Chapter 3 Flashcards
What is the process for ‘Small Companies’ when it comes to producing accounts?
Small companies are not subject to an independent audit of their accounting information or required to publish an accompanying auditors’ report. Under certain conditions, they may also be exempt from producing a director’s report.
What is the process for ‘Medium-Sized Companies’ when it comes to producing accounts?
Medium-sized companies must, in addition to the other information detailed above, also publish a cash flow statement within their annual report and accounts. This financial statement identifies how a company’s financial resources have been generated over the accounting period and how they have been applied or expended. The Companies Acts also require explanatory notes to the cash flow statement to appear in the company’s accounts. Medium-sized private limited companies and those small private limited companies that are subject to an audit are required to publish an abridged auditors’ report, termed a special auditors’ report.
What is the process for ‘Large Companies’ when it comes to producing accounts?
Large companies are those that do not satisfy the criteria for micro, small or medium-sized companies. They must prepare and submit full accounts.
What is the process for ‘Large Companies’ when it comes to producing accounts?
Public limited companies (plcs) – in addition to the above requirements, plcs with a stock market listing must also incorporate the following within their annual report and accounts:
A statement of changes in equity. This financial statement details all profits made and losses incurred by the company’s equity holders over the accounting period, whether realised or not. It also reflects any dividends paid to the shareholders during the period. Since dividends paid to shareholders are an appropriation of profit rather than an expense against profit, dividends paid are not reflected in the income statement, but in the statement of changes in equity. Accounting standards allow the details to be presented as a ‘statement of recognised income and expenses’ instead of a full statement of changes in equity.
An operating and financial review (OFR) which provides a narrative on the company’s performance and prospects, consistent with the company’s accounts.
Additional disclosures required under the FCA’s listing rules including whether the company has complied with the UK Corporate Governance Code in discharging its corporate governance responsibilities and whether the company has issued shares or warrants to investors, other than its ordinary shareholders, following the passing of a special resolution.
If company A has then less than a 25% holding in the voting share capital of company B and does not exercise any significant influence over the operating policies of company B, how is it recognised in company A’s balance sheet?
If company A has less than a 20% holding in the voting share capital of company B and does not exercise any significant influence over the operating policies of company B, then this investment is recognised in company A’s balance sheet as either:
a fixed asset investment at cost, less any impairment to its value, or
a current asset at the lower of cost or NRV. In this instance, NRV is the current market value.
What does a ‘Balance Sheet’ represent
The balance sheet (also known as a ‘statement of financial position’ in accordance with the revised IAS 1) provides a snapshot of a company’s financial position, as at its accounting year end, by summarising the assets it owns and how these are financed. It is often described as a photograph of the company’s financial position in that it does not tell the user anything about the company either immediately before or immediately after its date, only at this one point in time.
If company A holds at least 20% of company B’s voiting capital or company A is in a position to exert considerable influence over company b’s management, how does this appear company A’s accounts?
If, however, this shareholding represents at least 20% of company B’s voting capital or company A is in a position to exert considerable influence over company B’s management, then company A is required to show the position of the combined entity in its balance sheet and income statement
What are ‘Tangible Fixed Assets’?
A company’s tangible fixed assets are those that have physical substance, such as land and buildings and plant and machinery. Tangible fixed assets are alternatively referred to as ‘property, plant and equipment’.
What could be classed as ‘Tangible Fixed Assets’?
freehold land and buildings
leasehold land and buildings
plant and machinery
motor vehicles, and
fixtures and fittings.
What are ‘Intangible Fixed Assets’?
Intangible fixed assets are those assets which, although without physical substance, can be separately identified and are capable of being realised. Intangibles are literally assets without physical form. They frequently represent the company’s intellectual property rights, enabling it to operate and generate profits in a way that competitors cannot.
What could be classed as ‘Intangible Fixed Assets’?
The types of intangible assets that most frequently appear on the balance sheet are:
development expenditure
patents, licences and trademarks
publishing rights and titles
goodwill, and
brands.
What is ‘Retained Earnings’?
Retained earnings is a revenue reserve and represents the accumulation of the company’s distributable profits that have not been distributed to the company’s shareholders as dividends, or transferred to a capital reserve, but have been retained in the business.
What is the ‘Income Statement’?
The income statement (also called the statement of comprehensive income) summarises the company’s revenue transactions over the accounting period to produce a profit or a loss. As a result, the income statement is often referred to as the profit and loss account.
