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So there was a question in the BPP exam book where the answer was as follows:
A private company may allot shares for inadequate consideration by accepting goods or services at an over-value.
————–I’m not sure what that means. The textbook only included points about allotting public shares.
In the context of a PUBLIC company, where it wishes to issue shares in exchange for a non-cash consideration to be received, there needs to be an independent valuation done to confirm that the nominal value of the shares to be issued, together with any attributable premium, is not less than the open-market fair value of the non-cash consideration to be received (eg, a building)
But this independent valuation requirement IS NOT A REQUIREMENT for private companies
So a private company could issue shares with a face value of, say, £1,000 in exchange for a non-cash consideration of a Sainsbury shopping trolley.
Double entry?
Dr Tangible non-current assets (shopping trolley) £1,000
Cr Share Capital £1,000OOOOPS! Did the Government really mean that situation to exist? Apparently, yes!
OK?
Thats a good example to help me remember it! 🙂 🙂 My confusion lies with the fact that if shopping trolley is an inadequate consideration why is it at an over-value. Or does that mean we are ‘over-valuing’ the actual worth of the trolley?
Hi Sacca22,
Apologies, I know this is not the forum for this question but I’m not sure how else to connect. I have seen your posts on the FA forum and they were the same questions I had. I wondered if you were still sitting the FA exam and wanted to be study buddies?
Thank you
The shopping trolley at an overvalue? Because it would not be acceptable to issue £1,000 nominal value of shares requiring a credit entry in the Share Capital Account of £1,000 and having the associated debit as £0.50 as the value of a Sainsbury shopping trolley (with a wobbly wheel)
So, instead, we have valued the shopping trolley at £1,000 and thus we can now complete the double entry
But common sense dictates that we should realise that a shopping trolley is inadequate consideration for £1,000 nominal value of shares
Is that better?
As for Sacca, why not post your question re Financial Accounting on the FA forum?
Hi Mike,
Thanks for your message.
I made a post to the FA forum but not sure the general forum really gets seen as most come to the Ask the Tutor page.
I honestly mean no offence by posting here, I’m just not sure how else to connect with likeminded students when studying alone.
I’ve had study partners in the past which was extremely useful and thought for FA it would be great to connect with someone in the same boat.
Thank you
I also posted to one member on the Ask the Tutor FA forum but I can’t see that anyone can respond in that thread.
I messaged Sacca here as they have posted as recently rather than an old thread if that makes sense.
Again, I apologise for any offence if taken, not my intention
I fully applaud your efforts and have taken absolutely no offence. I sincerely hope that, if Sacca is of the same mind-set about having a study buddy, you will get the response that you are looking for
I just wanted to thank you Mike, I have seen in the more recent posts that you have tried to assist with getting in contact with Sacca. Sincerely appreciate your efforts, understanding and motivating response above.
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