Week 2 - Preparation of company accounts

Question 1

Ordinary vs Preference shares

*Authorised share capital - the maximum amount of relevant shares that can be issued by a co.
^Companies Act 2006 abolished this concept for companies incorporated in the UK

Answer 1

Ordinary shares
1. Carry the main risk
2. {usually but} May not necessarily have voting rights. for co. to retain power

Preference shares
1. Usually have fixed rate % of dividend
2. Usually no voting rights

Loan providers have 1st priority in getting paid, then preference shareholders, finally ordinary shareholders

Question 2

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance - How are government grants presented in the SOFP & in the SOCI? (2 ways)

Answer 2

*1. Either set up grant as a DEFERRED INCOME (liability)!
- recognised in profit/loss on a systematic basis over the useful life of the asset

2. Or by deducting the grant in arriving at the CARRYING AMOUNT of the asset
   - recognised in profit/loss over the life of a depreciable asset as a reduced depreciation charge

Question 3

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance - Government grants related to assets & Grants related to income

A govt. grant is NOT recognised until…

Answer 3

1. Grants related to assets
   - government grants whose primary condition is that an entity qualifying for them should purchase, construct, or otherwise acquire long-term assets
   > helpful for biz as gov subsidises assets for them
2. Grants related to income
   - government grants other than those related to assets
3. A government grant is not recognised until there is REASONABLE ASSURANCE that the entity will COMPLY with the conditions attaching to it, and that the grant will be RECEIVED.

Question 4

IAS 10 Events after the Reporting Period - 4 examples of adjusting events (an ADJUSTMENT is required to be made to fin. stt.s)

Answer 4

1. After-SOFP-date sale of inventory provides evidence that NRV at reporting date (SOFP date) is lower than cost
   - b/c IAS 2 Inventories requires inventories to be stated at the lower of cost and net realisable value
2. Final year dividends declared and RECOGNISED as an OBLIGATION
3. The REVALUATION of a NON-CURRENT ASSET that indicates likelihood of impairment at reporting date
4. Discovery of fraud/errors that show that the fin. stt.s are incorrect
   eg. stolen cash must be written off

Question 5

IAS 10 Events after the Reporting Period - 3 examples of non-adjusting events (explanatory information is required to be DISCLOSED by way of a note)

Answer 5

1. Dividends proposed but NOT announced/recognised as an obligation
2. New issue or redemption of ORDINARY SHARES
3. DISPOSAL of a non-current asset after the reporting year-end before the fin. stt.s authorised for issue
   - will be disposal for next reporting period