Chapter 14 - company financial statments Flashcards

1
Q

How are comapny statments of profit and loss formated?

A

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
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2
Q

How are comapny statments of finacial possition formated?

(dont worry about deffinitions yet)

A
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3
Q

What are oridnary shareholders?

A
  • 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
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4
Q
  1. What are preference shareholder?
  2. What are the 2 types of preference shares?
A
  1. Shareholders recieved fixed dividends calculated as a % of nominal value → Do not genrally have voting rights.
  2. 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)

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5
Q
  1. How is the value and price of shares declared?
  2. What is the double entry recorded when an ordinary share is issued (sold).
A
  1. Each share has a nominal vlauevalue agreed for share (often £1 ,50p or 25p)
    * Shares are sold at an issue price → at least equal to the nominal value
  2. 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

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6
Q
  1. What is a rights issue (sale)?
  2. (picture example)
A
  • 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
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7
Q

What is a bonus issue (or capitalisation or scrip issue)?

A
  • 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)

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8
Q
A
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9
Q

How is a bonus issue recorded in the SFP?

A

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
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10
Q

Share capital terminology

  1. What is authorised share capital?
  2. What is issued share capital?
  3. What is called up share capital?
  4. What is paid up share capital?
A
  1. The norminal value of the maximum number of shares a company many have in the future
  2. The nominal value of shares that have actually been issued to shareholders
  3. The request to pay for shares in installments
  4. The amoungt of the nominal value of the called up share capital that has been paid by shareholders
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11
Q
  1. How are retained earnings calculated?
  2. What are general reserves?
A
  • 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

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12
Q
  1. What is a loan note?
  2. What is the double entry to record the issuing of a loan note?
  3. What is the double entry to record the interest on the loan note?
A
  1. 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)
  1. Dr cash, Cr Non current liabilities <em>(long term liabilty)</em>
  2. Dr finance cost, Cr cash/accurals
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13
Q
  1. What is the provision of a liability?
  2. What is the double entry to record a provision?
A
  1. 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)
  2. Dr relevent expense account, Cr provision (SFP)
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14
Q
  1. At the year end how is tax recorded in the financial statment?
  2. After the year end how is tax recorded in the financial statment?
A
  1. 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
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15
Q

Give a simple equation that can be used to caculate

Tax charge / expense and SFP Tax payable/liability

A

Liability BF (X)

Liability CF X

Cash paid X

Tax charge / expense

  • Liability CF = tax payable
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16
Q

Issued 50,000 equity shares of 25p each at a premium of 50p per share.

How much are the shares sold for?

A
  • 25p + 50p = 75p
  • 0.75 x 50,000 = £37,500