ACCTN 202 Equity

Question 1

Definition of owners equity

Answer 1

RESIDUAL INTEREST- the assets of the entity after the deduction of its liabilites.

Question 2

Equity Structure

Answer 2

1) Contributed Capital
2) Reserves
3) Retained Earnings

Is shown at the bottom of the balance sheet. These all belong to the shareholder

Question 3

Contributed Capital/Equity

Answer 3

How much the shareholders has contributes in cash or assets

Question 4

Retained Earnings or accumulated losses

Answer 4

When the company doesn’t have to distribute dividends to its shareholders.

Question 5

Ordinary Share

Answer 5

ADVANTAGE
1)Voting rights in AGM
2) Recieve dividends
DISADVANTAGE
1)When the company is winding up all the accounts need to be settled
2)Cant be assured to recieve dividends

classified as equity

Question 6

Preference Shares

Answer 6

ADVANTAGE
1) The recieved dividends before ordinary shareholders
2)When company is winding up, you pay preference share capital before paying ordinary share capital
DISADVANTAGE
1) No voting rights
2) Many different types

Can be classified as either/or equity and non current liability

Question 7

Main Statutes

Answer 7

1) Companies Act 1993
2) Securities Act 1978

Question 8

Solvency Tests

Answer 8

Repurchase of shares, capital reductions and capital redemptions are subject to solvency test mentioned in CA 1993. Solvency test determines how liquid a business is. There are two types
1) Trading Solvency Test = The companies ability to pay its debts as they fall due
2) Balance Sheet Solvency Test = The total assets should be greater than the total liabilities.