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Paid-in Capital Fundamental Share Rights Inrading the previous paragraphs, you noted that corporations raise equity funds by selling shares of the corporation. Shareholders are the owners of a corporation. If a corporation has only one class of shares, no designation of the shares is necessary, but they typically are common shares. Ownership rights held by common shareholders, unless specifically ltheld by agreement with the shareholders, are as follows: Buiness Corporation Act, the American Bar Association, 201 1046 SECTION 3 nternational Financial Heprti Stailer Distinction between Debt and Equity for Preferred Stock. and requirements can result in the same instrument being clasrences debt and equity under IFRS and US. GAAP Under US. GAAR classified diftei the eferred stock no reported in the ince preferred stock statement as interest expense if a is mandatorily redeemable most non-mandetorily redeemable preferred stock (prefere e n debt as well as some the critical feature that distinguishes a liability is if the issuer is sn f eprefe that aren the issuer t describes such a diferenca LO18-9is reported as equity, but is reported as debt with the Under IFRS (UAS No.3 45 be required to d cash (or another financial instrument) to the holder' Unilever can b Additional Information for U.S. Investors (in part) Preference Shares Under IAS 32, Unilever recognizes preference shares that dividend as borrowings with preference dividends recogni Under U.S. GAAP such prefer disclosure note: provide a fixed pret ed in the income stanemer ence shares are classified in shareholders uction to shareholder's equity dividends treated as a ded of selling shares for les te attention andwere the During the late 19th and early 20th centuries, many cases of selling valuc- known as watered shares-received a great deal of par ject of a number of lawsuits. Investors and creditors contended that value as the permanent investment in the corporation and therefo be at least that amount. Not only was par value assumed to be the holders, but it also was defined by early corporation laws as the amount available for distribution to shareholders (as dividends or otherwi they relied on the amount invested by shu se). Shares wilth nominal par Many companies began turning to par value shares with very low par values-ie nnies-to escape the watered shares liability of issuing shares below an value and to limit the restrictions on distribution s. This practice is common today dodge elaborate statutory rules pertaining to par value shares. Accountants and attorneys have been aware for decades that laws and legal capital not only are bewildering but fail in their intent to safeguard creditors payments to shareholders. Actually, to the extent that creditors are led to believe thet are afforded protection, they are misled. Like the designations of common and shares, the concepts of par value and legal capital have been eliminated entirely from Model Business Corporation Act. pertaining to pa Many states already have adopted these provisions of the Model Act. But most esate corporations issued shares prior to changes in have par value shares outstanding and continue to issue previously authorized par vale stars The evolution will be gradual to the simpler, more meaningful provisions of the M the state statutes.Consequently, most comais st shares continue to arbiltrarily designated and legal capital in order to properly record and report transactions related to pu In the meantime, accountants must be familiar with the outdated concepts of par alues shares. For that reason, most of the discussion in this chapter centers on par Largely, this means only that proceeds from shareholders' investment is alloc stated capital and additional paid-in capital. Be aware, though, that in the absenc laws that prompted the creation of par value shares, there is no theoretical reason to do s Accounting for the Issuance of Shares Shares Issued For Cash res are sold for cash (see Illustration 18-5), the capital stock accouni signated par value, that amount denotes stated capital and is cre Lo1s-4 common or preferred) is credited for the amount representing stated cap tal redited to hen sha ation, official comment to Section 6.21 Accowuing Standard No. 32 (1ASCF), as amended effective