Equity part2

EQUITY PART 2EQUITY PART 2
ISSUES IN SHARE CAPITALISSUES IN SHARE CAPITAL
ANDAND
STATEMENT OF CHANGES INSTATEMENT OF CHANGES IN
EQUITYEQUITY

22
Learning Outcomes
1.1. Discuss the issue of repurchase or buyback ofDiscuss the issue of repurchase or buyback of
equity sharesequity shares
2.2. Explain share dividend (bonus issue).Explain share dividend (bonus issue).
3.3. Explain share splits.Explain share splits.
4.4. Differentiate between share dividend and shareDifferentiate between share dividend and share
split.split.
5.5. Describe share right.Describe share right.
6.6. Prepare Statement of Changes in EquityPrepare Statement of Changes in Equity

33
Share BuybacksShare Buybacks
 Prior 1997, companies in M’sia were not allowed byPrior 1997, companies in M’sia were not allowed by
Companies Act 1965 to repurchase their own shares.Companies Act 1965 to repurchase their own shares.
 After 1997, Sec. 67 of Companies Act was amended andAfter 1997, Sec. 67 of Companies Act was amended and
allows a public listed companies to purchase their own shares.allows a public listed companies to purchase their own shares.

44
Motivation for Share BuybacksMotivation for Share Buybacks
 To support share prices in times when the prices areTo support share prices in times when the prices are
depresseddepressed
 To distribute surplus cash to shareholders in lieu ofTo distribute surplus cash to shareholders in lieu of
cash dividendscash dividends
 To improve the capital structure of the companyTo improve the capital structure of the company
 To provide a means of utilizing surplus cashTo provide a means of utilizing surplus cash
 Defense against hostile take-over attemptsDefense against hostile take-over attempts

55
Accounting Methods for shareAccounting Methods for share
buybacksbuybacks
With the amendment to Section 67A, two alternative methods ofWith the amendment to Section 67A, two alternative methods of
accounting for share buybacks are permissible:accounting for share buybacks are permissible:
(a)(a) Share retirement methodShare retirement method
(b)(b) Treasury share methodTreasury share method

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Share Retirement MethodShare Retirement Method
 Appropriate when the company intends to cancel theAppropriate when the company intends to cancel the
shares repurchased and retired immediatelyshares repurchased and retired immediately
 The nominal value of the shares repurchased shouldThe nominal value of the shares repurchased should
be cancelled by:be cancelled by: debiting the share capital accountdebiting the share capital account
and crediting the Capital redemption reserveand crediting the Capital redemption reserve..
 The consideration for shares repurchased should beThe consideration for shares repurchased should be
adjusted to theadjusted to the share premium account.share premium account.
 Retained earningsRetained earnings are used whenever the totalare used whenever the total
amount of Share Premium is insufficient for theamount of Share Premium is insufficient for the
retirement exercise.retirement exercise.

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Illustration 1: Share Buyback usingIllustration 1: Share Buyback using
share retirement methodshare retirement method
 Year 2000Year 2000
Issued and fully paid ordinary share capital:Issued and fully paid ordinary share capital:
50,000,000 unit of RM1 each.50,000,000 unit of RM1 each.
 Year 2005Year 2005
-Repurchased 5,000,000 of the equity from the open-Repurchased 5,000,000 of the equity from the open
market at RM3 each.market at RM3 each.
-Brokerage fees amounting to RM150,000.-Brokerage fees amounting to RM150,000.
-Bal in Share premium account: RM10,000,000-Bal in Share premium account: RM10,000,000
-Bal in Retained profits: RM20,000,000-Bal in Retained profits: RM20,000,000

