OxfordAQA A-Level Accounting: Accounting for limited companies (9615) – Revision Notes

These notes condense section 3.2.6, Accounting for limited companies, of the OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards. Every part of it is International A-level only; the assessment overview places it in Paper 3 as well as Paper 4. For full explanations and a worked example running through every statement, work through the study guide first.

Afterwards, try the original practice questions. The AS statements this section builds on are summarised in the limited company accounts revision notes. Links: course hub · printable checklist · free diagnostic. All figures are invented and in dollars.

3.2.6 at a glance

• Drafting company statements based on IAS1: the three internal statements from 3.1.7, a schedule of non-current assets, and a statement of cash flows using the IAS7 indirect method.
• Revaluation of non-current assets.
• Issue of shares, rights issue, bonus issue: the differences and the entries.
• Published accounts: reasons for publishing; what is good and bad about them; what IAS1 and the Companies Acts make companies include, and why; who uses them.
• The IAS framework: purpose and importance.
• Not examined: group accounts; the statement of comprehensive income; any standard except IAS1 and IAS7; preference shares and general reserves.

Key terms

• Carrying amount: cost or valuation minus accumulated depreciation.
• Revaluation surplus: new value minus carrying amount at the date of revaluation. Unrealised, so it goes to a revaluation reserve, not to profit.
• Rights issue: new shares sold for cash to current shareholders in proportion to their holdings, normally at a discount to the market price.
• Bonus issue: extra shares given to current shareholders at no charge, by turning reserves into share capital. No cash.
• Cash and cash equivalents: cash plus short-term, highly liquid investments, less bank overdrafts repayable on demand.
• Indirect method: a profit figure adjusted for non-cash items and working-capital changes to reach cash from operations.

Formulas to know

What you need	How to find it
Tax paid	Tax payable b/f + charge for the year - tax payable c/f
Interest paid	Interest owing b/f + finance cost - interest owing c/f
Disposal proceeds	Carrying amount sold + profit on disposal (or - loss)
Purchases of non-current assets	Cost c/f - cost b/f + cost of assets sold (allow for any revaluation)
Dividends paid (no other movement)	Opening retained earnings + profit after tax - closing retained earnings
Revaluation surplus	Valuation - carrying amount
New shares in a rights or bonus issue	Shares already in issue x ratio (e.g. 1 for 4 means / 4)
Rights issue entry	Bank = new shares x price; share capital = new shares x nominal; share premium = new shares x (price - nominal)
Depreciation after revaluation	Valuation / remaining useful life

Method: schedule of non-current assets

1. One column per class of asset, plus a total.
2. Cost or valuation: opening, add additions, deduct disposals at cost, add or deduct revaluation, closing.
3. Accumulated depreciation: opening, add the charge, deduct depreciation on disposals, deduct depreciation eliminated on revaluation, closing.
4. Carrying amount at the start and end of the year.
5. Check every column adds down and the total column adds across.

Method: revaluation

1. Charge depreciation up to the revaluation date.
2. Surplus = valuation - carrying amount.
3. Journal: Dr asset (cost up to valuation); Dr accumulated depreciation (all of it); Cr revaluation reserve (surplus).
4. Show the surplus in the statement of changes in equity, in a revaluation reserve column. Nothing in the income statement or statement of cash flows.
5. Depreciate the valuation over the remaining life from then on.

Method: statement of cash flows (indirect)

1. Start with profit from operations, or with profit before tax and add back finance costs.
2. Add back depreciation. Add a loss on disposal, or subtract a profit on disposal.
3. Working capital: increase in inventory or receivables, deduct; decrease, add. Increase in payables, add; decrease, deduct.
4. That subtotal is cash generated from operations; from it, take off interest paid and tax paid.
5. Investing: purchases of non-current assets (out), disposal proceeds (in).
6. Financing: share issues for cash and new loans or debentures (in); repayments and dividends paid (out).
7. Net change + opening cash and cash equivalents = closing. Check against the statement of financial position.

Item	Where it goes
Depreciation	Operating, added back
Profit on sale of a non-current asset	Operating, deducted
Sale proceeds	Investing, inflow
Rights issue or share issue for cash	Financing, inflow
Debenture repayment	Financing, outflow
Interest paid	Operating or financing (IAS7 allows either)
Dividends paid	Financing or operating (IAS7 allows either)
Bonus issue, revaluation	Not shown: no cash

Must-know distinctions

• Rights issue vs bonus issue: only the rights issue brings in cash, so only it lifts total equity; after a bonus issue, total equity is the same.
• Issue to the public vs rights issue: a rights issue is offered first to existing shareholders, pro rata, so their control is not diluted if they take it up.
• Revaluation reserve vs retained earnings: the revaluation reserve holds an unrealised gain and cannot fund a cash dividend; retained earnings come from realised profits.
• Tax expense vs cash paid for tax: the expense belongs to this year’s profit; cash paid in the year often settles last year’s bill.
• IAS1 vs IAS7: IAS1 sets what a complete set of statements contains and how it is presented; IAS7 sets how the statement of cash flows is prepared.

