S1 - share capital Flashcards
what is capital
original investment plus changes in net assets made through profits and gains
what is total owners equity
share capital stated at nominal value
Non distributable and distributable reserves
Conceptual framework = equity = assets - liabilities
what are distributable reserves
retained earnings
Belongs to ordinary shareholders
Arises due to generating revenue
Most important source of new finance
Shown separately to share capital on SOFP
Dividend can be paid form here but depends on:
Availability of cash
Finance required for investment
Expectations of shareholders
what are non distributable reserves
capital reserves arise due to:
Issuing shares above nominal value —> share premium reserve
Upwards revaluation of non current assets —> revaluation reserve
both shown separately on SOFP
Not available to distribute as a dividend
what is regulation over capital
risk to creditors who deal with limited liability companies
Business risk
Company will pay shareholders rather than creditors
Creditors can only claim against the assets of the company
what is capital maintenance
requirement to retain net assets within the company equal to the non distributable reserves
Minimum share capital = £50,000 for PLC
Prevents companies distributing their assets to shareholders without ensuring creditors are paid in full
what is excess depreciation
can be transferred when revaluing an asset
Dr revaluation reserve, cr retained earnings
Protects distributable reserves which are available for dividend payments
Revaluation reserve is non distributable
what are share capital rules for statements
Share capital = shares x par value
Share premium = shares x remaining of what was paid
Net assets must be higher than retained earnings
what are inventories
assets held for sale in the ordinary course of business
In the process of production for such a sale
In the form of materials and supplies to be consumed in the production process or in the rendering of services
what is inventory valuation
affects statement of comprehensive income and SOFP
Value at lower of cost and net realisable value
NRV = estimated selling price - estimated cost of completion and selling
what is adjustment to cost of sales for
Carrying value of inventories sold
Amount of write down of inventories to NRV
Amount of any losses of inventories
DR expense , Cr inventory
what is cost of inventory
Cost of inventory - IAS2
cost of purchase, conversion and other costs incurred in bringing the inventories to their present location in the present condition
Deduct trade discounts and subsidies
what are the valuation methods
actual costs
FIFO
Weighted average costs
LIFO - not allowed
Subjective as management chooses most appropriate
what are the disclosures for inventories
accounting policy adopted in measuring inventories
Total inventory in categories
Amount carried at NRV
Amount recognised as an expense
Carrying amount of inventory pledged as security for liabilities
