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

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.

This study guide covers syllabus section 5.3 Limited companies in the Cambridge IGCSE Accounting 0452 syllabus for examination in 2027, 2028 and 2029 (Version 1). Paper 2 can ask you to prepare accounts from information given, so the guide ends with full worked statements.

Related pages: the topic 5 study guide (with the sole trader adjustments), the revision notes and the practice questions for this section. Also: Cambridge IGCSE Accounting hub, printable checklist and the free diagnostics.

What section 5.3 asks for

Outcome in 5.3	Where in this guide
Trading, service, manufacturing or combined company	Types of company
Advantages and disadvantages; limited liability	Next two sections
Equity; the four parts of the capital structure	Equity and capital structure
Ordinary share capital and loan capital (debentures)	Shares or debentures?
Issued, called-up and paid-up share capital	Issued, called-up and paid-up
The three statements, with 5.1 adjustments	Worked example, adjustments table

Types of company

A limited company is a separate legal entity owned by shareholders. Its activity decides how the statement of profit or loss starts.

• A trading company buys and sells goods, so its statement of profit or loss has a cost of sales section.
• A service company sells skills, such as surveying, so it has no cost of sales: fees are revenue and expenses follow.
• A manufacturing company makes what it sells; its factory cost of production replaces purchases in cost of sales (5.4).
• A combination does more than one of these, such as making furniture and charging fitting fees.

Limited liability

Limited liability caps a shareholder’s loss. Suppose a company fails owing $70,000 and its assets raise $30,000, a shortfall of $40,000. A shareholder with 5,000 fully paid $1 shares loses the $5,000 invested and nothing more; creditors cannot claim that person’s home or savings. A partly paid shareholder can be asked only for the unpaid part. A sole trader would have to find the $40,000 from private resources.

Advantages and disadvantages

Advantages of a limited company	Disadvantages of a limited company
Shareholders risk only what they paid or agreed to pay	More rules to follow, with set-up and running costs
Many investors can supply large sums	Profit is divided among shareholders as dividends
The company carries on if a shareholder sells up or dies	Accounts may have to be made public
Lenders may lend more readily	Owners may not run it

In evaluation, tie each point to the situation: “raises large sums” matters for a planned factory.

Equity and capital structure

Equity is the shareholders’ stake: total assets minus total liabilities. It is made up of four parts.

Part	Meaning
Preference share capital	Shares with a fixed dividend rate, paid before any ordinary dividend
Ordinary share capital	Shares sharing the remaining profit; the dividend can rise, fall or be nil
General reserve	Profit set aside from retained earnings and kept in the business
Retained earnings	Profit kept after dividends and transfers, built up over the years

Check: assets $150,000 less liabilities $40,000 gives equity of $110,000, which could be ordinary shares $70,000, general reserve $15,000 and retained earnings $25,000. A transfer to the general reserve moves money within equity, so the total is unchanged.

Shares or debentures?

Loan capital is money lent to the company, usually as debentures. Tarnbridge Textiles Ltd needs $80,000 and expects profit from operations of $50,000. Compare two ways.

• Issue 80,000 ordinary shares of $1: profit for the year stays $50,000. A dividend of $0.10 a share on them ($8,000) appears in the statement of changes in equity; none is owed if the directors pay none.
• Issue $80,000 of 8% debentures: interest of $6,400 is a finance cost, so profit for the year falls to $43,600. The interest must be paid whatever the profit.

Ordinary share capital	Loan capital (debentures)
Holders are owners and usually vote	Holders are lenders and do not vote
Dividend varies and is not compulsory	Fixed interest, compulsory
Part of equity	A liability: non-current while repayment is over a year away
Dividend leaves the statement of changes in equity	Interest is a finance cost in the statement of profit or loss
Not normally repaid while trading	Repaid on the agreed date

Issued, called-up and paid-up

Marchwood Foods Ltd issues 120,000 ordinary shares of $0.50 each.