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Journal Entries for Illustration 1Journal Entries for Illustration 1
 Dr Share capitalDr Share capital RM5,000,000RM5,000,000
Cr Capital Redemption ReserveCr Capital Redemption Reserve
RM5,000,000RM5,000,000
(to record the repurchase of ordinary share of 5million units at par value(to record the repurchase of ordinary share of 5million units at par value
of RM1 each)of RM1 each)
 Dr Share PremiumDr Share Premium RM10,000,000RM10,000,000
Dr Retained profitsDr Retained profits RM 5,150,000RM 5,150,000
Cr CashCr Cash RM15,150,000RM15,150,000
( to record for the considerations of shares repurchase : 5million x RM3( to record for the considerations of shares repurchase : 5million x RM3
plus RM150,000 brokerage fees)plus RM150,000 brokerage fees)

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Movement in Balance SheetMovement in Balance Sheet
RM’000RM’000
Share capital:Share capital:
Issued and fully paid ordinary shares of RM1 eachIssued and fully paid ordinary shares of RM1 each
Balance at 1 Jan 2005 – 50,000,000Balance at 1 Jan 2005 – 50,000,000 50,00050,000
Shares cancelled on repurchasedShares cancelled on repurchased (5,000)(5,000)
Balanced at 31 DecBalanced at 31 Dec 20052005 45,00045,000
Capital Red. ReserveCapital Red. Reserve 5,0005,000
Share premium account:Share premium account:
Balance on Jan 1Balance on Jan 1 10,00010,000
Consideration paidConsideration paid (10,000)(10,000)
Balance at 31 DecBalance at 31 Dec --
Retained Earnings:Retained Earnings:
Balance bought forwardBalance bought forward 20,00020,000
Amount utilized for shares repurchasedAmount utilized for shares repurchased 5,1505,150
Balance carried forwardBalance carried forward 14,85014,850
Total shareholders’ equityTotal shareholders’ equity 64,85064,850

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Disclosure in Balance SheetDisclosure in Balance Sheet
RM’000RM’000
Share capital:Share capital:
Issued and fully paid ordinary sharesIssued and fully paid ordinary shares
of RM1 eachof RM1 each 45,00045,000
Capital Red. ReserveCapital Red. Reserve 5,0005,000
Retained EarningsRetained Earnings 14,85014,850
Total shareholders’ equityTotal shareholders’ equity 64,85064,850

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Treasury MethodTreasury Method
 More appropriate when a company, which repurchases itsMore appropriate when a company, which repurchases its
own shares, intends to reissue the repurchased sharesown shares, intends to reissue the repurchased shares
subsequentlysubsequently
 Shares repurchased are held asShares repurchased are held as treasury sharestreasury shares
 Measured at the cost of repurchaseMeasured at the cost of repurchase
 Should not be revalued for subsequent changes in the fairShould not be revalued for subsequent changes in the fair
value or market pricevalue or market price
 Amount of treasury shares should beAmount of treasury shares should be set off against equityset off against equity
in the balance sheetin the balance sheet

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Illustration 2: Treasury methodIllustration 2: Treasury method
Based on Illustration 1, the journal entry will be:Based on Illustration 1, the journal entry will be:
The entry for Treasury shares:The entry for Treasury shares:
 Dr Treasury shares,at costDr Treasury shares,at cost 15,150,00015,150,000
Cr CashCr Cash 15,150,00015,150,000
( to record purchase of treasury shares )( to record purchase of treasury shares )

1313
RM’000RM’000
Share capital of RM1 eachShare capital of RM1 each 50,00050,000
Share premium accountShare premium account 10,00010,000
Less: 5,000,000 treasury shares,Less: 5,000,000 treasury shares,
at costat cost (15,150)(15,150)
64,85064,850

1414
Subsequent Sale or DistributionSubsequent Sale or Distribution
of Treasury Sharesof Treasury Shares
 IfIf distributed asdistributed as share dividendsshare dividends, cost of the, cost of the
treasury shares would reduce the sharetreasury shares would reduce the share
premium account or the distributable reservespremium account or the distributable reserves
or bothor both
 If the shares wereIf the shares were reissuedreissued in the openin the open
market, the difference between the salesmarket, the difference between the sales
consideration and the carrying amount of theconsideration and the carrying amount of the
shares should be taken directly to equityshares should be taken directly to equity
( debit/credit share premium account)( debit/credit share premium account)

