Financial accounting and auditing Lecture 12 Ownership interest

Financial accounting and auditing Lecture 12 Ownership interest

Outline

Definition and recognition • ‘The residual amount found by deducting all of the entity’s liabilities from all of the entity’s assets’. Events which change assets or liabilities include: 1. Making a profit (or loss) through the operations of the business – earning revenue and incurring expenses; 2. A contribution of cash by incoming shareholders purchasing new shares; 3. Holding an asset which increases or decreases in value; 4. Holding a liability which increases or decreases in value.

Presentation of ownership interest It is presented in: • Income statement • Statement of changes in equity • Statement of comprehensive income (for unrealised gains)

Issue of shares • The date on which the company comes into existence is called the date of incorporation • Each shares have a value, which is called nominal or par value • As a result of issuing shares: Asset (increase)-Liabilities=Owners’ Equity (Increase)

Example of a share certificate

Buying and selling shares • Stock market • Listed shares • High demand

Issue further shares after incorporation • Nominal value • Premium

Revaluation of non-current asset • To record in a historical value, but include in a note (the market value of an asset increase) • Wealth (reserve) Vs revaluation reserve: • Asset (increase)-liabilities=Owners’ equity (increase)