Company Accounts Issues (Summary)

Question 1

What are the entries for when ordinary shares are first issued?

Answer 1

Dr Cash (issue price)
Cr Share Capital (Nominal value)
Cr Share Premium (Excess over nominal value)

Question 2

How do you account for a Rights Issue?

Answer 2

Dr Cash (Issue Price)
Cr Share Capital (Nominal Value)
Cr Share Premium (Excess over nominal value)

A rights issue is an offer of new shares to existing shareholders in proportion to their existing holding at a stated price

Question 3

How do you account for a bonus issue?

Answer 3

A bonus issue is an issue of free shares to existing shareholders in proportion to their existing holding:

Dr Share Premium/Retained Earnings (nominal value)

Cr Share Capital (Nominal Value)

The debit entry depends on whether the company’s policy is to use share premium account and whether the balance is sufficient

Question 4

What are retained earnings and how do you account for them?

Answer 4

Includes all retained profits of the company up to the statement of financial position date:

Retained earnings b/f
\+ Net profit (SPL)
(Dividends paid)
=
Retained earnings c/f

Question 5

How do you account for loan notes?

Answer 5

• When a company issues loan notes:

Dr Cash
Cr Loan Notes

• The interest on the loan will need to be accrued on a monthly basis for the accounting period

Dr Finance Cost
Cr Accruals/Cash

Question 6

How do you account for tax?

Answer 6

• The tax payable recorded at the year end as a liability will be an estimate
• The tax expense for the year can be calculated as:

Estimate for the year (tax payable)
+ Under provision in prior year
- Over provision in prior year