Financial Aspect of New Companies Act
Transcript of Financial Aspect of New Companies Act
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Financial Aspects of
New Companies Act
by
Naomal Goonewardena
Partner
NITHYA PARTNERS
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There is no nominal or par value on the share
The consideration on the issue of shares has to be reasonable to theCompany and to all existing Shareholders.
The consideration for which a share is issued may take any formincluding cash, promissory notes, future services, property of any kind
or other securities of the Company.
Rights of pre-emption on new issue of shares which ranpari passuorabove existing shares recognized.
Issue of Share Capital
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Means, the total amount received by the Company or due andpayable to the Company in respect of the issue of shares and in
respect of calls on shares.
Where a share is issued for consideration other than cash, theBoard shall determine the cash value of such consideration for
the purpose of above.
Stated Capital
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Non Current Assets 22,430,141 22,430,141
Current Assets 10,766,494 10,766,494
Total Assets 33,196,635 33,196,635
Current Liabilities (6,865,182) (6,865,182)
Non Current Liabilities (9,130,582) (9,130,582)17,200,871 17,200,871
Represented by:
Share Capital 5,018,115 Stated Capital 10,295.058Share Premium 5,276,943
Revaluation Reserves 4,896 4,896
Retained Earnings 6,900,917 6,900,917
17,200,871 17,200,871
Dialog Telekom LimitedAs at 31st December 2006
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Dialog issues 1 Billion Preference Shares of the par value of Rs. 1/=at a price of Rs. 4/= per Share, carrying a dividend of 40%
Scenario 1
Net AssetsRepresented By :
Share CapitalOrdinary Shares of the par value of Rs. 1/= each (1)
Preference Shares of the par value of Rs. 1= each (2)
Share PremiumRe-valuation ReservesRetained Earnings
5,018,115
1,000,000 6,018,115
8,276,943
4,896
6,900,917
21,200,871
21,200,871
(1) Represented by 8.5 Billion Ordinary Shares of the par value of Rs. 1/- each
(2) Represented by 1 Billion Preference Shares of the par value of Rs. 1/- each
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Dialog issues 1 Billion Preference Shares at a price of Rs. 4/= perShare, carrying a Dividend of Cents 40 per Share
Scenario 1
Net Assets
Represented By :
Re-valuation ReservesRetained Earnings
10,295,058
4,000,000 14,295,058
4,896
6,900,917
21,200,871
21,200,871
Ordinary Share Capital (1)
Preference Share Capital (2)Stated Capital
(1) Represented by 8.5 Billion Ordinary Shares
(2) Represented by 1 Billion Preference Shares
Contd
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The Current Share Capital of John Keells of Rs. 4.0 Billion is
represented by 400,007,000 Ordinary Shares of the par value of
Rs. 10/- each.
If JKH makes a 1 : 7 Bonus Issue immediately after the Balance
Sheet Date and therefore 57,142,858 new Ordinary Shares
would get created by the capitalization of 571,428,581 from
Reserves.
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JKH goes for a 1 for 7 Bonus Issue
Scenario 2
Net AssetsRepresented By :
Share Capital (1)
Re-valuation ReservesRetained Earnings
4,571,498
7,630,26710,742,949
22,944,714
22,944,714
(1) Represented by 457,149,985 Ordinary Shares of the par value of Rs. 10/- each
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JKH goes for a 8 for 7 Share Split
Scenario 2
Net AssetsRepresented By :
Share Capital (1)
Re-valuation ReservesRetained Earnings
4,000,070
8,201,69510,742,949
22,944,714
22,944,714
Contd
(1) Represented by 457,149,985 Ordinary Shares
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Where any distribution is involved, the Board must be satisfied that theCompany be satisfied after the distribution is made the solvency test and theAuditor should issue a Certificate of Solvency.
The distribution is defined as,
a) The direct or indirect transfer of money or property, other than theshares of a Company, to or for the benefit of a Shareholder; or
b) The incurring of a debt to or for the benefit of a Shareholder,
In relation to a share held by that Shareholder, whether by means of apayment of dividend, a redemption or other acquisition of the share orshares, a distribution of indebtedness or otherwise.
Distributions and Solvency Tests
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The Solvency Test is satisfied if,
i) company being able to pay its debts as they become due inthe normal course of business; and
ii) the value of the Companys assets is greater than -
the value of its liabilities; and
the Companys stated capital
In determining Solvency, the Board should take into account the mostrecent financial accounts, circumstances which might affect theCompanys assets and liabilities, a fair valuation or other method ofassessing the value of assets and liabilities.
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Non Current Assets 22,430,141
Current Assets 10,766,494
Total Assets 33,196,635
Current Liabilities (6,865,182)
Non Current Liabilities (9,130,582)
17,200,871
Stated Capital (10,295,058)
Solvency 6,905,813Represented by:
Revaluation Reserves 4,896
Retained Earnings 6,900,917
6,905,903
Dialog Telekom LimitedAs at 31st December 2006
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On a Company purchase of its own shares, the Auditor has to opine
that the consideration being given is a fair value
Where the Companys Articles are altered to impose or remove a
restriction on the business activity or a major transaction is carried
out or there is an amalgamation, the minority shareholder shall be
entitled to require the Company to purchase its shares. In such aninstance, any dispute in the price has to be referred to the Auditor
for determination as to what constitutes a fair and reasonable price.
Share Valuation and Auditors Obligations
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Non Current Assets 1,964,029 1,964,029
Current Assets 651,173 651,173
Total Assets 2,615,202 2,615,202
Current Liabilities 470,256 470,256
Non Current Liabilities 988,783 988,783
Minority Interest 0 0
1,156,163 1,156,163
Represented by:
Share Capital 269,767 Stated Capital 349,990Share Premium 80,223
Revaluation Reserves 540,000 540,000
Retained Earnings 266,173 266,173
1,156,163 1,156,163
Maskeliya Plantations LimitedAs at 30th June 2006
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Non Current Assets 1,964,029
Current Assets 651,173
Total Assets 2,615,202
Current Liabilities 770,256
Non Current Liabilities 988,783
Minority Interest 0
856,163
Represented by:
Share Capital Stated Capital 49,990Share Premium
Revaluation Reserves 540,000
Retained Earnings 266,173
856,163
Maskeliya Plantations Limited Revised Balance SheetAs at 30th June 2006
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Should be prepared within 6 months of balance sheet date
In addition to two Directors it needs to be certified by the personresponsible for its preparation,
Entitlement to receive more than half the dividends paid on shareswould make the Company a subsidiary (other than where there is noright to participate beyond a specified amount in a distribution ofprofits or capital)
Group Financial Statements not required if the Company itself is awholly owned subsidiary of another Company
Provision for accounts in summarized form (as approved by ICASL)to be sent with Annual Reports
Accounts
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Auditor should ensure that judgement not impaired by
reason of any other relationship with or interest in theCompany or any of its subsidiaries.
Auditor shall disclose the amounts payable by the
Company as audit fees and expenses and as a separateitem any fees and expenses payable by the Company forother services.
Audit