Company Financial Statements

Question 1

what is a private company

Answer 1

ltd- shares not available to general public

Question 2

what is a public company

Answer 2

plc - shares available to the general public. Often traded on the stock market (i.e listed)

Question 3

what does IAS 1 presentation of financial statements say we should use to publish company accounts

Answer 3

1. statement of financial positions
2. statement of profit or loss
3. statement of changes in equity
4. statement of cash flows
5. notes to the accountants

Question 4

what is the benefit of using IAS 1 presentation of financial statements format?

Answer 4

makes comparability easier between different companies, and with previous years’ financial statements.

Question 5

what is investment/finance income

Answer 5

Any income earned on investments, such as interest and dividends receivable.

Question 6

what is finance cost?

Answer 6

interest on loan

Question 7

when would you recognise revenue?

Answer 7

• when risk and rewards of ownership have passed
• when control has passed

Question 8

what is cost of sales?

Answer 8

costs of the good/services being sold
eg. company wages, direct labour costs, sales commissions and materials used

Question 9

what is distribution costs?

Answer 9

expenses relating to selling or delivering products or services
eg. vehicle running costs/carriage outwards, depreciation of NCA used for distribution

Question 10

what is administrative expenses?

Answer 10

expenses not classified within cost of sales or distribution
eg. IDE, wages administrative staff, impairment losses

Question 11

what is the double entry for issue of ordinary shares

Answer 11

DR cash (issue price x no. shares)
CR share capital (nominal value x no.shares)
CR share premium (excess over nominal value x no. shares)

Question 12

what is a rights issue?

Answer 12

offer of new shares to existing shareholders in proportion to their existing shareholding value

Question 13

what is a bonus issue?

Answer 13

new shares offered to existing shareholders for nothing

Question 14

what is authorised share capital

Answer 14

maximum number of shares the directors have authority to issue

Question 15

what is issued share capital?

Answer 15

nominal value of the shares actually issued to shareholders

Question 16

what is called up share capital?

Answer 16

amount of the issued share capital which has been requested for payment from the shareholders

Question 17

what is paid up share capital?

Answer 17

the called up share holder which has been paid by the shareholders

Question 18

any differences between the called up and paid up share capital are show..

Answer 18

as a receivable in SFP

Question 19

How do you calculate retained earnings?

Answer 19

retained earnings b/f + net profit - dividends - bonus issue

Question 20

what shares do we use to calculate dividends

Answer 20

ordinary shares and irredeemable preference shares

Question 21

what is the double entry to record issue of loan note

Answer 21

DR cash
CR non-current liabilities

Question 22

what is a provision?

Answer 22

liability to a third party where either the amount or timing of the payment is not certain

Question 23

in order to recognise a provision the liability needs:

Answer 23

• present obligation to incur the expenditure
• is it probable that the expenditure will be incurred

Question 24

what is an allowance

Answer 24

adjustments to the value of an asset

Question 25

how do we account for provisions?

Answer 25

recording a provision:
DR relevant expense
CR provisions

when expenditure is incurred:
DR provisions
CR cash

Question 26

what do we do if expenditure if provisions is not the same as the amount provided

Answer 26

taken to P&L as an expense or income

Question 27

what is the double entry for the under provision of tax?

Answer 27

DR tax expense
CR tax payable

Question 28

what is the double entry for the overprovision of tax?

Answer 28

DR tax payable
CR tax expense

Question 29

what side is the income tax on if its an over provision?

Answer 29

credit

Question 30

what is the income tax on if its an under provision and what do we need to do?

Answer 30

debit and remove it by reversing the entry

Question 31

What is a loan note, bond or debenture known as?

Answer 31

non-current liabilites and included in finance cost

Question 32

can private limited companies be exempted from autdit?

Answer 32

yes if they meet small companies criteria