، ‫صدرة‬K‫ من قبل الشركة ا‬e‫ساهم‬K‫من ا‬
‫سهم القائمة ساب ًقا والتي تم إعادة شرائها‬%‫أسهم الخزينة هي ا‬

So treasury shares are not an asset (it is inappropriate to imply that a

corporation own a part of itself). ‫شارة إلى أن الشركة تمتلك جز ًءا من‬u‫ناسب ا‬K‫صول )من غير ا‬%‫لذا فإن أسهم الخزينة ليست أحد ا‬
.(‫نفسها‬

Note that:

- The possession of treasury shares does not give the corporation the

right to vote, to exercise preemptive rights as a shareholder, to receive cash

‫ك أسهم الخزينة • يمنح الشركة‬4‫ امت‬- :‫•حظ أن‬

dividends, or to receive assets upon corporate liquidation. ‫وقائية‬ ‫ أو ممارسة حقوق‬، ‫الحق في التصويت‬
‫م‬4‫ أو است‬، ‫م أرباح نقدية‬4‫ أو است‬، ‫كمساهم‬

.‫أصول عند تصفية الشركة‬

- They are essentially the same as unissued ordinary shares.

15-28

.‫صدرة‬K‫سهم العادية غير ا‬%‫ساس نفس ا‬%‫هم في ا‬ LO 4



Reacquisition of Shares

Purchase of Treasury Shares

Two acceptable methods:

 Cost method (more widely used). Results in debiting

the treasury shares account for the reacquisition cost

and in reporting this account as a deduction from equity

on the statement of financial position.

 Par or Stated value method. Records all transactions

in treasury shares at their par value and reports the

treasury shares as a deduction from share capital only.

 Treasury shares reduce equity.

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Purchase of Treasury Shares

Illustration: Pacific Company issued 100,000 shares of $1 par

value ordinary shares at a price of $10 per share. In addition, it

has retained earnings of $300,000.

ILLUSTRATION 15.4

Equity with No Treasury Shares

15-30

LO 2


Purchase of Treasury Shares

Illustration: Pacific Company issued 100,000 shares of $1

par value ordinary shares at a price of $10 per share. In

addition, it has retained earnings of $300,000.

On January 20, 2019, Pacific acquires 10,000 of its shares at

$11 per share. Pacific records the reacquisition as follows.

Treasury Shares 110,000

Cash 110,000

15-31

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Purchase of Treasury Shares

Illustration: The equity section for Pacific after purchase of the

treasury shares.

ILLUSTRATION 15.5

Equity with Treasury Shares

15-32

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Reacquisition of Shares ‫سهم‬%‫إعادة اقتناء ا‬

Sale of Treasury Shares

 Above Cost
‫بيع أسهم الخزينة‬

‫بسعر أعلى من التكلفة‬

‫بأقل من التكلفة‬

 Below Cost

Both increase total assets and equity. .‫لكية‬K‫صول وحقوق ا‬%‫هما يزيد من إجمالي ا‬4‫ك‬

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Sale of Treasury Shares

1- Sale of Treasury Shares above Cost. Pacific acquired

10,000 treasury shares at $11 per share. It now sells 1,000

shares at $15 per share on March 10. Pacific records the entry

as follows.

Cash(10,000 * 15) 15,000

Treasury Shares(10,000 * 11) 11,000

Share Premium—Treasury(10,000*(15-11)) 4,000

Note that:

The 4,000 are not recorded as a gain on sale of treasury shares

and thus, are not included in the measurement of net income. They

are recorded separately in the “Share Premium—Treasury”

account.

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Sale of Treasury Shares

2- Sale of Treasury Shares below Cost. Pacific sells an

additional 1,000 treasury shares on March 21 at $8 per share, it

records the sale as follows.

Cash(1,000*8) 8,000

Share Premium—Treasury(11,000-8,000) 3,000

Treasury Shares (1,000*11) 11,000

15-35

LO 2


Sale of Treasury Shares

ILLUSTRATION 15.6

Treasury Share

Transactions in Share

Premium—Treasury

Account

Illustration: Assume that Pacific sells an additional 1,000

shares at $8 per share on April 10.

Cash

8,000

Share

Premium—Treasury 1,000

Retained Earnings(3,000-1,000) 2,000

Treasury Shares 11,000

Note

that:

In

this case, the decrease of issuing price of par value for treasury shares is

incurred by:

1-

share premium – Treasury with its balance Debit side (decrease)

2- The retained earning with the remain

15-36

Debit side(decrease) LO 2


Reacquisition of Shares ‫سهم‬%‫إعادة اقتناء ا‬

Retiring Treasury Shares ‫تقاعد أسهم الخزينة‬

Decision results in : :‫ينتج عن القرار‬

 cancellation of the treasury shares and ‫إلغاء أسهم الخزينة و‬

 a reduction in the number of shares of issued shares.

