Comparison of Companies to Sole Traders Flashcards
What are ordinary shares?
A company’s initial capital divided into units of equal size.
What are owners of a share entitled to?
A dividend and voting rights.
What is nominal value?
The base value of a share.
What is a private limited company?
Known as a LTD. This type of company can only sell shares to friends and family not the public.
What is a public limited company?
Known as a PLC. This type of company can sell shares to anyone and can be floated on the stock exchange.
What benefits do preference shareholders get?
A fixed rate of dividend and receiving dividend in priority to ordinary shareholders.
What is a irredeemable preference share?
The company is not entitled to buy them back in the future. Their dividends are treated as an appropriation on profit and they are treated as share capital.
What is a redeemable preference share?
The company is entitled to buy them back at any point in the future. The dividend is classed as a finance cost and they are treated as non-current liabilities.
What is the accounting treatment for a normal share issue?
Dr Cash
Cr Share Capital
What is the accounting treatment for a premium share issue?
Dr Cash
Cr Share Capital (nominal value)
Cr Share Premium (excess over nominal value)
What are reserves?
Any amounts that are attributable to ordinary shareholders other than ordinary share capital.
What are 3 types of reserve?
Share premium account.
Retained earnings.
General or other reserves.
What is the share premium account and what can’t be paid for using this account?
The excess of the issue price above the nominal value and dividends can not be debited from this account.
What is a rights issue?
New shares are offered to existing shareholders usually at a discount to the current market price in proportion to their current share holding.
What is a bonus issue?
An issue of fully paid shares to existing shareholders free of charge, in proportion to their current share holdings. They are paid for out of reserves.
What is the accounting treatment for a bonus issue?
Dr Reserve
Cr Share Capital
What are retained earnings?
An equity reserve used to accumulate the companies retained earnings.
What is the accounting treatment for paying a dividend?
Dr Retained Earnings
Cr Cash
What is the accounting treatment for a dividend that is declared but not yet paid?
Dr Retained Earnings
Cr Dividend Payable
What is traded debt?
When a business borrows money in the form of loan stock (debentures or bonds).
Where is loan stock recorded on the financial statments?
If the loan stock isnt due to mature within 12 months it is recorded as a non-current liability.
How is interest on loan stock treated?
Interest paid is a finance cost and unpaid interest is classed as a other payable.
What is a provision?
A liability of uncertain timing or amount.
What are the reasons for a provision being created?
The business has a present obligation to incur the expenditure (a legal claim).
It is probable (the chance is over 50%) that the expenditure could be incurred.
What is the accounting treatment for a provision?
Dr Expense (P+L) Cr Provision (current liability)
What is the accounting treatment for when a tax arises?
Dr Tax Expense
Cr Tax Payable
What is the accounting treatment for when a tax is paid?
Dr Tax Payable
Cr Cash
