Chapter 1 - Limited Companies

Question 1

Features of a limited company

Answer 1

Limited liability
Seperate legal entity
The owners are seperate to the business
The owners and people running the company are often different people
Incorporated

Question 2

Advantages of a limited company

Answer 2

Limited liability

Easier to raise finance through shares

Company continues to operate regardless of ownership

Taxed under corporation tax which is generally less than personal tax

Question 3

Disadvantages of a limited company

Answer 3

Accounts are submitted at companies house with access to the public

More regulation

Larger companies must be audited

Issuing shares is highly regulated

Question 4

Components of financial statements for Limited companies as required by IAS1

Answer 4

P&L
Statement of financial position
Statement of changes in equity
Cashflow
Notes to the financial statements

Question 5

Equity formula

Answer 5

Equity = Share capital + retained profit + other reserves

Question 6

What are ordinary shares

Answer 6

Shares that are in the equity section of SOFP

Sometimes called equity shares

Shareholders can receive a dividend at the directors discretion

Shareholders are entitled to vote in a general meeting

Question 7

What are preference shares?

Answer 7

Carry the right to a fixed rate dividend

Dividend must be paid before any dividend to ordinary shareholders

No voting rights