1515
Illustration 4: Treasury SharesIllustration 4: Treasury Shares
Based on Illustration 2:Based on Illustration 2:
 If the company subsequently distributed theIf the company subsequently distributed the
treasury shares astreasury shares as share dividendsshare dividends, the, the
journal would appear as below:journal would appear as below:
Dr Share premiumDr Share premium RM10,000,000RM10,000,000
Dr Retained profitsDr Retained profits RM 5,150,000RM 5,150,000
Cr Treasury shares RM15,150,000Cr Treasury shares RM15,150,000

1616
Share premium accountShare premium account ::
RM’000RM’000
Balance at Jan 1Balance at Jan 1 10,00010,000
Distr. of shares as share div.Distr. of shares as share div. (10,000)(10,000)
Balance at 31 DecBalance at 31 Dec --
Retained profits:Retained profits:
Retained profits availableRetained profits available 20,00020,000
Distr. of shares as share div.Distr. of shares as share div. (5,150)(5,150)
Balance at 31 DecBalance at 31 Dec 14,85014,850

1717
Illustration 4: Treasury SharesIllustration 4: Treasury Shares
 If the companyIf the company resoldresold the 5,000,000 shares inthe 5,000,000 shares in
the open market forthe open market for RM4 per shareRM4 per share, the, the
journal entry would be:journal entry would be:
Dr CashDr Cash RM20,000,000RM20,000,000
Cr Share premiumCr Share premium RM 4,850,000RM 4,850,000
Cr Treasury sharesCr Treasury shares RM15,150,000RM15,150,000

1818
Illustration 5: Treasury sharesIllustration 5: Treasury shares
 If the treasury shares wereIf the treasury shares were resoldresold atat RM2 per shareRM2 per share,,
the journal entry would appear as below:the journal entry would appear as below:
Dr Cash accountDr Cash account RM10,000,000RM10,000,000
Dr Share premiumDr Share premium RM 5,150,000RM 5,150,000
Cr Treasury shares,Cr Treasury shares,
at costat cost RM15,150,000RM15,150,000

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Disclosure Requirements
 Disclose the purpose, nature and terms of
share repurchase transactions undertaken
 The funding of the shares repurchased
 Methods applied to account for shares
repurchased
 The amount of treasury shares distributed as
share dividends
 The reason, terms and amount of treasury
shares reissued

2020
Cash Dividends:Cash Dividends:
Important DatesImportant Dates
• There are three important dates:There are three important dates:
• the declaration date (the declaration date (dividends are declared anddividends are declared and
accrued)accrued)
• the date of record (the date of record (list of stockholders to whomlist of stockholders to whom
dividends are to be paid is finalized)dividends are to be paid is finalized)
• the payment date (the payment date (dividends are paid to stockholdersdividends are paid to stockholders
of recordof record))
• Dividend becomes a current liability on theDividend becomes a current liability on the
declaration datedeclaration date

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Cash Dividends: Journal EntriesCash Dividends: Journal Entries
Date of Record No Entry
Date Declared
Dr Retained Earnings
Cr Dividends Payable
Date of Payment Dr Dividends Payable
Cr Cash

2222
Illustration 6: Cash DividendIllustration 6: Cash Dividend
ABC BHD declares a $2,000 cash dividend; theABC BHD declares a $2,000 cash dividend; the
following journal entries should be made:following journal entries should be made:
Declaration DateDeclaration Date
Dividends PayableDividends Payable 2,0002,000
Payment DatePayment Date
Dividends PayableDividends Payable 2,0002,000
CashCash 2,0002,000

