Tutorial 7 Flashcards
Liabilities
Liabilities are defined as “creditors’ claims on total assets” and as “existing debts and obligations.”
VAT
Value-added tax is a consumption tax. This tax is placed on a product or service whenever value is added at a stage of production and at final sale.
Social Security Taxes
Most governments provide a level of social benefits (for retirement, unemployment, income, disability, and medical benefits) to individuals and families. The benefits are generally funded from taxes assessed on both the employer and the employees.
Provision
A provision is a liability of uncertain timing or amount (sometimes referred to as an estimated liability). Common types of provisions are obligations related to litigation expense, warranty expense or product guarantees, and environmental damage.
Liquidity
Liquidity refers to the ability to pay maturing obligations and meet unexpected needs for cash
Working Capital Formula
Current Assets - Current Liabilities
Current Ratio Formula
Current Assets / Current Liabilities
Non-current liabilities
Non-current liabilities are obligations that a company expects to pay more than one year
in the future.
Bonds
Bonds are a form of interest-bearing note payable issued by companies, universities, and governmental agencies.
Secured bonds
Secured bonds have specific assets of the issuer pledged as collateral for the bonds.
Unsecured bonds
Unsecured bonds, also called debenture bonds, are issued against the general credit of the borrower.
Convertible bonds
Bonds that can be converted into ordinary shares at the bondholder’s option are convertible bonds.
Callable bonds
Bonds that the issuing company can redeem (buy back) at a stated currency amount (call price) prior to maturity are callable bonds.
bond indenture
The terms of the bond issue are set forth in a legal document called a bond indenture.
The indenture shows the terms and summarizes the rights of the bondholders and their trustees, and the obligations of the issuing company.
Bond Certificates
A bond certificate provides the following information: name of the issuer, face value, contractual interest rate, and maturity date.
Bond sold at Discount
When a bond is sold for less than its face value, the difference between the face value of a bond and its selling price is called a discount.
Bond Sold at Premium
When a bond is sold for more than its face value, the difference between the face value and its selling price is called a premium.
Lease
A lease is a contractual agreement between a lessor (owner of a property) and a lessee (renter of the property).
Share capital
Share capital is the total amount of cash and other assets paid in to the corporation by shareholders in exchange for shares.
The historical cost principle
The historical cost principle states that a company or business must account for and record all assets at the original cost or purchase price on their balance sheet.
Preference shares
Preference shares have contractual provisions that give them some preference or priority over ordinary shares. Typically, preference shareholders have a priority as to (1) distributions of earnings (dividends) and (2) assets in the event of liquidation. However, they generally do not have voting rights.
Treasury shares
Treasury shares are a corporation’s own shares that it has issued and subsequently reacquired from shareholders but not retired.
Dividend
A dividend is a corporation’s distribution of cash or shares to its shareholders on a basis proportional to ownership.
Cash dividend
A cash dividend is a pro rata distribution of cash to shareholders. Cash dividends are not paid on treasury shares.
declaration date
On the declaration date, the board of directors formally declares (authorizes) the cash dividend and announces it to shareholders.
record date
At the record date, the company determines ownership of the outstanding shares for dividend purposes
Dividend Preferences
Preference shareholders have the right to receive dividends before ordinary shareholders.
share dividend
A share dividend is a pro rata (proportional to ownership) distribution to shareholders of the
corporation’s own shares.
Share split
A share split, like a share dividend, involves issuance of additional shares to shareholders according to their percentage ownership. However, a share split results in a reduction in the par or stated value per share
Return on ordinary shareholders’ equity formula
(Net Income - Preference Dividends ) ÷ Average Ordinary Shareholders’ Equity
