Accounting for Companies

Question 1

What is an Accounting Reference Date?

Answer 1

The end of a Firm’s Accounting Period.

• By Default, this is the last day of the Firm’s Incorporation Month; however,
• Firms have full discretion to change the Date.

Question 2

By when must a Company File its Accounts?

Answer 2

• LTDs: 9 months of the Accounting Reference Date.
• PLCs: 6 months of the Accounting Reference Date.

Accounts must be Filed at Companies House.

Question 3

How are Company Accounts different from Sole Trader or Partnership Accounts?

Answer 3

• The Income Statement includes Corporation Tax.
• The Capital Section of the Balance Sheet includes Share Capital.
• Companies must publish Consolidated Accounts if they have Subsidiaries.
• Companies must publish a Statement of Changes in Equity to record Dividends.

Question 4

What is a Statement of Changes in Equity?

Answer 4

A Financial Statement that records changes in a Company’s Equity over the Accounting Period.

Year-End Profits from the Profit and Loss Account are carried over to the Statement of Changes in Equity, not directly transferred to the Balance Sheet.

Question 5

What are the Contents of a Statement of Changes in Equity?

Answer 5

• Distributable Profits = Profits Brought Forward + Current-Year Profits.
• Retained Earnings = Distributable Profits − Distributions Made.

Question 6

In the Capital Section of a Company’s Balance Sheet, what are the Main Entries?

Answer 6

• Reserves.
• Called-Up Share Capital.

Question 7

What is Called-Up Share Capital?

Answer 7

Capital paid by Shareholders for the Nomial Value of their Shares.

Question 8

What are Reserves?

Answer 8

Capital in excess of Called-Up Share Capital that is sequestered.

Question 9

What are the Two Types of Reserves?

Answer 9

• Capital Reserves.
• Revenue Reserves.

Question 10

What are the Main Types of Capital Reserves?

Answer 10

• Revaluation Reserve.
• Share Premium Account.

Genereally, these are Non-Distributable.

Question 11

What is the Revaluation Reserve?

Answer 11

An Account recording increases in Fixed Asset values upon Revaluation, to reflect current Market Value.

Reductions in Fixed Asset values upon Revaluation can be Set-Off against the Reserve.

Question 12

What is the Share Premium Account?

Answer 12

An Account recording the difference between the Nominal Value and Subscription Price of Shares.

Question 13

What is the Main Type of Revenue Reserve?

Answer 13

Retained Earnings.

Question 14

What are Retained Earnings?

Answer 14

Profits retained by the Firm.

Accordingly, they have not been Distributed or allocated to a specific Reserve.

Question 15

What is a Declared Dividend?

Answer 15

A Dividend approved by Shareholders.

Question 16

How is a Declared Dividend Recorded?

Answer 16

Statement of Changes in Equity:

• As a Deduction from Retained Earnings.

Balance Sheet:

• As a Current Liability if unpaid by the Accounting Period’s end.

Question 17

How is an Interim Dividend Recorded?

Answer 17

• As a Deduction from Retained Earnings in the Statement of Changes in Equity; but
• Only if it has actually been paid.

Question 18

How is Equity Finance Recorded on a Balance Sheet?

Answer 18

Shares Issued at Nominal Value:

• Equal increases in Cash (Assets) and Share Capital (Shareholders’ Equity).

Shares Issued at a Premium:

• Equal increases in Cash (Assets) and Share Capital (Shareholders’ Equity).
• Surplus allocated to the Share Premium Account.

Question 19

How is Debt Finance Recorded on a Balance Sheet?

Answer 19

Debt Finance:

• Equal increases in Cash (Assets) and Current or Non-Current Liabilities (Liabilities).

Question 20

What is the Formula for Leverage?

Answer 20

Leverage = (Non-Current Liabilities ÷ TotalEquity) × 100%.