Week 1 Flashcards
State the financial equation (2 ways)
Net assets = Capital
Or
Assets = Capital + Liabilities
List different types of organisations
Sole traders
Partnerships
Limited Companies (Ltd)
Public Limited Companies (PLC)
Clubs and societies
Charities
What is capital made up of (equation)
+ Capital introduced
+ Profit for the Year
- Drawings
What is Equity made up of?
Ordinary Share Capital
Share Premium
Retained Earnings
General Reserve
Revaluation Reserve
Capital Redemption Reserve
What are the limitations of SFP?
Only a snapshot of a point in time
Historic cost vs current value
Doesn’t reflect:
- all assets and liabilities
- current market share of entity
What are the characteristics of limited companies?
Separate legal entity
Perpetual existence
Limited liability
Shared ownerships and profits
Voting rights
Ownership and management = separate
Annual accounts
Independent auditors
Legal requirements for format + content: -Comapnies Act 2006 + IAS1
Characteristics of private limited company (Ltd)
Can’t sell shares to general public
Usually few shareholders
Characteristics of Public limited company (Plc)
Can issue shares to public
Traded on stock exchange
Many shareholders
More onerous rules
Public accountability
Characteristics of share capital
Issued by all limited companies
Permanent source of finance
Profits distributed as dividends
Preference / ordinary share capital
Characteristics of ordinary share capital
Part ownerships
Highest risk / potentially higher rewards
Fluctuations in dividends - sometimes none
LAST TO BE REPAID
Non-redeemable
Voting rights and share of profits
Can be issued at premium
Characteristics of presence share capital
Paid before ordinary
Fixed dividend
NO VOTING RIGHTS
Non-redeemable
Can be treated as debt (NCL) or equity depending on substance
ALL ABOVE CAN VARY BY CONTRACT @ ISSUE
Characteristics of ordinary dividends
Not guaranteed
Deducted from retained earnings
Usually paid in 2 instalments - interim and final
Proposed ORDINARY dividends not included in financial statements
Uncharacteristically of preference dividends
Usually fixed and guaranteed
Often cumulative
Often paid in instalments
Characteristics of loans and debentures
Usually fixed interest rate but can be variable
Preferential treatment over all shareholders
No voting rights
Repayable at fixed date
Debt (liability in SFP)
Interest payments treated as finance expense
Interest = tax-deductable
Secured / unsecured
Fixed / floating
What’s an AGM?
And annual meeting attended by all shareholders who can vote to:
- receive annual report + financial statements
- elect directors
- appoint auditors + fix salaries
- declare + adopt proposed dividends
