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

This guide teaches 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 3.2.6 is International A-level only. The assessment overview places it in Paper 3: Financial Accounting as well as in Paper 4: Accounting for analysis and decision making. All names and figures are made up; amounts are in dollars.

Revise the AS statements in Limited company accounts first. Pair this guide with the condensed revision notes plus the original practice questions. Links: course hub · printable checklist · free diagnostic.

What 3.2.6 covers (International A-level only)

Content statement	What it asks of you
Using accounting techniques and principles to draft company financial statements (based on IAS1)	Draw up the three 3.1.7 statements, a schedule of non-current assets, and a statement of cash flows by the IAS7 indirect method
Revaluation of non-current assets	Journal a revaluation; show the reserve and the new carrying amount
Issue of shares, rights issue and bonus issue	Explain how they differ and record each one
Requirement to publish accounts	Give reasons for publication; weigh benefits against limitations; list what IAS1 and the Companies Acts require and say what each part is for; describe how stakeholders use the accounts
International accounting standards (IAS) framework	Explain its purpose and importance

Not examined: financial statements of a group of companies; the statement of comprehensive income; any individual standard apart from IAS1 and IAS7. From 3.1.7, preference shares and general reserves are also not examined.

One company runs through every example: Sallowby Signage Ltd, year ended 31 December 2025.

Schedule of non-current assets

The schedule has a column for each class of asset and a total column. It traces the movement in cost (or valuation) and in accumulated depreciation over the year, ending with the carrying amounts.

Data at 1 January 2025

• Premises: cost 360,000; accumulated depreciation 50,400. Depreciation is 2% a year on cost (a 50-year life). Revalued to 462,000 on 31 December 2025.
• Equipment: cost 96,000; accumulated depreciation 41,000. During the year Sallowby bought equipment for 28,000 and sold equipment that cost 16,000 (accumulated depreciation 11,000) for 6,800. