Shares/Dividends Flashcards
what are ordinary shares?
company’s initial capital that is divided in equal size units, and given to shareholders
what is equity share capital?
total capital raised
what are dividends?
payment of a share of profit that’s given to shareholders
what is the relationship b/w shares and nominal value?
shares are required to have nominal value by law, and all shares of the same class must have the same nominal value
who can/can’t private (ltd) and public (plc) companies sell shares to
Plc can sell shares to public
Ltd can’t sell to public
Properties of ordinary shares
- also known as equity shares
- shareholders own business
- have voting rights
- dividends don’t have to paid (based on director’s decision)
Properties of preference shares
- shareholders are not owners
- fixed rate of dividends
- get dividends in priority to ordinary shareholders
- on winding up, get capital in priority
- 2 types: irredeemable and redeemable preference share
Properties of Irredeemable preference shares
- company is NOT entitled to buy back
- treated as share capital
- dividends are considered as normal dividends
Properties of Redeemable preference shares
- company IS entitled to buy back in future
- treated as on current liability
- dividends are treated as finance costs (interest)
double entry: shares issues at nominal value and fully paid
Dr Cash
Cr share capital
double entry: shares issued at premium to nominal value and fully paid
Dr cash
Cr share capital (nominal value)
Cr share premium (excess over nominal v.)
what are reserves?
profits that have been appropriated for a certain purpose
types of reserves
share premium accounts, retained earnings, general/other reserves
how is a share premium account used?
- premium is added to the reserve account
- the account has tight legal restrictions on its use
- dividends CANNOT be debited to this account
what is a Rights issue?
new shares are offered to existing shareholders at discount to current market price
what is a Bonus issue?
free shares given to existing shareholders. It does not generate cash inflow for the company
double entry: nominal value of bonus shares
Dr Revenue account
Cr share capital account
what are retained earnings?
type of capital; equity reserves is used to accumulate company’s retained earnings
when are dividends paid?
either interim (mid year) or final (end year)
when do directors declare the final dividend?
after knowing the company’s full-year profit
double entry: dividends paid in the year
Dr Retained earnings
Cr Cash
double entry: dividends declared but not paid
Dr retained earnings
Cr dividends payable
if loans are being paid in instalments, where are they recorded?
if necessary, part of it under current liability and other part under non-current
how is interest classified?
as a finance cost
how is unpaid interest categorised in SOFP and P&L?
as Other Payables (SOFP) and Expense (P&L)
