Companies Flashcards

1
Q

company?

A
  • separate entity for legal purposes
  • can continue to exist independently, regardless of who the shareholders are
  • right of ownership over its assets and responsibility for settling its own liabilities
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2
Q

founding costs incurred journal?

A

dr retained earnings (sce)
cr bank/ creditors

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3
Q

managing company?

A

shareholders elect directors who will manage company on their behalf

directors delegate responsibility to upper management and their officials

company should be managed in accordance with stipulations of Companies Act of 2008, memo of incorporation and additional rules determined by board of directors

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4
Q

memo of incorporation stipulates?

A
  • external powers of characteristics of company e.g. name, authorised share capital
  • internal management aspects of company e.g. procedures relating to share issuing, voting rights, etc.
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5
Q

private company?

A
  • name ends with (Proprietary) Limited
  • no limit on number of authorised shares
  • shares not freely transferable
  • shares not offered to public
  • at least one shareholder
  • financial statements only need to be audited if certain things exceed certain limit (Public Interest Score)
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6
Q

public company?

A
  • name ends with Limited
  • no limit on number of authorised shares
  • shares freely transferable
  • shares offered to public
  • at least one shareholder
  • financial statements must be audited
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7
Q

advantages of companies?

A
  • exists independent of shareholders
  • easy to change owner
  • company tax rate of 28% may be less than tax rate for normal person
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8
Q

disadvantages of companies?

A

-separation between ownership and management may be problematic
- complex to found and dissolve

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9
Q

objective of financial statemens?

A

to provide info on financial position, performance and cash flows of an entity which may be useful to various users in making economic decisions

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10
Q

stakeholders of financial statements?

A

shareholders
auditors
management
employees
banks
etc

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11
Q

accounting records?

A

must be:
- accurate and complete
- in one of country’s official languages
- sufficient to compile financial statements
- available at company’s registered office

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12
Q

annual financial statements must?

A
  • meet FRS
  • reflect company’s state of affairs fairly
  • show transactions and financial position
  • show A, L, I, E in prescribed format
  • show date on which financial statements were compiled
  • show accounting period that’s applicable
  • show whether statements were audited/ reviewed independently
  • show name & professional qualifications of person who supervised while statements were drafted
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13
Q

annual report must contain?

A
  • directors’ report
  • auditors report
  • specific disclosure on transactions with directors and prescribed officers
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14
Q

statement of changes in equity?

A

reconciliation from opening balance of each class of equity at the beginning of the financial year until the closing balance at the end of the financial year

line items represent each transaction which affects the equity of the company

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15
Q

share capital?

A

capital of company = raised when investors purchase shares

by means of prospectus and application form made available to general public/ by private invitation to individual investors

share then allocated and issued to successful investors, known as shareholders

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16
Q

each share gives shareholder right to?

A
  • vote at annual meetings
  • share in profits distributed by means of dividends
  • share in final distribution of net assets upon liquidation
17
Q

two classes of shares distinguished by?

A
  • right to ownership and/or control of company
  • right to share in profits
  • right to share in net assets upon liquidation
18
Q

share values?

A

shares don’t have nominal/ par values

upon issue, value of share = issue price

19
Q

issue of shares journal?

A

dr debtor/ bank
cr … share capital (sce)

20
Q

authorised shares?

A

maximum number of share capital that company authorised to issue i.t.o. memo of incorporation

21
Q

process for offers for sale of shares by prospectus?

A

1: offer made by sending out prospectus with application form attached –> no journal entry

2: interested investors return form with payment directly to attorneys, payments are deposited in bank account managed by attorneys ( trust account), liability towards investors made (subscription account)
dr trust account (sfp)
cr subscription account: … shares (sfp)

3: shares allocated to successful investors and payment transferred by attorneys from trust account to company bank account
dr subscription account: … shares (sfp)
cr ordinary share capital (sce)
dr bank
cr trust account (sfp)

4: monies are refunded to unsuccessful investors out of company’s bank account
dr subscription account: … shares (sfp)
cr trust account (sfp)

22
Q

costs incurred during issue of shares journal?

A

dr retained earnings (sce)
cr bank

23
Q

conversion of convertible preference shares journal?

A

dr pref share capital (sce)
cr ordinary share capital (sce)

24
Q

solvency and liquidity test?

A
  • fair value of assets of company/ group must exceed fair value of liabilities
  • company/ group able to pay debts in ordinary course of business for 12 months after test is performed -> in case if distribution, 12 months after date of distribution
25
Q

transactions that require compliance with solvency and liquidity test?

A
  • distributions to shareholders
  • capitalisation shares
  • share buyback
  • subsidiary acquiring shares in parent company
26
Q

distributions to shareholders?

A

transfer of assets in form of:
cash dividends
specie dividends (assets given)
cash payments paid by company for share buyback

incurring liability on behalf of shareholder

waiving liability owed by shareholder to company

27
Q

capitalisation issue journal?

A

dr retained earnings and/or revaluation surplus (sce)
cr … share capital (sce)