IGCSE Accounting: Financial statements of limited companies (Cambridge 0452) – Revision Notes

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus covers only trading and service businesses in 5.1 and limits drawings adjustments to goods taken by the owner for own use; for limited companies it excludes cumulative and non-cumulative preference shares, rights issues, share premium and capital redemption reserve but requires the difference between redeemable and non-redeemable preference shares (the 2027-2029 syllabus lists none of these); and for incomplete records it does not ask why businesses keep them or what their advantages are. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

These revision notes condense syllabus section 5.3 Limited companies from the Cambridge IGCSE Accounting 0452 syllabus for examination in 2027, 2028 and 2029 (Version 1). For full explanations and the complete worked statements, read the study guide. When you are ready to test yourself, use the practice questions. The wider topic is in the topic 5 study guide, topic 5 revision notes and topic 5 practice. Course links: Cambridge IGCSE Accounting hub, printable checklist and the free diagnostics.

Key terms

Term	Say it like this
Limited company	A separate legal entity owned by shareholders; it can trade, provide services, manufacture, or combine these
Limited liability	A shareholder can lose no more than the amount paid, or agreed to be paid, for their shares
Equity	Total assets less total liabilities: share capital plus reserves
Preference share capital	Fixed rate of dividend, paid before ordinary shareholders receive anything
Ordinary share capital	Owners’ shares; the dividend varies and may be nil
General reserve	Profit moved out of retained earnings and kept in the business
Retained earnings	Profit kept after dividends and transfers, accumulated over time
Debentures	Loan capital; holders are lenders paid fixed interest

Advantages and disadvantages

• For: limited liability; large sums raised from many investors; continuity; easier borrowing.
• Against: legal requirements and costs; profit shared as dividends; accounts may be public; owners may not manage.
• Evaluation tip: pick the points that fit the business in the question, then give a judgement.

Ordinary shares or debentures

Feature	Ordinary share capital	Debentures
Holder is	An owner	A lender
Return	Dividend, variable, not compulsory	Interest, fixed, compulsory
Appears in	Equity	Non-current liabilities
Return shown in	Statement of changes in equity	Statement of profit or loss, as a finance cost
Vote	Usually	No
Repayment	Not normally repaid while trading	On the agreed date

Share capital formulas

• Issued = number of shares x nominal value.
• Called-up = number of shares x amount called per share.
• Paid-up = called-up less amounts called but not yet paid.
• Preference dividend = rate x nominal value of preference shares.
• Ordinary dividend = number of ordinary shares x dividend per share.
• Debenture interest = rate x nominal value of debentures, whether paid or still owing.

Method in steps

1. Statement of profit or loss. Revenue less cost of sales gives gross profit. Make every 5.1 adjustment, deduct expenses to reach profit from operations, deduct debenture interest (finance costs) for profit for the year.
2. Statement of changes in equity. Start with opening balances in each column. Add shares issued and profit for the year. Move any transfer from retained earnings to the general reserve. Deduct dividends paid from retained earnings. Add across for the total and down for each closing balance.
3. Statement of financial position. Non-current assets at cost, accumulated depreciation and carrying value; current assets; equity copied from step 2; debentures as non-current liabilities; current liabilities including other payables for accrued interest. Total assets must equal total equity and liabilities.

Worked reminder: statement of changes in equity

Hartsholme Paints Ltd, year ended 31 March 2028. Opening: ordinary shares $80,000, 5% preference shares $20,000, general reserve $12,000, retained earnings $18,500. During the year it issued 20,000 ordinary shares of $1 at $1, made a profit for the year of $21,300, transferred $3,000 to the general reserve, and paid the preference dividend and $0.07 a share on all 100,000 ordinary shares.

                          Ordinary  Preference General Retained   Total
                             share      share   reserve earnings
                           capital    capital
                               USD        USD      USD      USD     USD
At 1 April 2027             80,000     20,000   12,000   18,500 130,500
Ordinary shares issued      20,000                                20,000
Profit for the year                                      21,300  21,300
Transfer to general reserve                      3,000   (3,000)      -
Preference dividend paid                                 (1,000) (1,000)
Ordinary dividend paid                                   (7,000) (7,000)
At 31 March 2028           100,000     20,000   15,000   28,800 163,800

Dividends: 5% x $20,000 = $1,000 and 100,000 x $0.07 = $7,000.

