C2 - Ltd Company Financial Statements

Question 1

What is a limited company?

Answer 1

A separate legal entity owned by shareholders and managed by directors.

Question 2

Advantage of Ltd company

Answer 2

Limited liability - only lose up to your investment. Assets are also protected.

Separate legal entity - legal action against company only and not the shareholder.

Question 3

Two criteria points to become a public limited company

Answer 3

1. Issued share capital of over £50,000

2. At least two members(shareholders) and minimum on two directors

Question 4

What is the Articles of Association?

Answer 4

A document that sets out the rules for running the company including the powers of directors and the holding of company meetings

Question 5

What does authorised share capital mean?

Answer 5

This is the maximum share capital of the company is allowed to issue.

Question 6

What are ordinary (equity) shares?

Answer 6

The most common use of shares which carries the risks and rewards of the business.

Risk: losing the value of the shares if the company becomes insolvent.

Rewards: taking a share of the profit in the form of a dividend after allowance has been made for all expenses (inc tax and finance cost)

Question 7

Company becoming insolvent with ordinary shares invested..

Answer 7

Shareholders with ordinary shares will be the last people to receive their dividend or any repayment after liabilities have been cleared.

Question 8

What are preference shares?

Answer 8

Shares that carries a fixed percentage rate of dividend.

These shares are paid in preference to ordinary shares but will only get paid if the company makes a profit.

Does not carry voting rights.

Preference shares will receive repayment of capital before ordinary shareholders would.

Question 9

What does nominal value of shares mean?

Answer 9

The amount at which the shares were entered at on the accounts of the company.

Question 10

What does market value mean?

Answer 10

The price at which issued shares or second hand shares are traded at

Question 11

What is the issue price of shares?

Answer 11

The amount at which shares are issued to shareholders by the company.

Question 12

What does share premium mean?

Answer 12

The amount difference between issue price (issued to shareholders) and nominal value (amount entered into accounts)

Question 13

What are debentures?

Answer 13

Formal certificates issued by companies raising long teen financial from lenders and investors.
Debentures are commonly secured against assets in the event of the company ceasing to trade and are paid before shareholders

Question 14

What are directors remuneration?

Answer 14

The amount paid to the shareholders of a company which appears in the overheads section of the FS

Question 15

What are capital reserves?

Answer 15

Capital reserves are profits which can not be distributed to shareholders and are therefore held for contingency plans and long term investment.

Question 16

What is revaluation surplus/reserve

Answer 16

An example of capital reserve when a non current asset such as property is revalued in an upwards direction.

The revaluation is recorded as other comprehensive income and placed in revaluation surplus on balance sheet.

Question 17

What are revenue reserves?

Answer 17

Revenue reserves are profits generated from trading activities that have been retained in the company to help build the future.

Question 18

What are intangible non-current assets?

Answer 18

Assets that belong to the company but do not have a material substance.

Eg goodwill (amount paid for reputation and connections of a business)

Question 19

Between capital and revenue reserves, which one is distributable to shareholders?

Answer 19

Revenue reserves are distributable

Question 20

What is a public limited company?

Answer 20

A company with an issued share capital of over £50k and at least two members/shareholders and two directors