2323
Why Issuing bonus share /shareWhy Issuing bonus share /share
dividend instead of cash?dividend instead of cash?
 The usual reason for issuing a share dividend is toThe usual reason for issuing a share dividend is to
give the shareholders returns in the form of dividendgive the shareholders returns in the form of dividend
due to insufficient cash on a dividend date and yetdue to insufficient cash on a dividend date and yet
conserve net asset.conserve net asset.
 Issuing a share dividend to achieve these endsIssuing a share dividend to achieve these ends
would be a public relations gesture in that the publicwould be a public relations gesture in that the public
would be less likely to criticize the corporation forwould be less likely to criticize the corporation for
high profits or undue retention of earnings.high profits or undue retention of earnings.
 A share dividend also may be issued for theA share dividend also may be issued for the
purpose of obtaining a wider distribution of thepurpose of obtaining a wider distribution of the
shareshare

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Share DividendShare Dividend Example:Example:
-- Company ABC has 1 million shares of outstandingCompany ABC has 1 million shares of outstanding
share. The company has five investors who each ownshare. The company has five investors who each own
200,000 shares. The share currently trades at RM100200,000 shares. The share currently trades at RM100
per share. Management decides to issue a 20% shareper share. Management decides to issue a 20% share
dividend.dividend.
-- It results in an additional 200,000 shares of ordinaryIt results in an additional 200,000 shares of ordinary
share (20% of 1share (20% of 1 million) and send these to themillion) and send these to the
shareholders based on their current ownership.shareholders based on their current ownership.
-- all of the investors own 200,000 or 1/5 of the co, soall of the investors own 200,000 or 1/5 of the co, so
they each receive 40,000 of the new shares (1/5 of thethey each receive 40,000 of the new shares (1/5 of the
200,000 new shares issued).200,000 new shares issued).
-- Now, the company has 1.2 million sharesNow, the company has 1.2 million shares
outstanding, each investor owns 240,000 shares of theoutstanding, each investor owns 240,000 shares of the
ordinary share.ordinary share.

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Illustration 7 : Share DividendIllustration 7 : Share Dividend
 Assume the following about XYZ Bhd.:Assume the following about XYZ Bhd.:
 Ordinary Share (RM1 par, 100,000Ordinary Share (RM1 par, 100,000
shares outstanding)shares outstanding) $100,000$100,000
 Share PremiumShare Premium $80,000$80,000
 Retained EarningsRetained Earnings $152,000$152,000
Share Dividend DeclaredShare Dividend Declared 2:1 basis2:1 basis
(100,000 existing units x 2 = 200,000 units(100,000 existing units x 2 = 200,000 units
share dividend)share dividend)
 Assume the following about XYZ Bhd.:Assume the following about XYZ Bhd.:
 Ordinary Share (RM1 par, 100,000Ordinary Share (RM1 par, 100,000
shares outstanding)shares outstanding) $100,000$100,000
 Share PremiumShare Premium $80,000$80,000
 Retained EarningsRetained Earnings $152,000$152,000
Share Dividend DeclaredShare Dividend Declared 2:1 basis2:1 basis
(100,000 existing units x 2 = 200,000 units(100,000 existing units x 2 = 200,000 units
share dividend)share dividend)

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Illustration 8.5 : Share DividendIllustration 8.5 : Share Dividend
Declaration DateDeclaration Date
Share premiumShare premium 80,00080,000
Dividends DistributableDividends Distributable 200,000200,000
Issuance DateIssuance Date
Dividends DistributableDividends Distributable 200,000200,000
Ordinary ShareOrdinary Share 200,000200,000
 DebitDebit distributable reservesdistributable reserves for thefor the PARPAR value of thevalue of the
shares.shares.

