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• # 108611
• Mon 04 May 2015 04:04 PM

My first post and sorry for the length.

I am invested in a company that wants to first sub-divide (split) its ordinary shares of  £0.01 par value each, into the same number of sub-ordinary shares of £0.001 par value each (1/10 the original par value) and the same number of deferred shares of £0.009 par value each (9/10 the original par value).  The deferred shares are then written off as worthless in accouting terms with no voting rights or value attached to them.

The company then wants to consolidate (reverse-split) the sub-ordinary shares of £0.001 that are left on a 10:1 basis into New Ordinary shares with £0.01 par value (ie back to the original par value).

The net result of this is that there are now only 1/10th the original number of ordinary shares in issue but the par value has been restored to £0.01 per share.  The hoped for reaction of the markets is that the share price will increase proportionally (ie by x10) as well.

According to some research I have already done the only journal entry needed for a share split is a 'memo entry' to note that the number of shares has changed and that the par value per share has changed.  However, a typical journal entry with debits and credits is not needed since the total share capital for the par value and other components of paid-in capital and stockholders' equity do not change.  

Firstly, is it the same case for the share consolidation part of the above procedure, that only a memo entry is required and no journal entries?

And is it the case that a journal entry is not needed because any Cr and Dr postings would simply cancel one another out as they are not effecting either the Assets or the Liabilities but only the owner equity, so there is no point in doing it?

Any help in understanding the technical details of writing this share sub division followed by share consolidation would be appreciated.

Bruce L.

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• # 108612
• Mon 04 May 2015 06:17 PM

Bruce,

Have a look at: http://www.accountingweb.co.uk/anyanswers/question/reduction-share-capital-or-share-buy-back

which may be of some assistance.

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• # 108614
• Mon 04 May 2015 07:55 PM

Hi, thanks but I can't access that without registering.

I was hoping someone here would be able to help.

Bruce

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• # 108617
• Tue 05 May 2015 06:45 AM

Bruce,

You will be able to make use of this site: http://www.accaglobal.com/content/dam/ACCA_Global/Technical/fact/technical-factsheet-177.pdf

This should be the full answer that you require.

The dealing with share capital reduction is outside the scope of normal bookkeeping work. Although I have the training and background in Zimbabwe, I would be loathe to give advice here in the UK other than point you in the direction of the above pdf file. As a matter of interest, in Zimbabwe share capital can only be reduced by the passing of a special resolution and application through the courts to allow for creditor objection. At least here since 2006 for private companies it has been made simpler but there are still potential tax and legal implications that shareholders need to be aware of.

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• # 108622
• Tue 05 May 2015 03:21 PM

Paul,

Thanks, I have had a look but it doesn't cover share-division and share consolidation, which are different to a share buy back.  Have a look at

http://www.bmrplc.com/files/2514/3030/2989/BMR_AGM_Circular_28_4_2015.pdf

Section 6.1 to 6.8 give the pertinent details of what the company want to do, although if you want all the messy background you can read the preceeding sections.

What I can probably do is use the examples in the document you attached and try and work out the journal entries myself. 

If, having read the attached you can think of any other documents that would be of use that would be great.

As you have said, we are maybe straying outwith the scope of normal bookkeeping here.

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