Chapter 13 - Capital Structure And Finance Costs Flashcards
What are the 3 main forms of financial capital?
Ordinary ‘equity’ share capital
Loan notes
Preference shares
What are ordinary ‘equity’ share capital?
Equity as the company has no obligation to pay a dividend or repay capital
Classified within equity in the SFP
What are loan notes?
Form of debt. A document issued by a company containing an acknowledgment of its indebtedness
What are preference shares?
Can either be debt or equity.
If an obligation to repay then this is evidence of debt. Liability to SFP with dividends shown as finance charges in SPL
If no obligation to repay then this is evidence of equity. Classified as equity and dividends treated the same way as ordinary dividends
What is share premium?
Any receipt in excess of nominal value when the shares are first issued
What is the double entry to record a share issue?
Dr bank account (issue price x no. of shares
Cr share capital (nominal value x shares)
Cr share premium acc (premium raised x no. Of shares)
What are the voting rights for loan capital?
A creditor if the company so no voting rights
What is income for loan capital?
Contractual right to interest irrespective of availability of profits
What happens to loan capital if the company goes into liquidation?
Preferential right to repayment
What is income for share capital?
Dividends depend on availability of profits
What happens to share capital if the company goes into liquidation?
Receive repayment after creditors but can participate in surplus assets
What are the voting rights for preferential share?
None or restricted
What are the voting rights for ordinary shares?
Full
What are the dividend rights for preference shares?
Fixed dividend paid in priority to other dividends, usually cumulative
What are the dividend rights for ordinary shares?
Paid after preference dividend. Not fixed
What is authorised capital?
The maximum number of shares a company can issue
What is issued capital?
The number of shares actually issued. It is this figure that appears on the SFP
What is the nominal value?
Shares have a face value. Also known as a par or nominal value. This is not necessarily the price at which the shares were originally issued.
What is market value?
Determined by the value of the business. It is quoted on the stock exchange if the company is listed. No relevance to the company’s financial statements
What is bonus issue?
Some of the company’s equity reserves are used to issue fully paid shares to existing shareholders in proportion to their shareholding’s
Don’t raise any new funda
What are rights issued?
New shares offered or existing shareholder in proportion to their shareholdings
Raise new funds
What is the double entry for issue of shares for cash?
Dr cash/bank
Cr share capital ( nom value) or share premium (premium)
What is the double entry for issue of bonus shares?
Dr equity reserves
Cr share account
What is the equation for equity reserves?
Share capital + equity reserves = equity of the company = carrying among of the net assets of the company
Can capital reserves or revenue reserves be distributed or both?
Revenue Reserve
What is accumulated profit in relation to revenue reserves?
Total profit made by the company since it was formed, minus dividends paid
What is general reserve in relation to revenue reserves?
No specific purpose for the reserve. Although legally the reserve can be distributed as a dividend, the directors are indicating that it is not available for distribution
What is the equation for closed retainer earnings?
O.R.E + profit - prior year final div