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 Implications of share dividend to equityImplications of share dividend to equity
structure:structure:
 Increase in the share capital account,Increase in the share capital account,
decrease in the distributable reserve accountdecrease in the distributable reserve account
 Net change to shareholders’ equity is nilNet change to shareholders’ equity is nil
 The number of outstanding shares increasesThe number of outstanding shares increases

2828
Extra exerciseExtra exercise
Ramadhan Bhd had issued 100,000 ordinaryRamadhan Bhd had issued 100,000 ordinary
shares at RM1 nominal price. Share premiumshares at RM1 nominal price. Share premium
and retained earnings balance were RM40,000and retained earnings balance were RM40,000
and RM270,000 respectively.and RM270,000 respectively.
On 1 Sept 2008, the company declares bonusOn 1 Sept 2008, the company declares bonus
shares of 1:2 to its existing shareholders.shares of 1:2 to its existing shareholders.
On 15 Sept 2008, the company distributes theOn 15 Sept 2008, the company distributes the
bonus shares.bonus shares.
Prepare the journal entry and shareholders’ equityPrepare the journal entry and shareholders’ equity
section.section.

2929
1 Sept 20081 Sept 2008
Dr. Share premiumDr. Share premium 40,00040,000
Dr. Retained earningsDr. Retained earnings 10,00010,000
Cr. Dividend distributableCr. Dividend distributable 50,00050,000
(100,000/2 = 50,000 units bonus share)(100,000/2 = 50,000 units bonus share)
15 Sept 200815 Sept 2008
Dr Dividend distributableDr Dividend distributable 50,00050,000
Cr Share capitalCr Share capital 50,00050,000
Shareholder’s EquityShareholder’s Equity
Issued and paid up share capitalIssued and paid up share capital
150,000 ordinary shares at RM1150,000 ordinary shares at RM1 150,000150,000
ReservesReserves
Share premiumShare premium --
Retained earningsRetained earnings 260,000260,000
TOTALTOTAL 410,000410,000

3030
Share splitShare split
 Made when fair value of shares are too highMade when fair value of shares are too high
 Reason for share split:Reason for share split:
- when price of a share getting higher – the price- when price of a share getting higher – the price
is too high for investor to buy (unaffordable).is too high for investor to buy (unaffordable).
- splitting the share brings the share price down- splitting the share brings the share price down
to a more attractive level.to a more attractive level.
- splitting the share also gives exciting- splitting the share also gives exciting
shareholders the feeling that they suddenly haveshareholders the feeling that they suddenly have
more shares than they did before. And of coursemore shares than they did before. And of course
if the price rises, they have more share to trade.if the price rises, they have more share to trade.

3131
 A share split is a company action thatA share split is a company action that increasesincreases
thethe number of the company’s outstanding sharesnumber of the company’s outstanding shares
by dividing each share, which in turnby dividing each share, which in turn reduces itsreduces its
priceprice..
 TheThe share capitalshare capital remains theremains the samesame..
 Ex; with a 2-for-1 share split, each shareholderEx; with a 2-for-1 share split, each shareholder
receives an additional share for each share held,receives an additional share for each share held,
but the value of each share is reduced by half,but the value of each share is reduced by half,
two shares now equal the original value of onetwo shares now equal the original value of one
share before the split.share before the split.

3232
 Example:Example:
- Share of Abbey Bhd is trading at RM40 and has 10- Share of Abbey Bhd is trading at RM40 and has 10
million shares issued, which gives it a share capital ofmillion shares issued, which gives it a share capital of
RM400 million (RM40 x 10 million shares). The companyRM400 million (RM40 x 10 million shares). The company
then decides to implement a 2-for-1 share split.then decides to implement a 2-for-1 share split.
- For each share shareholders currently own, they- For each share shareholders currently own, they
receive one share. They now have two shares for eachreceive one share. They now have two shares for each
one previously held, but the price of the share is split byone previously held, but the price of the share is split by
50% from RM40 to RM20.50% from RM40 to RM20.
- Notice that the market capitalization stays the same. It- Notice that the market capitalization stays the same. It
has doubled the amount of shares outstanding to 20has doubled the amount of shares outstanding to 20
million while simultaneously reducing the share price bymillion while simultaneously reducing the share price by
50% to RM20 for a capitalization of RM400 million. The50% to RM20 for a capitalization of RM400 million. The
true value of the company hasn’t changed one bit.true value of the company hasn’t changed one bit.

