Company Financial Statements Flashcards
What is share capital?
A company’s initial capital is divided into par, nominal and face value shares
Equity shares
No entitlement to a dividend, treated as capital, dividends charged to retained earnings.
Redeemable preference shares
A non-current liability on SFP.
Dividend treated as interest expense - finance charge
Irredeemable preference shares
Capital in the equity section of SFP.
Dividend charged to retained earnings
Double entry for equity or irredeemable shares with dividend paid during/ before period
Dr retained earnings Cr cash/ accruals
Double entry for redeemable shares with dividend paid during/ before period
Dr finance charge Cr cash/accruals
Double entry for share issue
Dr cash (sharesshare price)
Cr share capital (sharesequity price)
Cr share premium (shares*(share price - equity price)
What is a rights issues?
Made to existing shareholders in proportion to their shareholdings for company to raise new cash. Discounted share price for existing customers
What is x for y rights issue?
x new shares for every y shares you own
shares *x/y * equity share price
What is a bonus issue?
Giving existing shareholders free shares
Double entry for bonus issue
Dr share premium or retained earnings, Cr share capital
Double entry for issue of debt
Dr cash Cr N-C liability
Double entry for repayment of debt
Dr N-C liability Cr cash
Double entry for interest paid
Dr interest expense (finance cost) Cr cash
Double entry for outstanding interest owed
Dr interest expense (finance cost) Cr accruals
Double entry for repayment of loan with shares
Dr loan (full amount)
Cr share capital (nominal value of additional shares)
Cr share premium (balancing figure)
What is a provision?
A liability of uncertain timing or amount, eg. a lawsuit settlement.
When is a provision created?
When likelihood of payment is >50%
Double entry for provision
Dr expense Cr provision
Double entry for increase in provision
Dr expense Cr provision (required increase)
Double entry for decrease in provision
Dr provision Cr expense (required decrease)
Double entry to incur expenditure
Dr provision Dr expense Cr cash
Double entry to remove excess provision
Dr provision Cr expense
Double entry for tax charge
Dr tax expense Cr tax payable
Double entry for tax charge payment
Dr tax payable Cr cash
Over and under provisions
Paid less than expected - Cr on payable, over provision in prev. year so take away, reduces tax expense in following year.
Paid more than expected - Dr on payable, under provision in prev. year so add, increases tax expense in following year.
Where are rules and regulations applied?
Content, accounting concepts, presentation
The processes must be…..
honest and truthful
transparent and adaptable
legally compliant
consistent
