Answer To: Week 1 Question (10 marks) Discuss the advantagesof listing a corporation on the stock exchange,...
Suvrat answered on May 06 2021
Week 1
Discuss the advantages of listing a corporation on the stock exchange, such as the ASX?
Ans-
Advantages of listing a corporation of the stock exchange are:
· Fund raising and exit route to investors – Listing provides an opportunity to the companies to raise capital to fund new projects and for acquisitions. It also provides exit route to private equity investors as well as liquidity to the ESOP holding employees.
· Ready marketability of the securities – Listing brings in liquidity and ready marketability of securities on a continuous basis adding prestige and importance to listed companies.
· Ability to raise further capital – An initial listing increases company’s ability to raise further capital through various routes like rights issue, preferential issues etc.
· Supervision and control of trading of securities – The transaction in listed securities are required to be carried as per the rules of the exchange. It improves the confidence of small investors and protects them.
· Fair price of securities – The prices are publicly arrived at on the basis of demand and supply; the stock exchange quotations are generally reflective of the real value of the security. Thus listing helps generate an independent valuation of the company by the market.
· Timely disclosure of Corporate Information – The listing agreement signed with the stock exchange provides for timely disclosure of information relating to dividend, bonus issue, book closure etc. by the company, thus providing more transparency and building investor confidence.
· Better Corporate practice – Since the violation of the listing agreement entails the de-listing of securities; the listed companies are expected to follow fair practices to the advantage of investors and public.
· Collateral Value of Securities – Listed securities is acceptable to lenders as collateral for credit facilities. A listed company can also borrow from financial institutions easily as it is rated favourably by lenders of capital.
· Benefits to the public – The data daily provided by exchanges in form of quotation of prices and others; provide valuable information to the public which can be used for project and research studies.
· Subdivision and Consolidation of Holdings – Stock exchange rules provide for sub-division and consolidation of securities as desired by the investors. Thus listing helps to provide flexibility to investors.
Week 2
(a) Prepare journal entries to record the above dividend payments.
Ans –
Date
Account
Debit ($)
Credit($)
31st March 20X1
Interim Dividend Dr.
1,00,000
To Interim Dividend Payable
1,00,000
(Interim Dividend declared)
7th April 20X1
Interim Dividend Payable Dr.
1,00,000
To Bank
1,00,000
(Interim Dividend Paid)
30th June 20X1
Retained Earnings Dr.
1,00,000
To Interim Dividend
1,00,000
(Interim Dividend transferred
to retained earnings)
30th June 20X1
Retained Earnings Dr.
2,50,000
To Proposed Final Dividend
2,50,000
(Final Dividend Proposed)
On date of AGM
Proposed Final Dividend Dr.
2,50,000
To Final Dividend Payable
2,50,000
(Being final dividend approved
by shareholders)
14th Sep 20X1
Final Dividend Payable Dr.
2,50,000
To Bank
2,50,000
(Being final dividend paid)
(b) Prepare the retained profits general ledger account.
Ans –
ABC Ltd.
Retained Earnings A/c
For the year ended 30th June 20X1
Date
Particulars
Debit ($)
Date
Particulars
Credit ($)
30th June 20X1
To Interim Dividend
...