Week 6 - Shareholder's Equity, Intangibles and Taxes Flashcards
When are brands recorded as an intangible asset
Only if purchased
what are three types of intangible assets (not examples but classifications)
separate acqusition
acquisition as part of business combination
Internally generated intangibles
what is a separate acqusition
intangible which can be measured as the company bought it, recoognised at cost
what is acqusition as part of business combination
acquirer must recognise separately indentifiable assets irrespective of if the company they bought recognised them, which is goodwill.
if a company bought coca cola, the brand name is recognised as goodwill but on coca cola statements it isnt shown
internally generated intangibles what are they
can be difficult to measure these so should be recognised only if their cost can be reliably measured
they are to be capitalised
measurement types for intangible assets
at cost just like PPE
revaluation only if there is an active market for that type of intangible asset
what happens with amortization if the asset has a finite useful life
residual value presumed zero unless there is an acive market for second hand or someone agreed to buy
amortized over useful life
what happens with amortization if the asset has an infinite useful life
do not amortize, instead perform annual impairment review
If a company has created a huge brand recognition through ads which cost 100k and the expected benefits are 5m, what is the value of the intangible asset ‘brand value’
0 because this cannot be accurately measured
A company bought a 5 year license for 400k which enables it to make a certain specialised amount of paint. can this be recognised as an intangible asset
yes
If a firm acqured a permanent trademark from another firm. should they amortize this asset?
no because indefinite useful life so just do impairment losses
a company issues 250k ordinary shares at par value of 1 each and makes 75k profit that year. what is the end equity balance and components
share captial 250k
retained earnings 75k
shareholders equity = 325k
after 5 years a company issues 150k more shares of par value 1 for 3. what does the equity account look like (they issued 250k five years ago par value 1) and what happens to cash
150k = share capital
300k = share premium (3-1)xshares
cash up 450k (150+300)
what are the two types of shares
preffered and common/ordinary
what is a preferred share
dividends are paid before ordinary dividends at a fixed rate of dividend each year
what is an ordinary share
divident not guaranteed, and if it is received then it is paid from net profits after preferred dividends
features of ordinary shares
if business closes, they get proceeds last
have voting rights
benefit from dividends and share price appreciation
high risk, high return
features of preferred shares
fixed rate of dividend each year dividends paid before ordinary priority over ordinary when business closes no voting rights low risk, low return
what are the two types of rreserve accounts
capital reserves and revenue reserves
what are capital reserves
share premium goes here (when shares are issued above par value)
revaluation reserve is here too (upward revaluation of noncurrent assets)
what are revenue reserves
retained earnings
difference between pre-tax income and taxable income
pretax income + non-deductible expenses - non-taxable income - capital allowances = taxable profit
what are non deductible (ie tax deductible so dont get taxed) expenses
depreciation an amortization general provisions (eg doubtful debt) entertainment expenses capex losses on sales of non current assets
what is non taxable income
dividends received or interest received on bonds
what is the double entry for corporate tax
Dr Tax espense (IS expense)
Cr tax liability (BS current liability)
what is under/over provision of tax
income tax (what IS said and that u put in taxes payable) - income tax paid (what you actually need to pay)
if greater than 0 then overprovided
if negative then underprovided
what is the tax liability entry this year if you underprovided tax by 300k last year
you have 300k more to pay which needs to be added onto this years income tax expense account so credit this years income tax liabiliity account by 300k (because u have a debit balance of 300k from before)
what is tax liability entry if you overprovided tax
you have a credit balance so you debit this years account since you need to reduce it back to what you really needed to pay
what is the journal entry if: 2019 company expects to pay 100k, then in 2020 once finalised turned out to be 150k. 2020 they expect to pay 120k.
2019: Dr Tax expense (IS) 100k, Cr Tax Payable 100k (BS)
2020: turned out to be 150 so - Dr Tax Payable 150k, Cr cash 150k
2020: Dr tax expense 120k, Cr Tax payable 120k, but also Dr tax expense 50k and Cr tax payable 50k to make up for underprovision
