Introduction To Limited Company Accounts

Question 1

What is a Limited Company?

Answer 1

A business with a separate legal entity from its owners

Key features include limited liability, management by directors, and annual reporting requirements.

Question 2

What is limited liability in the context of a Limited Company?

Answer 2

Shareholders’ liability is restricted to the amount they invest.

Question 3

What are the sources of authority for the UK system of regulation?

Answer 3

A combination of informal and formal regulation from:
* Accounting profession
* Stock exchange rules
* Statutory regulations (e.g., Companies Act 2006)

Question 4

What is the role of the Financial Reporting Council (FRC)?

Answer 4

Sets and enforces accounting standards.

Question 5

What will the Financial Reporting Council (FRC) be replaced by?

Answer 5

The Audit Reporting and Governance Authority (ARGA), with expanded powers.

Question 6

What is the Companies Act 2006?

Answer 6

Primary legislation for company law in the UK.

Question 7

What does the Companies Act 2006 require directors to prepare?

Answer 7

Financial statements that provide a ‘true and fair view.’

Question 8

What does the Economic Crime and Corporate Transparency Act 2023 do?

Answer 8

Grants Companies House additional powers to scrutinize company information to tackle financial crime.

Question 9

What are the two key sets of accounting standards in the UK?

Answer 9

1. International Financial Reporting Standards (IFRS)
2. UK Financial Reporting Standards (FRS)

Question 10

What are International Financial Reporting Standards (IFRS)?

Answer 10

Issued by the International Accounting Standards Board (IASB) and mandatory for EU-listed companies.

Question 11

What is FRS 102?

Answer 11

Financial Reporting Standard for small and medium-sized entities.

Question 12

What must companies listed on the Stock Exchange follow?

Answer 12

Rules regulated by the Financial Conduct Authority (FCA).

Question 13

What is corporate governance?

Answer 13

Involves directing and controlling a company.

Question 14

What are the key roles of directors in a Limited Company?

Answer 14

Directors manage the company in shareholders’ interests and are elected by shareholders at the AGM.

Question 15

What does the UK Corporate Governance Code 2024 emphasize?

Answer 15

Effective risk management and internal controls.

Question 16

What is the difference between a Sole Trader and a Limited Company regarding capital?

Answer 16

Sole Trader: Capital reflects profit minus drawings; Limited Company: Share Capital and Reserves.

Question 17

What are ordinary shares in a Limited Company?

Answer 17

Profits after other claims are paid.

Question 18

What are preference shares?

Answer 18

Fixed dividends paid before ordinary shareholders.

Question 19

What are revenue reserves?

Answer 19

Retained earnings available for dividends.

Question 20

What are capital reserves?

Answer 20

Include share premium and revaluation reserves.

Question 21

What arises when shares are sold above their nominal value?

Answer 21

Share premium.

Question 22

What are the methods companies may use to borrow?

Answer 22

1. Bank loans
2. Loan notes (debentures)

Question 23

What are the key features of dividends?

Answer 23

Declared as interim or final, paid from retained earnings, not capital reserves.

Question 24

What is the total dividend if a company declares a dividend of 10p per share with 1 million shares?

Answer 24

Total dividend = £100,000.

Question 25

What are the key differences in the Income Statement of a Limited Company compared to a Sole Trader?

Answer 25

Follows a prescribed layout showing:
* Revenue
* Cost of sales
* Gross profit
* Operating profit
* Finance costs
* Taxation
* Excludes dividends.

Question 26

What key items are included in the Statement of Financial Position of a Limited Company?

Answer 26

1. Equity Capital
2. Non-equity Capital
3. Dividends declared (but unpaid) as current liabilities.

Question 27

What are the advantages of operating as a Limited Company?

Answer 27

• Limited liability for shareholders
• Easier transfer of ownership
• Legal separation between owners and management
• Potential tax advantages.

Question 28

What are the disadvantages of operating as a Limited Company?

Answer 28

• Higher compliance costs
• Regulatory requirements
• Greater responsibilities for directors.