3333
 The most ordinary share split are 2-for-1, 3-for-2The most ordinary share split are 2-for-1, 3-for-2
and 3-for-1.and 3-for-1.
 An easy way to determine the new share price isAn easy way to determine the new share price is
to divide the previous share price by the splitto divide the previous share price by the split
ratio.ratio.
 In the case of our example, divide RM40 by 2In the case of our example, divide RM40 by 2
and we get the new trading price of RM20.and we get the new trading price of RM20.
 If a share were to split 3-for-2, we’d do the sameIf a share were to split 3-for-2, we’d do the same
thing: 40/ (3/2) = 40/1.5=RM26.6thing: 40/ (3/2) = 40/1.5=RM26.6

3434
Ramadhan Bhd had issued 100,000 ordinaryRamadhan Bhd had issued 100,000 ordinary
shares at RM1 nominal price. Share premiumshares at RM1 nominal price. Share premium
and retained earnings balance were RM40,000and retained earnings balance were RM40,000
and RM270,000 respectively.and RM270,000 respectively.
On 23 Sept, the company decided to split itsOn 23 Sept, the company decided to split its
ordinary share at a ratio of 4:1.ordinary share at a ratio of 4:1.
Show the effect of split share program on equity.Show the effect of split share program on equity.

3535
New # of shares = 100,000 x 4 = 400,000 unitsNew # of shares = 100,000 x 4 = 400,000 units
New Nominal price = RM1 /4 = RM0.25 per shareNew Nominal price = RM1 /4 = RM0.25 per share
400,000 ordinary shares at RM0.25400,000 ordinary shares at RM0.25 100,000100,000
ReservesReserves
Share premiumShare premium 40,00040,000

3636
 Ramadhan Bhd had issued 100,000 ordinary shares atRamadhan Bhd had issued 100,000 ordinary shares at
RM1 nominal price. Share premium and retainedRM1 nominal price. Share premium and retained
earnings balance were RM40,000 and RM270,000earnings balance were RM40,000 and RM270,000
respectively.respectively.
 On 1 Sept 2008, the company declares bonus shares ofOn 1 Sept 2008, the company declares bonus shares of
1:2 to its existing shareholders.1:2 to its existing shareholders.
 On 15 Sept 2008, the company distributes the bonusOn 15 Sept 2008, the company distributes the bonus
shares.shares.
 On 23 Sept, the company decided to split its ordinaryOn 23 Sept, the company decided to split its ordinary
share at a ratio of 4:1.share at a ratio of 4:1.
 Prepare the journal entry and shareholders’ equityPrepare the journal entry and shareholders’ equity
section.section.

3737
1 Sept 20081 Sept 2008
Dr. Retained earningsDr. Retained earnings 10,00010,000
Cr. Dividend distributableCr. Dividend distributable 50,00050,000
(100,000/2 = 50,000 units bonus share)(100,000/2 = 50,000 units bonus share)
15 Sept 200815 Sept 2008
Dr Dividend distributableDr Dividend distributable 50,00050,000
Cr Share capitalCr Share capital 50,00050,000
30 Sept 200830 Sept 2008
Number of shares outstanding = 100,000+50,000 = 150,000Number of shares outstanding = 100,000+50,000 = 150,000
After split, number of shares = 150,000 x 4 = 600,000After split, number of shares = 150,000 x 4 = 600,000
New nominal price = RM1 / 4 = RM0.25New nominal price = RM1 / 4 = RM0.25
600,000 ordinary shares at RM0.25600,000 ordinary shares at RM0.25 150,000150,000
ReservesReserves
Share premiumShare premium --

