Part A - Accounting for Issuance and Forfeiture of Shares
ABC Ltd needed funds to finance the expansion of its retailing business. After consulting the Finance Director, the Board of Directors decided to offer their shares to the public. In its prospectus, it notes that the shares are to be issued at $2.00 per share. The shares are to be paid in three instalments. The first payment of $0.80 is to be made on application. A second amount of $0.80 will be due in one month of allotment, and the last amount of $0.40 will be due within one month of the first and final call, which will be made within six months of the shares being allotted. ABC Ltd will seek to issue 20 million shares. The closing date for applications is 31 August 2012.
By the closing date, applications have been received for 28 million shares. To deal with the oversubscriptions, ABC Ltd has decided to issue shares to all subscribers on a pro rata basis.
All amounts due on allotment are paid by the due date. The first and final call for $0.40 is made on November 2012, with the amounts being due by 31 December 2012. Holders of four million shares fail to pay the amount due on the call by the due date, and on 15 January these holders have their shares forfeited. The forfeited shares are auctioned on 15 February. An amount of $1.40 per share is received. The cost of holding the auction is $10,000. The shares are sold as "fully paid".
Required:
Provide the accounting journal entries with explanations necessary to account for the above business transactions and events.
Part B - Australian Accounting Standards Board (AASB)
Part B1
Assuming that a company declares a final dividend to shareholders, under what circumstances would such a declaration of dividend create a liability that will be required to be disclosed in the statement of financial position? Cite the specific Australian Accounting Standards Board regulation(s) to explain your answer.
Part B2
Would you expect the total equity of an entity to increase following a share split? Why do companies need to split their shares? Is there any effect on the market value of the shares