Chapter 14 - company financial statments Flashcards
How are comapny statments of profit and loss formated?
Entries made into many different nomial legeraccounts, however are summarised into SPL
- Cost of sales: Opening inventory, purches (less closing inventory) → the calculation should be shown in a note to accountant not on SPL
- Distribution costs → all expenses relating to sellling or delivery of products or services
- Administrative expenses → all expenses not included withing cost of sales or distribution costs
How are comapny statments of finacial possition formated?
(dont worry about deffinitions yet)
What are oridnary shareholders?
- Real owner of business → Last people to get paid
- They have roting rights attached to shares
- May recieve dividends, (which is desided by directors if and how much) → no dividends payed until the preference shareholder dividends are paid in full.
- Dividends are expressed in terms of pense per share
- What are preference shareholder?
- What are the 2 types of preference shares?
- Shareholders recieved fixed dividends calculated as a % of nominal value → Do not genrally have voting rights.
- Redeemable prefernce shares → The company can buy back these shares. (Classified as debt on SFP and financial costs om SPL)
Irredeemable shares → The company is not entitles to buy back shares (classed as equity)
- How is the value and price of shares declared?
- What is the double entry recorded when an ordinary share is issued (sold).
- Each share has a nominal vlaue → value agreed for share (often £1 ,50p or 25p)
* Shares are sold at an issue price → at least equal to the nominal value - Dr cash → Issue price x No. of shares
Cr Share capital → Nominal value x No. of shares
Cr Share premium → (Issue price - nominal price) x No. of shares
- What is a rights issue (sale)?
- (picture example)
- The offer of new shares to existing shareholders in proportion to thier existing shares. (e.g 1 share offered for every 5 shares)
- Accounted in the same way as issue of ordinary shares
What is a bonus issue (or capitalisation or scrip issue)?
- The issue of shares to existing shareholders in proportion to their existing shareholding → Same as rights issue but No cash recieved (free shares)
- Since no cash is recieved the issue must befunded from another reserve → normally share premium account
Dr share premium (or other reserve) → nominal value (nominal value x No. of new shares)
Cr share capital → nominal value (nominal value x No. of new shares)
How is a bonus issue recorded in the SFP?
Capital and reserves
- Share capital - Xp per ordinary shares £
(original share capital + bonus share capital)
- Share Premium
(original share premium - bonus share premium)
- Retained earnings
Share capital terminology
- What is authorised share capital?
- What is issued share capital?
- What is called up share capital?
- What is paid up share capital?
- The norminal value of the maximum number of shares a company many have in the future
- The nominal value of shares that have actually been issued to shareholders
- The request to pay for shares in installments
- The amoungt of the nominal value of the called up share capital that has been paid by shareholders
- How are retained earnings calculated?
- What are general reserves?
- Retaining earning b/f X
- Net profit (SPL) X
- Dividends (X)
- Retaining earnings c/f X
2. An extrention on retained earnings → a company may choose to transfer some of their retained earnings into a seperate general account
- What is a loan note?
- What is the double entry to record the issuing of a loan note?
- What is the double entry to record the interest on the loan note?
- A way for a company to raise funds → a debt
- A person can buy a loan note for a set nominal value (they are effectivly loaning the company money)
- The nominal value will be repaids after a certain no. of years → in the meantime the loan note holder will recieve a fixed annual interest (coupon rate)
- Dr cash, Cr Non current liabilities <em>(long term liabilty)</em>
- Dr finance cost, Cr cash/accurals
- What is the provision of a liability?
- What is the double entry to record a provision?
- A liability to a third party, where either the amount or the timing of the payment is not yet certian. (e.g warrenty claims & refunds)
- Dr relevent expense account, Cr provision (SFP)
- At the year end how is tax recorded in the financial statment?
- After the year end how is tax recorded in the financial statment?
- A compnay calculates it’s net profit for the year… then estimates its tax liability.
- Dr tax expense <em>(estimated liability)</em>
- Cr tax payable <em>(estimated liability)</em>
2. The company submits its actual tax liability
- Dr tax liability
- Cr cash
Give a simple equation that can be used to caculate
Tax charge / expense and SFP Tax payable/liability
Liability BF (X)
Liability CF X
Cash paid X
Tax charge / expense
- Liability CF = tax payable
