Limited Companies Flashcards

1
Q

Define the term public company

A

Company of which the min number of shareholders is 7 and the max number of shareholders is limited to the number of shares issued, the public being invited to buy shares by means of a prospectus

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2
Q

Define the term private company

A

Company of which the minimum number of shareholders is 1 and the max number of shareholders is 50, the public being prohibited from buying shares

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3
Q

Define the term limited liability

A

Company coexists as a separate legal entity and the owners’ liabilities are limited to the amounts of capital they have invested in shares

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4
Q

Define the term unlimited liability

A

The company doesn’t coexist as a separate legal entity and the owners’ personal possessions can be sold to settle business debts in case of insolvancy

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5
Q

Define authorized share capital

A

Max amount of share capital a company is allowed to issue

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6
Q

Define issued share capital

A

Actual amount of share capital issued to shareholders

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7
Q

What is the difference between nominal and market value of shares?

A

Nominal value of shares: actual price that shares are listed in the company as per memo of association
Market value of shares: share price determined by market forces of similar shares

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8
Q

What are ordinary shares?

A

Entitling the shareholder to a share in the distributable profit of the company in the form of a dividend after preference dividends are paid

  • Holders are owners of company
  • Voting right at meetings
  • Risky investment
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9
Q

What are preference shares?

A

Entitling the shareholder to a fixed dividend, providing that sufficient income is available and that the dividend is declared in accordance with the articles of association

  • not owners of company
  • no right to vote at AGMs
  • offer investors a lower level of risk
  • in event of liquidation they are given priority after debenture holders of claims of ordinary shareholders
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10
Q

Define cumulative preference shares

A

Give holders right to receive unpaid dividends in the future periods in case of insufficient profits

  • unpaid dividends are carried forward form period to period
  • outstanding dividends balance will be paid in a future period before the ordinary shareholders get paid
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11
Q

Define non-cumulative preference shares

A

Shares that don’t give holders right to receive unpaid dividends from one period to another

  • unpaid dividends are not carried forward from period to period
  • outstanding dividends balance is written off in the period they were declared
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12
Q

What is the difference between capital reserves and revenue reserves?

A
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13
Q

Name and explain two examples of capital reserves

A
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14
Q

Name and explain two examples of revenue reserves

A
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15
Q

What are the features of debentures?

A

-long-term loans evidenced by deeds which set out the rate of interest payable and date of redemption
-debenture is a certificate that certifies that an amount is owed to someone
-a company may issue shares as security to obtain debentures and redeem them later upon repayment
-interest on debentures is a financial expense to the company
-debenture holders are lenders; they are not members of the company and are not entitled to vote on shareholders’ meetings

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16
Q

What is the difference between a share and a debenture?

A

Debenture: a bond acknowledging a loan to a company and bears a fixed rate of interest per annum
Share: refers to a financial instrument which shows that a shareholder owns part of a company that provides the benefit of limited liability

17
Q

Differentiate between ordinary, preference shares and debentures

A
18
Q

Explain the phrase issued at par

A

Value allocated to shares when issued and at actual listed price

19
Q

Explain the phrase issued at a premium

A

The amount received when issuing price is higher than the par value of a share (difference between issuing price and par value)

20
Q

Explain the meaning of the term interim dividend

A

Refers to the dividend declared during the period and paid before the finalisation of the company’s annual financial statements

(If proposed it would not appear in the financial statements - only written as a note)

21
Q

Explain the meaning of the term final dividend

A

Refers to the dividend declared after the finalisation of the company’s annual financial statements, may be in arrears or paid on the last day of the financial period

(If proposed it would not appear in the financial statements - only written as a note)

22
Q

How are interim and final dividends calculated?

A

Issued ordinary share value at par x % dividend declared

Issued pref share value at par x % dividend (always given & fixed)

23
Q

How does an income statement of a company look?

A
24
Q

How does a company’s statement of financial position look?

A
25
Q

Explain the term dividends

A

A payment made to the shareholders as a return on their capital invested in the business - distributed from profits

26
Q

Explain the term audit fees

A

The amount which is paid to the auditors for auditing of accounts. The audit fees are indirect expenses.

27
Q

Explain what a statement of changes in equity is

A

Shows the change in an owner’s/ shareholder’s equity throughout the accounting period
It details the movement of reserves that make up the shareholder’s equity

28
Q

How does a statement of changes in equity look?

A
29
Q

Explain the purpose of a cash flow statement

A
  • Provides information about the company’s overall actual cash inflows and outflows and the net change in cash resulting from the operating, returns on investments, investing, and financing activities during the period
  • measures how well a company manages its cash position, hence, how well the company generates cash to pay its debt obligations and fund its operating expenses
30
Q

What items are included in non-cash items?

A

Depreciation
Provision for doubtful debts
Profit/loss on sale of asset

31
Q

What is the difference between cash budget and cash flow statement?

A
32
Q

What does a cash flow statement show?

A

Where the cash resources came from and where they have gone to

33
Q

How does a cash flow statement look?

A

After image:

Analysis of cash and cash equivalents
Opening balance of cash and cash equivalents (cash plus bank)
Add/ less net inflow/ outflow of cash and cash equivalents
Closing balance of cash and cash equivalents (cash plus bank)