Worked reminder: what a missing adjustment does

Suppose the accounts of a company leave out each item below. Each line is independent.

Item left out	Profit for the year	Equity	Statement of financial position
Electricity owing $900	Overstated by $900	Overstated by $900	Other payables too low
Depreciation $2,500	Overstated by $2,500	Overstated by $2,500	Carrying value too high
Insurance prepaid $400	Understated by $400	Understated by $400	Other receivables too low
Accrued debenture interest $1,000	Overstated by $1,000	Overstated by $1,000	Other payables too low
Transfer to general reserve $5,000	No effect	No effect	Reserve and retained earnings wrong by $5,000, total right

Adjustments in one glance

• Accruals: add to the expense, show as other payables.
• Prepayments: deduct from the expense, show as other receivables.
• Irrecoverable debts: expense, and take out of trade receivables.
• Allowance for irrecoverable debts: charge only the increase (add back a decrease), and deduct the allowance from trade receivables.
• Depreciation: straight line on cost; reducing balance on the carrying value at the start; revaluation method is opening value plus additions less closing valuation.
• Drawings adjustments are in the 5.1 list; revise the method in the topic 5 guide.

Must-know distinctions

• Dividends: statement of changes in equity. Debenture interest: statement of profit or loss.
• Profit from operations comes before finance costs; profit for the year comes after.
• A transfer to the general reserve changes the split of equity, not the total.
• Issued, called-up and paid-up are three different figures.
• Statement of financial position equity uses closing balances, not opening ones.

Quick self-test

1. What is the most a shareholder can lose if all their shares are fully paid?
2. Assets are $96,000 and liabilities $31,500. What is equity?
3. Name the four parts of a limited company’s capital structure.
4. A company issues 90,000 ordinary shares of $0.50 and calls up $0.30 a share. The holders of 2,000 shares have not paid. Find issued, called-up and paid-up capital.
5. Where does debenture interest appear in the statements?
6. Profit from operations is $36,400. There are $40,000 of 7% debentures, all interest paid. Find profit for the year.
7. What effect does a $4,000 transfer to the general reserve have on total equity?
8. Debentures repayable in six years’ time: which heading in the statement of financial position?
9. Retained earnings start at $22,000. Profit for the year $15,000, $2,000 is transferred to the general reserve, preference dividend $1,200, ordinary dividend $6,000. Find closing retained earnings.
10. Which statement shows the ordinary dividend?

Answers

1. The amount invested in the shares. 2. $96,000 - $31,500 = $64,500. 3. Preference share capital, ordinary share capital, general reserve, retained earnings. 4. Issued $45,000; called-up $27,000; paid-up $27,000 - (2,000 x $0.30) = $26,400. 5. Finance costs in the statement of profit or loss, after profit from operations. 6. Interest $2,800, so $36,400 - $2,800 = $33,600. 7. None; it moves between reserves. 8. Non-current liabilities. 9. $22,000 + $15,000 - $2,000 - $1,200 - $6,000 = $27,800. 10. The statement of changes in equity.

Where marks are usually lost

• Dividends deducted in the statement of profit or loss.
• Debentures placed inside equity, or interest left as a dividend.
• Interest on debentures for part of the year left out because only half had been paid.
• Transfers to the general reserve added to the total column.
• Called-up and paid-up capital mixed up.
• Statements that do not balance because an adjustment is used once instead of twice.
• Evaluation answers that list advantages without linking them to the business described.

Frequently asked questions

What is equity in a limited company? Equity is the shareholders’ stake, equal to total assets minus total liabilities. It is made up of share capital and reserves, such as a general reserve and retained earnings.

What types of limited company are there? A trading company buys and sells goods, a service company sells skills and has no cost of sales, a manufacturing company makes what it sells, and a combination does more than one of these. The type decides how the statement of profit or loss starts.

Which retained earnings figure goes in the statement of financial position? Use the closing retained earnings from the statement of changes in equity, after profit, transfers and dividends. Using the opening figure is a common error.

Why might the statement of financial position not balance? A common cause is using an adjustment only once instead of twice, for example including an accrual in an expense but leaving it out of other payables. Each adjustment affects both statements.

Official syllabus

Cambridge IGCSE Accounting 0452 syllabus for examination in 2027, 2028 and 2029 (Version 1), section 5.3 Limited companies, Cambridge International.