AC 14

Question 1

What are COS, distribution and admin costs?

Answer 1

COS- cost of G/S

distribution- cost of getting product to people (inc delivery cost and delivery van depreciation

Admin cost- costs which aren’t the other 2 and includes depreciation of NCA not used in production or distribution, IDE and impairment

Question 2

What are Ordinary shares

Answer 2

Owners own share capital and have voters rights. They may or may not get dividend and only get paid after preference shares

Question 3

What are preference shares

Answer 3

They own preference share capital which doesn’t inc voting rights. They receive fixed dividend as a % of nominal value. Two types inc redeemable and irredeemable

Question 4

What is a redeemable and irredeemable preference share

Answer 4

Redeemable- company must pay back and is like loan (classed as debt not equity with dividends classed as finance cost)

Irredeemable- equity which pays dividends

Question 5

How are shares priced

Answer 5

Nominal value- initial value usually at 50p

Issue price- cost of the share to someone and is higher than NV

Question 6

What Is double entry for issuing shares

Answer 6

Dr cash (issue price x number of shares) - how much is raised

Cr share capital (nominal value x number of shares)- how much it’s costing firm

Cr share premium (excess over nominal value x shares)

Question 7

What is a right issue and a bonus issue

Answer 7

Right issue- shares offered to existing shareholders below market value but above nominal value
Bonus issue - issuing new shares to existing shareholders to increase number of shares

Question 8

What is the double entry for bonus issue?

Answer 8

Dr share premium
Cr share capital

Question 9

What is issued share capital, called up share capital, and paid up capital

Answer 9

Issued share capital is nominal value of shares issued to shareholders

Called up share capital is the amount of nominal value of issued share capital

Paid up share capital is the nominal value of called up that has been paid.

Question 10

How do you calculate the balance of retained earnings?

Answer 10

Retained earnings bf (last years SOFP)
Net profit ( this years SOFP)
Dividends

Retained earnings (this year SOFP)

Question 11

What does the statement of changes in equity show?

Answer 11

Shows how equity in the SOFP has changed over the year. It’s a movement in profit, dividends and shares issued.

Question 12

How long does a limited company raise funds and what is the double entry?

Answer 12

Through loan notes (debenture)

Dr cash
Cr NCL

Question 13

What are loan notes?

Answer 13

They are evidence of debt, which can be repaid after a certain amount of years. They are paid interest until that point.

interest is included in the finance cost.

Question 14

What is the double entry for paying interest on the loan notes?

Answer 14

Dr finance costs
Cr cash, or accrual

Question 15

What is a provision and what is the double entry? How do you account for removal?

Answer 15

Liability where the amount and timing of payment is not certain, for example, warranty refunds or lawsuits.

Dr relevant expense account
Cr provision

Remove the provision

Dr provision (SOFP)
Cr cash at bank

Question 16

Give the double entry for tax, when tax is overpaid, when the tax is underpaid

Answer 16

Tax liability
Dr tax expense
Cr tax payable

overpay
Dr tax payable
Cr tax expense

underpaid
Dr tax expense
Cr tax payable

Question 17

How do you account for tax?

Answer 17

For tax liability
Dr tax expense spl
Cr tax payable sfp

For tax payable
Dr tax payable
Cr cash

Question 18

How do we know if we underprovided tax?

Answer 18

If the payment is more than liability accrued

To correct we :
Dr tax expense
Cr tax payable

Question 19

On which statement does the tax payable or tax expense go?

Answer 19

Tax payable goes in SFP
Tax expense goes in SPL