• Issued share capital: 120,000 x $0.50 = $60,000.
• Called-up: it asks for $0.40 a share: 120,000 x $0.40 = $48,000.
• Paid-up: holders of 3,000 shares have not paid the $0.40, so 3,000 x $0.40 = $1,200 is unpaid and paid-up capital is $48,000 - $1,200 = $46,800.

Check which word the question uses; each gives a different figure.

The three statements

1. Statement of profit or loss: as for a sole trader down to profit from operations, then deduct finance costs (debenture interest) to reach profit for the year. Dividends never appear here.
2. Statement of changes in equity: a column for each part of equity, running from opening balance through shares issued, profit for the year, transfers and dividends paid to the closing balance.
3. Statement of financial position: the equity section copies the closing line of statement 2; debentures go under non-current liabilities.

Worked example: Hollowbrook Stationers Ltd

Trial balance at 30 June 2028 (before adjustments), all amounts in dollars:

Account	Debit	Credit
Revenue		235,000
Inventory 1 July 2027	18,400
Purchases	126,000
Wages and salaries	41,000
Rent	12,000
Electricity	3,900
Insurance	2,800
Debenture interest paid	1,500
Premises	180,000
Fixtures, cost	40,000
Fixtures, accumulated depreciation		12,000
Vehicles, cost	30,000
Vehicles, accumulated depreciation		10,000
Trade receivables	22,400
Allowance for irrecoverable debts		600
Bank	65,500
Trade payables		15,300
6% debentures		50,000
Ordinary shares of $1		150,000
6% preference shares of $1		40,000
General reserve		10,000
Retained earnings 1 July 2027		32,000
Preference dividend paid	2,400
Ordinary dividend paid	9,000
Totals	554,900	554,900

Adjustments:

• Inventory at 30 June 2028 is $21,500.
• Electricity owing $500; rent prepaid $1,000; insurance prepaid $700.
• Debenture interest for the second half-year, $1,500, is unpaid.
• Irrecoverable debts of $400 are to be written off. The allowance is then 5% of remaining trade receivables.
• Fixtures and fittings: 10% straight line on cost. Vehicles: 25% reducing balance.
• $5,000 is transferred to the general reserve.

Workings: receivables after write-off $22,000, so the allowance is $1,100, an increase of $500. Fixtures: $4,000. Vehicles: ($30,000 - $10,000) x 25% = $5,000. Debenture interest 6% x $50,000 = $3,000.

Hollowbrook Stationers Ltd
Statement of profit or loss for the year ended 30 June 2028
                                            USD       USD
Revenue                                                235,000
Cost of sales
  Inventory at 1 July 2027               18,400
  Purchases                             126,000
                                        144,400
  Less Inventory at 30 June 2028         21,500
                                                       122,900
Gross profit                                           112,100
Less Expenses
  Wages and salaries                     41,000
  Rent (12,000 - 1,000)                  11,000
  Electricity (3,900 + 500)               4,400
  Insurance (2,800 - 700)                 2,100
  Irrecoverable debts                       400
  Increase in allowance                     500
  Depreciation: fixtures and fittings     4,000
  Depreciation: vehicles                  5,000
                                                        68,400
Profit from operations                                  43,700
Less Finance costs: debenture interest                   3,000
Profit for the year                                     40,700

Hollowbrook Stationers Ltd
Statement of changes in equity for the year ended 30 June 2028
                          Ordinary Preference General Retained   Total
                             share     share  reserve earnings
                           capital   capital
                               USD       USD      USD      USD     USD
At 1 July 2027             150,000    40,000   10,000   32,000 232,000
Profit for the year                                     40,700  40,700
Transfer to general reserve                     5,000   (5,000)      -
Preference dividend paid                                (2,400) (2,400)
Ordinary dividend paid                                  (9,000) (9,000)
At 30 June 2028            150,000    40,000   15,000   56,300 261,300

