HA2032 CORPORATE ACCOUNTING ASSIGNMENT

This is NOT a report but it is
expected that your...

Question

HA2032 CORPORATE ACCOUNTING ASSIGNMENT

This is NOT a report but it is
expected that your submission will be in an appropriate format. There is no
word limit applied but you should ensure that each question is appropriately
answered. Where references are used, ensure they are recognised (refer to
student handbook or your lecturer if unsure)

ASSIGNMENT

Part A: (12
marks)

The last few years have been
difficult economically but the owners of Johnsons P/L, a medium-sized
manufacturer of quality dining furniture is keen to grow the business. They
have seen an increase in demand for their products from overseas and feel that
they will need to increase their operation in order to continue to meet this
demand. They are currently looking at a number of options to finance this
expansion such as through debt and through equity raising (meaning they will
need to “go public”). They have determined that they need to raise $60 million.

Giving consideration to the
various options, you have been requested to advise the owners of Johnsons what
the various options are, outlining the positives and negatives of each.

Required: write a report (should
be extensive) to the owners detailing ALL the different options and
considerations that you feel the owners should consider raising the $60
million.

Part B (8
marks)

Regardless of the advice you have
given (Part A), the owners have decided to go “public” and issue an ‘IPO” They
issue 30 million shares ($2.00), of which the payment on application is to
$0.80 per share (closes 18th April 2013), $0.50 four weeks after
allocation (allocation is 13th May 2013) and the remaining amount to
be paid on 30th July 2013 (the call will be made on 30th
June). The IPO attracts requests for 30.4 million shares. In this case, it
exceeds the allowable number of shares and the directors decide to apply the
“first-come, first-served” approach and return the excess back to the unlucky
applicants

Required: You are to journalise
the events (including dates and notations). You should assume that all monies
were received on 18th April (applications). What other option did
the directors have with the excess demand, returning the excess?

David · Accepted Answer

SOLUTION 1: 
Johnsons P/L is a medium-size manufacturer of quality dining furniture and is a growing 
company. The company is observing increase in demand from international markets and thus 
they need to increase their operation in order to meet increased demand. The company wants to 
raise $60 million either by way of debt or equity. If they are going for equity i.e. going public, 
they need to issue an Initial Public Offering (IPO). Initial Public Offering can be defined as first 
sale of shares or stock by company. It is carried by small or new companies to raise capital to 
expand and establish their business. It can also be undertaken by the large private companies for 
the purpose of becoming public companies. 
The company invest $60 million by either taking public financing or private financing. The 
Public financing can be defined as obtaining debt from government or involvement of 
government in capital structure. The Private financing can be defined as involving equity capital 
more in capital structure or obtaining funds from general public. It does not involve 
governmental funds, only equity or privately owned funds are involved. The main advantage of 
Public finance is that return paid on it is very less and disadvantage is that it is compulsorily 
required to be repaid and is obtained after complying with strict legal formalities. The main 
advantage of private Financing is that it can be obtained easily but investors demand high return 
on them.

HA2032 CORPORATE ACCOUNTING ASSIGNMENT This is NOT a report but it is expected that your submission will be in an appropriate format. There is no word limit applied but you should ensure that each...

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