Lecture Ten Flashcards
does a company have limited or unlimited liability
they have limited liability
what is meant by the companies having limited liability
they have a separate legal existence from it =s owners
-they dont have to be pay compant debt.
who determines the ownership of a company & what do they do
ownership divided into shares - shareholders can vote on matters and recieve dividends
who manages the companies
directors,
how are directors chosen
voted by shareholders
will a company ever just not exist
company go on forever, as sole trader/partnership evenutall die etx, but company easy to transfer ownership can go on forever
-owenership divided to shares]
how do directors get paid
they have a salary
what is meant by remuneration
another word for salary
are companys financial statements private
no they r available to the public
what do auditors do
financial statements have to be checked by individual accountants (auditors), they examine the statement - gives security
-company recieves an audit fee
what r the two types of companies
public limited(plc) and private limited (ltd)
what is a plc
companies that can offer sales of shares to general public (on stock market)
-they hvae stricter regulation
what is an ltd
private limited company, cant offer shares to public
can all plc get on stock exchange
not all plc on stock exchange, have to become plc and apply - even more stricter regulation
whats different about the SFP for the company compared to the sole trader
top is same but equity/capital section is
split into more categories
Share capital
share premium
revaluation reserve
general reserve
retained profit
total equity
what is a share par
a share par (or nominal) value , that never changes, the share issue prive is above or is the par = can never be below
issue share capital
share capital that has been issued (used to calc dividends)
called up share capital
amount shareholders have been asked to pay for so far
paid up share capital
the amount that shareholders have actually paid for so far
what is posted to the share premium
the excess share price ABOVE the par value
what is recorded in the share capital account q
the issue par value
what are the two main types of share
ordinary (equity) shares OR preference shares
what are ordinary shares
normally carry the right to vote on certain company matters
how are dividends paid for the ordinary shares?
dividends vary- may b paid out of profits AFTER the prefence shareholders r paid
what share types do businesses have
most have preference ALL have ordinary
what r preference shares
shares that have no voting right
how do preference shares get paid
dividend is a fixed % of par value each year
can preference shares get paid alot when business exceeds
only get fixed amount, cant get more as company exceeds, guarnteed to get money at low risk,
what types can preference shares be
irredeemable and redeemable
what is meant by irredeemable preference shares
irredeemable, e.g. buy share then that’s it, company wont buy back
-treated as normal share capital sfp
what is meant by redeemable preference shares
have many characteristics of borrowing so shown as a liability in the SFP.
-like a loan
-SUBSTANCE context , even tho redeemable shares are actually shares but act like loans = treated like them
what is a difference between ordinary and preference dividends in terms of the dividends
preference are fixed. ordinary depend on the companys performance
when are ordinary dividends stated in records
WHEN THEY ARE PAID not when they r proposed
where r unpaid dividends on preference shown
normally shown as a liability as they r essentially contractual obligations
do ordinary dicidends show in the SPL
no
can shareholders take money out? if so where r they stated
drawings never on company sfc, as shareholds cant take money out
when does the revaluation reserve come into actio
comes into action when companys VALUE OF land and buildings go up and down over time
does the company have to show the revaluation on the sfp
no they can chose
do u show the revalution in spl
-increase value isnt increase profit
=not shown in SPL as they r ‘unrealised’, as its gone up in value but hasn’t been sold.
what about the depreaction will change in the revaulation reserve
depreciation charge will be based on the new revealued amount. but land isnt depreicated
what if the she premium is bigger then she share capital
Share cap was low at the start, small no of shares at the start BUT has expanded rabidly, share premium increased a lot more then the share par value
what happens if the retained profit is high
profit that ryanair accumulated over the years - dividends
-biggest fig, hasn’t given much out dividends and invested into expansion instead.
what is retained profit
cumulative total of the companys annual profits - vidends it has paid out
how to work out retained profit via the SCE
retained profit at start of year(tb)
add profit for this year(spl)
less transfer from general reserve (quest)
less dividends paid (tb)
retained profit at end of year
general reserve
retained profit to general reserve (or some other reserve)
whats the double entry for the general reserve transfer
DR retained profit
CR General reserve
whats a reason to use the general reserve
to indicate to the shareholders the profits will not be paid to the dividends
do u actually move money to the general
no money is actually moved
what is the rights issue an offer of
-new shares
-to existing shareholders
-in proportion to their current shareholdings
-at the stated price (usually below market value)
why do companies often prefer to use this
its the most cheapest and common
-shareholders prefer it
what is a bonus issue
-a new share given to exisiting shareholders for free
-in proportion to existing share holdings
do company earn money from bonus share
no
where is the bonus share funded from
reserves - comonly share premium account
what is the double entry for the share premium bonus issue
DR Share premimum
CR Share capital
why would the company do a bonus issue
-no dilution of exisiting control
-asset/liabolties dont change
-keeps shareholders happy
-reduce share price (so people can buy if it was too high)
is there an alternative if the company wants to borrow from bank
they can issue loan notes (or loan stock/ coporate bonds)
example of how loan notes work
certificte of borrowing mostly 100 each, with fixed rate of inte e.g. 6%
So get £6 interetest a year interest, u get money back after a period of time
who decides the terms and conditions of loa notes
the company allowing for them to decie the conditions
how many installments are loan loans paid in
2
what happens if the company cant paid the interest on loan notes
forced into admininstration - they have to pay the interest regardless of company perfomance
what is coportation tax
tax on company profit
who does the company pay coportation tax to
the government - hmrc
where does the coporation tax show on financial statements
on the expenses in the SPL as a current liabilities
why is the coporation tax a current liability
owed at the end of the year = current liability (due within 1 year)
What may company financial statements be used for
internal use OR external use (sutabi;e for publication)
whats the difference in interal and external presentstion
mainly the detailing
external use SPL format
revnue
less cost of sales
gross profit
less operationf profit
add other operating income
operating profit
add interest income
less interest expense
profit before tax
less coperation tax expense
profit for the year
where is the working for less cost of sales/operating expenses on external use spl shown
in another part- shown in the notes area as part of the working out. otherwaise on spl theres only 1 value
three new headings in the external use spl
operating profit, profit before tax, profit for the year
is audit fee an expense?
yes
do u pay back irreedemable preference shares
yes = a liabiity
