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Dear readers,
Someone to sort me out?A tea factory was built by one International organization for local people who after some years failed to manage it. The Government took the management and the shareholding of local people was reduced to 45% which makes the Government to own 55%.
In the Financials, there is nothing like Share Capital. The Government wants to sell through auction its shareholding, i.e, 55%. How will the amount of share capital be determined after the acquisition?
Note: What makes the net assets is the Retained Earnings only!
Thanks for your help.
Got a problem here! You say “and the shareholding of local people was reduced to 45% which makes the Government to own 55%.” Yet you also say “there is nothing like Share Capital.”
These contradictions aside, your underlying question is “How will the amount of share capital be determined ?” I’m batting in the blind here – I have no experience of it. However, if the only “shareholders’ funds” is retained earnings, I presume that by effecting the double entry Dr Retained earnings, Cr Share capital you could use any figure. That would simply be described as the capitalisation of retained earnings. And the number of shares, and nominal value of theose shares could, in theory, be anything you wanted – up to te value of the retained earnings. So Dr Retained earnings (say) $80,000, Cr Share capital 80,000 shares of $1 each.
But I really don’t know – all the above is just guess work!
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