A rights issue is an issue of new shares to existing shareholders whereby they are given the right to purchase additional shares in proportion to their current shareholdings. Usually the issue price is set below the current market price of the company’s shares. A renounceable rights issue allows the shareholder to take up the rights issue, let it lapse or sell their rights on the stock market. A non renounceable rights issue only allows the shareholder to either take up the rights by subscribing for more shares, or reject the rights, which mean that they lapse. The shareholders cannot sell the rights.Detail the characteristics of redeemable preference shares recognised as liabilities rather than equity.
Redeemable preference shares recognised as liabilities rather than equity normally would be redeemable in cash on a specified date or at the option of the holder, be cumulative in regard to the payment of dividends, non? participating in further dividends and have priority rights to return of capital over ordinary shares. A company under normal circumstances must maintain its share capital intact. Explain how this is achieved on the redemption of redeemable preference shares.If redeemable preference shares are considered to be equity, then under the Corporations Law they may be redeemed: * Out of a fresh issue of shares * Out of profits Under either the total share capital remains the same: If the redeemable preference shares are redeemed out of a fresh issue of shares, a new issue of shares replaces those shares and hence the total share capital remains the same.
If the redeemable preference shares are redeemed out of profits, the ASIC interpretation of the legislation is that on redemption the Retained Earnings must be reduced and the value of rdinary shares increased by the issue price of the shares redeemed.The total share capital remains the same because the redeemable preference shares are replaced by an increase in value of ordinary shares. List examples of temporary differences that create (a) deferred tax assets and (b) deferred tax liabilities. (a) Deferred tax assets occur when for assets the Carrying Amount < Tax Base, or when the future taxable amount < future deductible amount. Examples would be where a company has accounts receivable with an allowance for doubtful debts, or where the tax depreciation rates are less than the accounting depreciation rates.
Deferred tax assets also occur when for liabilities the Carrying Amount > Tax Base. Examples would be accrued expenses and revenue received in advance. (b) Deferred tax liabilities occur when for assets when the Carrying Amount > Tax Base, when the future taxable amount > future deductible amount. Examples would be revenue receivable, prepaid expenses or where the tax depreciation rates are greater than the accounting depreciation rates in the early years of an asset’s life.
Deferred tax liabilities also occur when for liabilities the Carrying Amount < Tax Base. There doesn’t appear to be any examples for this situation.