.‫صدرة‬K‫سهم ا‬%‫سهم في ا‬%‫تخفيض عدد ا‬

Retired treasury shares have the status of authorized and

unissued shares. .‫صدرة‬K‫صرح بها وغير ا‬K‫سهم ا‬%‫تقاعدة بوضع ا‬K‫تتمتع أسهم الخزينة ا‬

The accounting effects are similar to the sale of

treasury shares except that corporations debit “applicable

equity accounts related to the retired shares” instead of

‫تقاعدة" بد•ً من‬K‫سهم ا‬%‫تعلقة با‬K‫طبقة ا‬K‫لكية ا‬K‫حاسبية مع بيع أسهم الخزينة باستثناء أن الشركات تخصم "حسابات حقوق ا‬K‫تتشابه ا‚ثار ا‬

15-37

cash. LO 2


LEARNING OBJECTIVE 3

Dividend Policy Explain the accounting and

reporting issues related to

dividends.

Few companies pay dividends in amounts equal to

their legally available retained earnings. Why?

‫اذا ا ؟‬K .‫تاحة قانونًا‬K‫حتجزة ا‬K‫رباحها ا‬% ‫أرباحا بمبالغ مساوية‬
ً ‫قلة من الشركات تدفع‬

1. Maintain agreements with creditors.

2. Meet corporation requirements.

‫ عقد ا•تفاقيات مع الدائن‬.1
e

‫ تلبية متطلبات الشركة‬.2 .

3. To finance growth or expansion.

.‫ لتمويل النمو أو التوسع‬.3 .

‫رباح‬%‫ لتيسير مدفوعات ا‬.4

.‫حتملة‬K‫ لبناء وسادة ضد الخسائر ا‬.5 .

4. To smooth out dividend payments.

5. To build up a cushion against possible losses.

15-38

LO 3


Dividend Policy

‫رباح‬%‫الية وتوزيعات ا‬K‫الحالة ا‬

Financial Condition and Dividend Distributions

 Before declaring a dividend, management must

consider availability of funds to pay the dividend.

‫رباح‬%‫موال لدفع ا‬%‫دارة مراعاة توافر ا‬u‫ يجب على ا‬، ‫رباح‬%‫ن عن توزيعات ا‬4‫ع‬u‫قبل ا‬

 Should not pay a dividend unless both the present

and future financial position warrant the distribution.

.‫ستقبلي يبرر التوزيع‬K‫الي الحالي وا‬K‫• ينبغي أن تدفع أرباحا ما لم يكن الوضع ا‬

15-39

LO 3


Dividend Policy

Types of Dividends

.‫ أرباح نقدية‬.1 .‫سهم‬%‫ تصفية أرباح ا‬.3

1. Cash dividends. 3. Liquidating dividends.

2. Property dividends. 4. Share dividends.

.‫متلكات‬K‫ أرباح ا‬.2 .‫رباح‬%‫ حصة ا‬.4

All dividends, except for share dividends, reduce the

total equity in the corporation. ‫ تقلل من‬، ‫سهم‬%‫ باستثناء توزيعات ا‬، ‫رباح‬%‫جميع توزيعات ا‬
.‫لكية في الشركة‬K‫إجمالي حقوق ا‬

15-40

LO 3


Dividend Policy

1- Cash Dividends ‫ توزيعات أرباح نقدية‬-1

 Board of directors vote on the declaration of cash

dividends. .‫ن توزيع أرباح نقدية‬4‫دارة يصوت على إع‬u‫مجلس ا‬

 A declared cash dividend is a liability. .‫علنة هي التزام‬K‫رباح النقدية ا‬%‫توزيعات ا‬

 Companies do not Three dates:

declare or pay cash a. Date of declaration

dividends on treasury b. Date of record

shares. .‫أرباحا نقدية على أسهم الخزينة‬

ً ‫• تعلن الشركات أو تدفع‬

c. Date of payment

‫ تاريخ التصري‬.‫ أ‬:‫ثة تواريخ‬4‫ث‬
‫ح‬

‫ تاريخ القيد‬.‫ب‬
‫ تاريخ السداد‬.‫ج‬

15-41

LO 3


Dividend Policy

Illustration: Roadway Freight Corp. on June 10 declared a cash

dividend of 50 cents a share on 1.8 million shares payable July

16 to all shareholders of record June 24.

