Limited company accounts flashcards

Topic 7: Limited company accounts

The three statements in 7127 topic 3.7, and who they are for

Income statement, statement of changes in equity and statement of financial position. They are internal statements, for use inside the company, not for publication.

80,000 ordinary shares of £0.25 are issued at £0.90. Entries?

Dr Bank £72,000; Cr Share capital £20,000; Cr Share premium £52,000.

Gross profit £180,000; operating expenses £112,500; 8% debentures of £75,000 all year; tax £14,700. Profit levels?

Profit from operations £67,500. Profit for the year before tax £61,500 (after £6,000 interest). Profit for the year after tax £46,800.

Retained earnings: opening £84,300, profit after tax £46,800, dividends paid £20,000. Closing?

84,300 + 46,800 − 20,000 = £111,100. Only profit after tax goes to retained earnings.

5% debentures of £90,000 were outstanding all year; £2,250 interest has been paid. Accrued interest?

Full-year charge £4,500; accrued £2,250, a current liability. The full year's interest is charged as a finance cost.

Where are dividends paid shown?

In the statement of changes in equity, in the retained earnings column. A dividend is a distribution of profit, not an expense.

Directors' remuneration vs a sole trader's own "wage"

Directors' remuneration is an operating expense of the company. A sole trader's own wage is drawings.

Share capital vs share premium

Share capital: number of shares × nominal value. Share premium: the amount received above nominal value. Part of equity, never income.

Retained earnings rose from £60,000 to £71,000; profit after tax £23,000. Dividends paid?

60,000 + 23,000 − 71,000 = £12,000.

Which two items does 7127 say are not examined in topic 3.7?

Preference shares and general reserves.