Limited Companies Flashcards
Aim of financial statements, the type of business, advantages and disadvantages of a limited company, financial statements and shares.
What is the aim of financial statements?
- to identify how well the business has performed
- to identify the value of the assets and liabilities
- to understand the cash flow position
- to communicate information to the users of the accounts
What are the advantages of trading as a limited company?
- Limited liability status
- Easier to raise finance
- Company continues to operate regardless of the ownership
- Taxed under corporation tax
What are the disadvantages of trading as a limited company?
- Accounts submitted to Companies House - anyone can access them
- More regulation to comply with
- Accounts of larger companies must be audited
- Issues of shares highly regulated
What financial statements are required for a sole trade or partnership?
- Statement of profit or loss
- Statement of financial position
What financial statements are required for a company?
- Statement of profit or loss
- Statement of financial position
- Statement of changes in equity
- Statement of cash flows
- Notes to the financial statements
What is the nominal value of shares?
The face value of the shares
share captial = No of shares * nominal value
What is the market value of shares?
The value at which existing shares can be traded.
share value can change after issueing, but isn’t reflected on statement
What is the allotted share capital?
The shares that have been issued
What are the main features of ordinary shares?
- referred to as equity shares
- ordinary shareholders can receieve dividends, at the directors’ discretion
- holders are entitled to vote in general meeting
What are the main points of preference shares?
- right to a fixed rate dividend
- dividend must be paid before any dividend to ordinary shareholders
- holders don’t have voting rights
What is the difference between redeemable and irredeemable preference shares?
- redeemable pre. shares can be classified as a liability, if obligated to redeem them in cash
- irredeemable pre. shares are classified in the equity section of the SFP
How are dividends treated?
- Always as a reduction to retained earnings and are deducted from the retained profit reserve.
- Never an expense on the SPL
What is the equation for retained earnings?
Retained earnings b/fwd = x
Current year profit = x
Less: Dividends = (x)
Retained earnings c/fwd = x
Name some ‘other reserves’
- Share Premium account
- Revaluation Surplus
- Capital Redemption Reserve
- General Reserve