At date of declaration (June 10)

Retained Earnings 900,000

Dividends Payable 900,000

At date of record (June 24) No entry

At date of payment (July 16)

Dividends Payable 900,000

Cash 900,000

15-42

LO 3


Dividend Policy ‫رباح‬%‫سياسة توزيع ا‬

Liquidating Dividends ‫رباح‬%‫تصفية ا‬

- Any dividend not based on earnings reduces amounts

paid-in by shareholders and to that extent, it is a

liquidating dividend. ‫ فهي توزيعات أرباح‬، ‫ وإلى هذا الحد‬e‫ساهم‬K‫دفوعة من قبل ا‬K‫بالغ ا‬K‫رباح تقلل من ا‬%‫ أي توزيعات أرباح • تستند إلى ا‬-
.‫قابلة للتصفية‬

This term implies that such dividends are a return of the

shareholder's investment rather than of profits.

.‫أرباحا‬
ً ‫ساهم وليس‬K‫رباح هذه هي عائد استثمار ا‬%‫صطلح إلى أن توزيعات ا‬K‫يشير هذا ا‬

15-43

LO 3


Dividend Policy

Illustration: McChesney Mines Inc. issued a “dividend” to its

ordinary shareholders of £1,200,000. The cash dividend

announcement noted that shareholders should consider £900,000

as income and the remainder a return of capital. McChesney Mines

records the dividend as follows.

Date of payment

Dividends Payable 1,200,000

Cash 1,200,000

15-44

LO 3


‫سهم‬%‫رباح وتقسيم ا‬%‫تقاسم ا‬

Share Dividends and Share Splits

Share Dividends

 Issuance by a corporation of its own shares to shareholders

on a pro rata basis, without receiving any consideration.

.‫ على أساس تناسبي دون مقابل‬e‫◆ قيام شركة بإصدار أسهمها الخاصة للمساهم‬

 Par value, not the fair value, is used to record the share

dividend. .‫سهم‬%‫ لتسجيل أرباح ا‬، ‫ وليس القيمة العادلة‬، ‫يتم استخدام القيمة ا•سمية‬

 In this case the company distributes no assets. Share

dividend does not affect any asset or liability. ‫ حصة‬.‫ • توزع الشركة أي أصول‬، ‫في هذه الحالة‬

‫أرباح • تؤثر‬

 Journal entry reflects a reclassification of equity.

.‫لكية‬K‫يعكس قيد اليومية إعادة تصنيف حقوق ا‬

 Ordinary share dividend distributable reported in the equity

section as an addition to share capital—ordinary.

.‫ العادي‬- ‫ال‬K‫لكية كإضافة إلى رأس ا‬K‫درجة في قسم حقوق ا‬K‫سهم العادية القابلة للتوزيع ا‬%‫توزيعات أرباح ا‬
15-45

LO 3


Share Dividends

Illustration: Vine plc has outstanding 100,000 shares of £1 par

value ordinary shares and retained earnings of £50,000. If Vine

declares a 10 percent share dividend, it issues 100 additional

shares to current shareholders. If the fair value of the shares at

the time of the share dividend is £8 per share, the entry is:

Date of declaration

Retained Earnings(100,000*10%) 10,000

Ordinary Share Dividend Distributable 10,000

Note that:

• The par value, not the fair value, is used to record the share

dividend. .‫سهم‬%‫ تستخدم لتسجيل أرباح ا‬، ‫ وليس القيمة العادلة‬، ‫ القيمة ا•سمية‬:‫•حظ أن‬

• The share dividend does not affect any asset or liability.

.‫سهم على أي أصل أو التزام‬%‫• تؤثر أرباح ا‬

15-46

LO 3


Share Dividends

Illustration: Vine plc has outstanding 1,000 shares of £1 par value

ordinary shares and retained earnings of £50,000. If Vine declares a

10 percent share dividend, it issues 100 additional shares to current

shareholders. If the fair value of the shares at the time of the share

dividend is £8 per share, the entry is:

Date of distribution

Ordinary Share Dividend Distributable 10,000

Share Capital—Ordinary 10,000

Note that:

- Ordinary share dividend distributable reported in the equity section

as an addition to share capital—ordinary. ‫درجة في‬K‫سهم العادية القابلة للتوزيع ا‬%‫ أرباح ا‬- :‫•حظ أن‬
.‫ عادي‬- ‫ال‬K‫لكية كإضافة إلى رأس ا‬K‫قسم حقوق ا‬
15-47