Hollowbrook Stationers Ltd
Statement of financial position at 30 June 2028
                                  Cost  Accumulated  Carrying
                                            deprec.     value
                                   USD          USD       USD
Non-current assets
  Premises                     180,000            -   180,000
  Fixtures and fittings         40,000       16,000    24,000
  Vehicles                      30,000       15,000    15,000
                               250,000       31,000   219,000
Current assets
  Inventory                                  21,500
  Trade receivables              22,000
  Less Allowance                  1,100      20,900
  Other receivables (1,000 + 700)             1,700
  Bank                                       65,500
                                                       109,600
Total assets                                           328,600

Equity
  Ordinary shares of $1                                150,000
  6% preference shares of $1                            40,000
  General reserve                                       15,000
  Retained earnings                                     56,300
                                                       261,300
Non-current liabilities
  6% debentures                                         50,000
Current liabilities
  Trade payables                 15,300
  Other payables (500 + 1,500)    2,000                 17,300
Total equity and liabilities                           328,600

Check that the closing line of the statement of changes in equity matches the equity section and that the statement balances.

Second example: a service company with a loss

Sedgley Surveying Ltd earned fees of $96,000 and had expenses of $98,500, a loss from operations of $2,500. Interest on $25,000 of 8% debentures is $2,000, so the loss for the year is $4,500. An ordinary dividend of $0.06 a share is paid.

                          Ordinary  General  Retained   Total
                             share  reserve  earnings
                           capital      USD       USD     USD
At start                   100,000    6,000    20,000 126,000
Loss for the year                              (4,500) (4,500)
Ordinary dividend paid                         (6,000) (6,000)
At end                     100,000    6,000     9,500 115,500

A dividend can still be paid in a loss year, from earlier profits in retained earnings.

Adjustments from 5.1

Section 5.3 points back to the 5.1 list. Treatment is the same in a company.

Adjustment	Statement of profit or loss	Statement of financial position
Accrued expense / prepaid expense	Add to / deduct from the expense	Other payables / other receivables
Accrued income / prepaid income	Add to / deduct from the income	Other receivables / other payables
Irrecoverable debt	Expense	Lower trade receivables
Allowance for irrecoverable debts	Charge the increase, or add back a decrease	Deducted from trade receivables
Depreciation (straight line, reducing balance)	Expense	Raise accumulated depreciation
Revaluation method	Opening value + additions - closing valuation	Asset at closing valuation
Drawings	Method as in the sole trader guide	Method as in the sole trader guide

Common errors

• Putting dividends in the statement of profit or loss.
• Showing debentures within equity.
• Leaving unpaid debenture interest out of other payables.
• Using opening retained earnings in the statement of financial position.

Frequently asked questions

What is limited liability in Cambridge IGCSE Accounting 0452? Limited liability caps a shareholder’s loss at the amount invested in the company’s shares. If the company fails owing more than its assets raise, a shareholder with fully paid shares loses the investment and nothing more.

What is the difference between issued, called-up and paid-up share capital? Issued share capital is the number of shares issued multiplied by their nominal value. Called-up capital is the part of that value the company has asked for, and paid-up capital is the called-up amount actually received.

Where are dividends shown in limited company accounts? Dividends paid are shown in the statement of changes in equity, never in the statement of profit or loss. A dividend can still be paid in a loss year from earlier profits held in retained earnings.

What is the difference between ordinary shares and debentures? Ordinary shareholders own the company and receive dividends only if the directors decide to pay them. Debentures are loan capital: the interest is a finance cost that must be paid whatever the profit, and debentures are shown under non-current liabilities.

What are the three financial statements of a limited company? They are the statement of profit or loss, which deducts finance costs to reach profit for the year, the statement of changes in equity, and the statement of financial position, whose equity section copies the closing line of the statement of changes in equity.

Official syllabus

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