3838
 No change in the share capitalNo change in the share capital
or retained earnings accountsor retained earnings accounts
 Only change is the number ofOnly change is the number of
shares outstanding andshares outstanding and
nominal valuenominal value
 Increase in the share capitalIncrease in the share capital
account, decrease in theaccount, decrease in the
retained earnings accountretained earnings account
 Net change to shareholders’Net change to shareholders’
equity is nilequity is nil
 The number of outstandingThe number of outstanding
shares increasesshares increases
If the Board of Directors should declare a share dividend of
25 percent or more, this is deemed to be a share split and
should be accounted for in that manner.
Share splitShare dividend
Share Dividend vs. Share SplitShare Dividend vs. Share Split

3939
Share RightsShare Rights
 Investee offers additional shares to the existingInvestee offers additional shares to the existing
shareholders – in accordance to the % of ownership.shareholders – in accordance to the % of ownership.
 Certificate of warrant will be issued to buy the right share.Certificate of warrant will be issued to buy the right share.
 Warrant - stating the number of shares that the holder ofWarrant - stating the number of shares that the holder of
the right may purchase and also the price of the right sharethe right may purchase and also the price of the right share
at which they may purchase (normally lower than the fairat which they may purchase (normally lower than the fair
value).value).
 Before the maturity date, shares and right can be soldBefore the maturity date, shares and right can be sold
separately.separately.
 Upon sale of right share to shareholders, the accountingUpon sale of right share to shareholders, the accounting
treatment should be similar to issuance of ordinary sharetreatment should be similar to issuance of ordinary share
capital but at discount price.capital but at discount price.
Dr. CashDr. Cash X (at price of right share)X (at price of right share)
Cr. Ordinary shareCr. Ordinary share X (at par value)X (at par value)
Cr. Share premiumCr. Share premium X (at premium)X (at premium)

4040
STATEMENT OF CHANGES IN EQUITYSTATEMENT OF CHANGES IN EQUITY
This statements reports the changes in each shareholder’sThis statements reports the changes in each shareholder’s
equity account during the year.equity account during the year.
FRS 101 Para. 96: an entity shall present a statement ofFRS 101 Para. 96: an entity shall present a statement of
changes in equity showing on the face of the statements:changes in equity showing on the face of the statements:
a)Thea)The net profit or lossnet profit or loss for the periodfor the period
b)Eachb)Each itemitem of income and expense, gain or loss which isof income and expense, gain or loss which is
recognized directly in equityrecognized directly in equity, and the total of these items;, and the total of these items;
c) total income and expense for the period (calculated as thec) total income and expense for the period (calculated as the
sum of (a) and (b)), showingsum of (a) and (b)), showing separatelyseparately the total amountsthe total amounts
attributable to equity holders of the parentattributable to equity holders of the parent andand to minorityto minority
interest;interest;
d) For each component of equity, thed) For each component of equity, the effects of changeseffects of changes inin
accounting policies and corrections of errors recognized inaccounting policies and corrections of errors recognized in
accordance with FRS 108.accordance with FRS 108.

4141
XYZ BhdXYZ Bhd
Statement of changes in equity for the year ended 31 Dec 2008Statement of changes in equity for the year ended 31 Dec 2008
Share
capital
Share
premium
Translation
reserves
Retained
earnings
Capital
redemptio
n reserve Total
x x (x) x x x x x
Changes in accounting policy (x) (x) (x)
Restated balance x x (x) x x x x x
Changes in equity for 2008
Gain on property revaluation x x x
Available-for-sale-investment
Cash flow hedges
Exchange difference on
foreign currency
Tax on item taken directly to
equity
Profit for the period x x x x
Total recognized income
and expense for the x x x x x
Dividends (x) (x) (x)
Issue of share capital x x
Issue of bonus shares x (x)
Share buyback (x) (x) x
Attributable to equity holders of the parent
Balance at 31 Dec 2007
Minority
interest
Total
equity