Published accounts in brief

Reasons: stewardship (directors report to owners who do not run the company); limited liability means lenders and suppliers need information; the law requires it. In the UK, directors must deliver accounts and reports to the registrar under the Companies Act 2006.

Required by IAS1	Required by the Companies Acts
Statements of financial position, profit or loss, changes in equity and cash flows; notes including accounting policies; previous year’s figures	Directors’ report; strategic report (not for companies entitled to the small companies exemption); auditor’s report (unless exempt from audit)

Stakeholders: investors (returns, dividends), lenders (security, ability to pay interest), suppliers (liquidity), employees (job security), government (tax).

Benefits: standard format; audited; publicly available. Limitations: historic; summarised; delayed; no non-financial information; based on estimates; open to favourable presentation.

IAS framework: purpose is common rules for recognition, measurement, presentation and disclosure. Importance: comparability across companies and countries, consistency over time, reliability, an audit benchmark, investor confidence.

Quick self-test

1. Tax payable was 8,400 at the start of the year and 9,900 at the end. The tax charge was 11,250. Calculate tax paid.
2. Equipment costing 22,000 with accumulated depreciation of 15,400 was sold at a loss of 1,300. Calculate the proceeds.
3. 960,000 ordinary shares of 0.50 are in issue. The company offers 1 for 8 rights at 1.20, and all are taken up. Calculate the cash received, the increase in share capital and the increase in share premium.
4. A company with 500,000 shares of 1.00 makes a 3 for 10 bonus issue. How many new shares are issued, and how much cash is received?
5. Land bought for 140,000 is revalued to 185,000. State the surplus and where it is recorded.
6. A building cost 230,000 and has accumulated depreciation of 35,000. It is revalued to 280,000. Give the journal entry.
7. Retained earnings rose from 72,500 to 86,300. Profit after tax was 41,800. No other movements. Calculate dividends paid.
8. Vehicles at cost were 84,000 at the start and 97,000 at the end. A vehicle costing 19,000 was sold. Calculate vehicle purchases.
9. 5% debentures of 160,000 were in issue all year. Interest owing was 2,000 at the start and 4,000 at the end. Calculate the finance cost and the interest paid.
10. Profit before tax 54,000; finance costs 3,500; depreciation 12,600; inventory up 5,100; receivables down 2,200; payables up 1,700. Calculate cash generated from operations.
11. Name two elements of published accounts required by the Companies Acts rather than IAS1.
12. Why does a bonus issue not appear in a statement of cash flows?

Answers

1. 8,400 + 11,250 - 9,900 = 9,750.
2. Carrying amount 22,000 - 15,400 = 6,600; proceeds 6,600 - 1,300 = 5,300.
3. New shares 960,000 / 8 = 120,000. Cash 144,000; share capital 60,000; share premium 120,000 x 0.70 = 84,000.
4. 500,000 x 3/10 = 150,000 new shares; no cash. 150,000 of reserves become share capital.
5. 45,000, credited to the revaluation reserve (equity).
6. Dr Building 50,000; Dr Accumulated depreciation 35,000; Cr Revaluation reserve 85,000.
7. 72,500 + 41,800 - 86,300 = 28,000.
8. 97,000 - 84,000 + 19,000 = 32,000.
9. Finance cost 5% x 160,000 = 8,000; paid 2,000 + 8,000 - 4,000 = 6,000.
10. 54,000 + 3,500 + 12,600 - 5,100 + 2,200 + 1,700 = 68,900.
11. Any two: directors’ report; strategic report; auditor’s report.
12. Shares are issued free by converting reserves, so no cash enters or leaves the company.

Where marks are usually lost

• Taking 1 for 4 as “multiply by 4” instead of dividing the existing shares by 4.
• Applying the ratio of a second issue to the share count before the first issue.
• Recording only the share capital part of a rights issue and missing the share premium.
• Leaving accumulated depreciation on a revalued asset, or putting the surplus through the income statement.
• Using the tax or interest charge as the cash paid.
• Adding back disposal proceeds in operating activities.
• Getting working-capital signs reversed: a rise in receivables is a deduction.
• Forgetting to add back finance costs when starting from profit before tax.
• Not labelling where interest and dividends paid are shown.
• Listing published-accounts elements without stating the purpose of each when the question asks for it.

Official syllabus

OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards, published by OxfordAQA – section 3.2.6, Accounting for limited companies.