Key Stuff for Final Exam Flashcards
Bonus issue
issue of additional shares to existing shareholders in proportion to their shareholding. They are a fre issue of shares and thus are a capitalisation of company reserves. Does not raise any cash for the business.
Rights issue
issue of shares to existing shareholders in proprtion to their shareholding at a price that is normally lower than the current market price of the share. Raises additional cash for the business.
Going concern
assumes organisaiton will continue in business for the forseeable future
Accruals
revenue and costs are recognised as they are earned/incurred, irrespective whether money has been received/paid =profit/loss would be meaningless if depended on rec’d/paid
Matching concept
attempts to match the income earned in a period with the expenses consumed in earning that income
Sole trader & limited company
No requirement to keep accounting records & prepare annual financial statements but will often do so for HMRC-business tax and sales tax, management purposes, support applicaiton of loan/overdraft.
Limited company = opposite because of CA2006
Comparability
to be able to make decisions, users of FS are likely to compare info. in FS’s to other figure.
INTERNAL - current period to previous, current period to budget/target
EXTERNAL - current period to sim. business, current period to industry average
Capital account
for each partner original capital contributed by partner & any further capital introduced
Current account
for each partner which is entered; drawings, int. on drawings, int. on capital, profit share, salaries, int. on loans
Drawings account
for each partner, records money/goods withdrawn from the partnership. At the end of the year, the balances are transferred to the partners’ current account
Partnership Act 1890
the relatio nwhich subsists between persons carrying on business in common with a view of profit
Principle matters normally found in partnership agreements:
- capital introduced by each partner
- profit sharing ratio
- interest payable on capital
- partners’ drawings
- interest on partners’ drawings
- resolution of disputes
- dissolution of the partnership
Reserves
retained profits that have not been distributed as dividends to the shareholders
Revaluation reserves
capital reserve, not available for distribution. Arise when non-current assets are revalued above their original cost or value.
Consistency
similar transactions should be treated in a consistent manner from one period to the next
Fair presentation (true & fair view)
figuresin FS’s have been accurately arrived at when accuracy is possible (true) and that when judgement has to be exercised or estimates are needed, it has always been done without bias (fair)
Prudence
degree of caution is exercised in any judgement needed in making any estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated
Materiality
significant (material) = subjective. General rule 5% or less of monetary value = not material. Unless profit/loss changes/Affects sensitive issue
Substance over form
accounting treatment of transactions is to reflect their commercial reality (substance) rather than the legal form, provided that it is legally possible
Historic cost
historic cost convention is that the assets are recorded at their initial cost and not revalued upwards and liabilities are recorded at the amount initially received in exchange for the obligaiton = figures remain objectively based on verifiable figures. However, in times of high inflation, historical cost can be a dubious convention to follow.
