WK 4: Company finance and accounting

Question 1

what is: Ordinary shares

Answer 1

entitle their owner to receive an ordinary dividend from the company; ordinary shareholders are entitled to vote a general meetings of company.

Question 2

what are preference shares

Answer 2

entitle their owners to receive dividends at a fixed rate before the ordinary dividend can be paid. Preference shares are not entitled to vote at general meetings

Question 3

What is the nominal value

Answer 3

shares represents their value and is nearly always the amount at which the shares are issues when company is formed

Question 4

dividend

Answer 4

payment made to companys shareholders

Question 5

stock exchange

Answer 5

marketplace where shares are bought and sold. A company has to be listed on stock exchange

Question 6

Ordinary shares - explain how it works

Answer 6

share capital divided into evenly sized chunks or nominal amounts

ordinary shareholders are the owners of a company. every share has one vote

Question 7

preference shares

Answer 7

preference can be equity but also liability

entitled to a fix rate of dividend

preference shareholders are entitled to be repaid before ordinary shareholders

Question 8

Loan capital

Answer 8

Contract drawn up between company and lender - specifies, amount of loan, interest rate, any security provided on loan.

Question 9

what are the reporting requirements?

Answer 9

Company directors need to:

produce annual financial statements
arrange financial statements to be audited
submit annual returns

Question 10

Statement of profit or loss

What is eqn for operating profit and profit for the year?

Answer 10

operating profit = gross profit - operating expenses (admin and distribution)

Profit for the year = operating profit - interest + taxation
(represents the amount available to shareholders)

Question 11

Shareholders’ equity

Answer 11

is the share capital and reserves of the company. The main reserve is normally the retained profits

Question 12

what is the equity of the company

Answer 12

= ordinary share capital and reserves

Question 13

what is the share premium

Answer 13

The difference between the par value of a company’s shares and the total amount of money a company receives for shares recently issued.

Reserve that records the premium amount raised when a company makes a share issues.
The premium between issue price and nominal value of shares issues.

Question 14

Revaluing assets - summary

Answer 14

• companies can include properties at current value
• difference between the valuation and NBV is taken to a revaluation reserve
• profit for the year does not benefit from revaluation
• once properties have been revalued, companies are required to carry out subsequent revaluations on a regular basis