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Accounting > Day 5 - Chapter 14 > Flashcards

Day 5 - Chapter 14 Flashcards

1
Q

What is the capital equation?

A

opening capital
+ cap introducted
+ profit/(loss)
- drawings
= closing cap

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2
Q

Equity

A

share cap
share premium
revaluation surplus
retained earnings
preference share capital

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3
Q

Retained Earnings

A

retained earnings
= accumulated profits- + losses from day one

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4
Q

What must companies do to profit?

A

pay tax

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5
Q

What is a SOCIE?

A

shows the movement of equity balances in the year

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6
Q

What are the two types of share capitals?

A

ordinary share capital

preference share capital

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7
Q

What are ordinary share capital?

A

voting rights

dividends paid at discretions of directors

dividends are paid after preference dividends

the dividends are quoted as pence per share

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8
Q

What are preference share capital?

A

no voting rights

preference dividends must be paid before ordinary dividends

preference dividends must be paid to preference shareholders

preference dividends calculated as:
preference share capital x dividend (%)

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9
Q

Preference dividends equation

A

preference share capital x dividend (%)

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10
Q

What are the two preference shares?

A

redeemable or irredeemable

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11
Q

Redeemable

A

brought back by company in future

more liability

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12
Q

Irredeemable

A

not brought back

equity shares

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13
Q

What are the two values of share capital?

A

nominal value

market value

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14
Q

Nominal value

A

legal value - lowest and decided when made and not changing

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15
Q

Market value

A

issue price - increase and decrease based on market

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16
Q

What are companies forbidden to do regarding share capital?

A

company is not allowed to sell shares lower than nominal value

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17
Q

What are the double entries to issue ordinary shares?

A

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 = balancing figure

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18
Q

How is share premium calculated?

A

excess over nominal value (issue price- nominal value) x number of shares issued

it is the balancing figure

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19
Q

How is share capital calculated?

A

nominal value x no of shares issues

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20
Q

How to determine cash entry when issuing ordinary shares?

A

issue price x no of shares

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21
Q

What is a rights issue?

A

rights issue is the offer of new shares to existing shareholders in proportion to their existing share holding at started price

normally below market value and always about nominal value

22
Q

How is a rights issue accounted for?

A

same way normal share issue is accounted for

23
Q

What does 1 for 5 rights issue mean?

A

for every 5 shares a shareholder owns, they are entitled to buy one more

24
Q

How do you account for a 1 for 5 shares? if we start with 1000 shares

A

1000/5 = 200 shares

DR cash. (200x0.75) = 150

CR share capital (200x0.5) = 100

CR share premium = 50

25
What is bonus issue?
issue of new shares to existing shareholders in proportion to their existing shareholding. no cash is received from bonus issue. it is funded from reserves - can be a non-distributable reserves such as share premium account if this balance is in sufficient then excess would normally be debited to retained earnings
26
What is the double entry for a bonus issue?
DR share premium - nominal value (or other reserve) CR share capital - nominal value
27
What is retained earnings?
all profits and losses to date RE b/f - x Net profit - x Dividends - (x) = retained earnings for the year
28
Where does the dividends come from on an ordinary share and irredeemable preference share?
dividends come from retained earnings
29
Where does the dividends come from on a redeemable preference share?
it is deducted from the profits in p/l as a finance cost redeemable preference share is a liability
30
What are dividends?
distribution of profits - usually paid in cash to share holders therefore come out of retained earnings
31
What is a SOCIE?
statement in changes of equity shows how the balances making up equity in statement of financial position have changes over the course of the year
32
What movement is reported in SOCIE?
profit in year dividends paid transfers between reserves share issues
33
How does profit affect RE?
profit increase RE loss decreases RE
34
How does dividends affect RE?
decrease RE
35
How does share issues affect SOCIE?
increase share capital increase share premium
36
How does bonus issues affect SOCIE?
increase in share capital decreases share premium
37
What is the structure of SOCIE?
38
What is a loan note?
companies can raise money by issuing loan notes from the bank there is an interest - an expense - finance costs
39
What is the double entry for a loan note?
DR cash CR non-current liabilities
40
What is the double entry to record interest on loan note?
DR finance costs CR cash/loan note
41
What is a provision?
type of liability to third party of uncertain timing and/or amount - ei. law suits and refunds
42
When do you recognise a provision?
present obligation more than 50% chance they need to pay
43
How do you account for provisions?
DR relevant expense account CR provisions
44
How do you account for paying provisions?
DR provision CR cash at bank
45
What happens if the amount for the provision is different?
expense if its more income if its less
46
How does a company deal with tax at the year end?
company calculates net profit then estimates tax liability then company accounts for tax liability by DR tax expense CR tax payable
47
What's the double entry to account for year end tax liability?
DR tax expense - p/l CR tax payable - current liability
48
What happens if the company pays the actual tax bill? What is the double entry for this?
DR tax payable CR cash
49
What happens if the payment for tax is more than liability accrued at the year end of the previous year?
it is said that we have under-provided tax and the following double entry is required? DR tax expense CR tax payable
50
What happens if the payment for tax is less than liability accrued at the year end of the previous year?
DR tax payable CR tax expense
51
What is the short cut for paying tax double entries?
DR amount b/f DR/CR under/over provision tax expense - balancing CR amount actually paid
52
What is the tax expense short cut?
tax expense = current year tax estimate +/- under/overprovisions of tax for last year

Accounting (17 decks)

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