Limited Companies Flashcards
Key features of a limited company?
Seperate legal entity
Owners of the company( shareholders) are separate from the management( directors
Shareholders have limited liability for the debts of the company
More formalities required- disclosure, audit
Share capital balance =
Number of shares issued ❌ par value
Ordinary share capital?
Standard shares with no special rights or restrictions
Receive discretionary dividend determined by the company’s directors
1 share= 1 vote
Preference share capital?
Prefererred shares carry no voting rights
Fixed dividend
In priority to ordinary shares
Guaranteed dividend
Redeemable and irredeemable
Redeemable preference share?
Non- current liability in sofp
Company obliged to buy back shares in future whilst paying a fixed dividend each year
Fixed dividend is treated as finance costs ( interest expense) in sploci
More like a loan than an equity
Irredeemable preference share capital?
Equity
Share premium?
The value of shares issued over and above their par value
Double entry for the issue of shares?
Dr bank ( total money raised)
Cr share capital ( par value raised)
Cr share premium ( premium value raised)
Bonus( capitalisation issue )?
New shares issued to existing shareholders in same proportion as their existing holding
Shares issued for free no cash received
Used by company to restructure its equity and reserves
Double entries for bonus issue of shares?
Cr share capital ( par value x free shares
Dr share premium
Dr retained earnings
- no money raised!
Rights share issue?
New shares issued to existing shareholders for cash but at a discount to the market
Used by company to raise cash for the business
Loan notes ?
Funding company long term financing req
Debt finance
Set nominal issue value repaid at a specified time
Interest payable to the loan note holder on nominal value
Exam- calculate interest expense for the yr to be shown as finance cost in sopl
What is the tax for a ltd company on its profits?
Corporation tax
Double entry for taxation at yr end …
Dr expense - sopl ( accrued = estimated)
Cr taxation liability - sofp ( current liability)
Double entry for when corporation tax is paid few months later is…
Dr taxation liability - sofp
Cr bank - sofp
- actual amount is paid