LO 3


Share Dividends and Share Splits

Share Splits ‫مشاركة ا•نقسامات‬

 To reduce the market value of shares. ‫سهم‬Œ‫لتقليل القيمة السوقية ل‬

 No entry recorded for a share split. ‫سهم‬%‫→ لم يتم تسجيل دخول لتقسيم ا‬

 Decrease par value and increased number of

shares. ‫سهم‬%‫خفض القيمة ا•سمية وزيادة عدد ا‬

ILLUSTRATION 15.13

Effects of a Share Split

15-48

LO 3


Share Dividends and Share Splits ‫سهم‬%‫رباح وتقسيم ا‬%‫تقاسم ا‬

‫تقاسم تقسيم وتقاسم توزيعات أرباح متمايزة‬

Share Split and Share Dividend Differentiated

A share split differs from a share dividend. How?

‫ كيف ؟‬.‫سهم‬%‫سهم عن توزيعات ا‬%‫يختلف تقسيم ا‬

 A share split increases the number of shares

outstanding and decreases the par or stated value per

share. .‫علنة للسهم‬K‫سهم القائمة ويقلل من القيمة ا•سمية أو القيمة ا‬%‫يزيد تجزئة السهم من عدد ا‬

، ‫سهم‬%‫توزيعات أرباح ا‬

‫سهم القائمة‬%‫يزيد من عدد ا‬

 A share dividend,
.‫ • يقلل من القيمة ا•سمية‬.
.‫سهم القائمة‬Œ‫جمالية ل‬u‫▶ يزيد من القيمة ا•سمية ا‬

► increases the number of shares outstanding.

► does not decrease the par value.

► increases the total par value of outstanding shares.

15-49

LO 3


Presentation and LEARNING OBJECTIVE 4

Indicate how to present and

Analysis of Equity analyze equity.

Presentation of Equity ILLUSTRATION 15.15

Comprehensive Equity

Presentation

15-50

LO 4


‫لكية‬K‫عرض وتحليل حقوق ا‬

Presentation and Analysis of Equity

Disclosure of Restrictions on Retained

Earnings ‫حتجزة‬K‫رباح ا‬%‫فروضة على ا‬K‫فصاح عن القيود ا‬u‫ا‬

Such restrictions are best disclosed by note. .‫حظة‬4K‫فصاح عن هذه القيود با‬u‫فضل ا‬%‫من ا‬

 Restrictions imposed by bond indentures and loan

agreements commonly require an extended

explanation. .‫شرحا موس ًعا‬

ً ‫عادةً ما تتطلب القيود التي تفرضها عقود السندات واتفاقيات القروض‬

 The note disclosure should reveal ‫حظة‬4K‫يجب أن يكشف الكشف عن ا‬

► the source of the restriction, ، ‫مصدر القيد‬

► pertinent provisions, and ‫ و‬، ‫حكام ذات الصلة‬%‫ا‬

► the amount of retained earnings subject to restriction or

the amount not restricted. .‫قيد‬K‫بلغ غير ا‬K‫حتجزة يخضع لقيود أو ا‬K‫رباح ا‬%‫مبلغ ا‬
15-51

LO 4
 Dividend Preferences and Book Value Per
APPENDIX 15A
Share

LEARNING OBJECTIVE 5
Dividend Preferences
Discuss the different types of preference share dividends and their effect on book
value per share.

Illustration: In 2019, Mason Company is to distribute €50,000 as

cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.

1. If the preference shares are noncumulative and nonparticipating:

ILLUSTRATION 15A.1
Dividend Distribution, Non-Cumulative and Non-Participating Preference
15-52 LO 5
 Dividend Preferences

Illustration: In 2019, Mason Company is to distribute €50,000 as

cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.
‫سهم‬%‫أرباحا على ا‬
ً Mason ‫ ولم تدفع شركة‬، ‫متازة تراكمية وغير مشاركة‬K‫سهم ا‬%‫ إذا كانت ا‬.2
:(e‫ )السابق‬e‫ السابق‬e‫متازة في العام‬K‫ا‬

2. If the preference shares are cumulative and non-participating,

and Mason Company did not pay dividends on the preference
shares in the preceding(previous) two years:
ILLUSTRATION 15A.2

15-53 LO 5
 Dividend Preferences

3. If the preference shares is noncumulative and is fully participating:

ILLUSTRATION 15A.3
15-54 LO 5
 Dividend Preferences

Illustration: In 2019, Mason Company is to distribute €50,000 as

cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.

4. If the preference shares are cumulative and fully participating,

and Mason Company did not pay dividends on the preference
shares in the preceding two years: ILLUSTRATION 15A.4

15-55 LO 5