4242
The following information relates to shareholders’The following information relates to shareholders’
equity of Aa Bhd for the year ended 31 Dec 2007:equity of Aa Bhd for the year ended 31 Dec 2007:
1.1. As at 31 Dec 2006, balance of equity accountsAs at 31 Dec 2006, balance of equity accounts
were as follows:were as follows:
Ordinary share capitalOrdinary share capital RM17,500,000RM17,500,000
Share premiumShare premium 19,000,00019,000,000
Revaluation reserveRevaluation reserve 80,00080,000
Retained earningsRetained earnings 8,000,0008,000,000
2.2. The company reported a net income of RM600,000The company reported a net income of RM600,000
for the current year.for the current year.

4343
2.2. During 2007, the following events took place:During 2007, the following events took place:
1.1. The company repurchased 50,000 shares of its own inThe company repurchased 50,000 shares of its own in
the open market for RM1.80 per share on 1 July 2007.the open market for RM1.80 per share on 1 July 2007.
Par value is RM1 per share. The company uses thePar value is RM1 per share. The company uses the
share retirement method.share retirement method.
2.2. The company declaredThe company declared and distributeand distribute a 5% bonusa 5% bonus
shares for shareholders on 1 November 2007. On thisshares for shareholders on 1 November 2007. On this
date, an ordinary share was selling at RM2.date, an ordinary share was selling at RM2.
3.3. Revaluation of a piece of land shows that there is anRevaluation of a piece of land shows that there is an
increase in value of RM200,000.increase in value of RM200,000.
4.4. There is a change in accounting policy with respect toThere is a change in accounting policy with respect to
development cost. The change would reduce thedevelopment cost. The change would reduce the
beginning retained earnings by RM65,000.beginning retained earnings by RM65,000.
REQUIRED:REQUIRED:
1. Prepare journal entry for the transactions during 2007.1. Prepare journal entry for the transactions during 2007.
2. Prepare the statement of changes in equity.2. Prepare the statement of changes in equity.

4444
Answer…Answer… Journal entriesJournal entries
1.1. Dr. Ordinary shareDr. Ordinary share 50,00050,000
Cr. Capital Redemption reserveCr. Capital Redemption reserve 50,00050,000
(repurchased of ordinary share)(repurchased of ordinary share)
Cr. CashCr. Cash 90,00090,000
(Pay for the share repurchased- 50,000 x RM1.80)(Pay for the share repurchased- 50,000 x RM1.80)
2. Dr. Share premium2. Dr. Share premium 872,500872,500
Cr. Ordinary shareCr. Ordinary share 872,500872,500
(declare and distribute share dividend: 5% x (17,500,000-50,000))(declare and distribute share dividend: 5% x (17,500,000-50,000))
3. Dr. Land3. Dr. Land 200,000200,000
Cr Revaluation reserveCr Revaluation reserve 200,000200,000
(Surplus on revaluation)(Surplus on revaluation)
4. Dr Retained earnings4. Dr Retained earnings 65,00065,000
Cr Development costCr Development cost 65,00065,000
(Changes in accounting policy)(Changes in accounting policy)

4545
Answer…Answer…Attributable to equity holders of the parent
Share capital
Share
premium
Revaluation
reserve
Retained
earnings
Capital
redemptio
n reserve Total Equity
17,500,000 19,000,000 80,000 8,000,000 0 44,580,000
Changes in accounting policy (65,000) (65)
Restated balance 17,500,000 19,000,000 80,000 7,935,000 0 44,515,000
Changes in equity for 2008
Gain on property revaluation 200,000 200,000
Profit for the period 600,000 600,000
Issue of bonus shares 872,500 (872,500) 0
Share buyback (50,000) (90,000) 50,000 (90,000)
Balance at 31 Dec 2008 18,322,500 18,037,500 280,000 8,535,000 50,000 45,225,000
Balance at 31 Dec 2006

Equity part2

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Equity part2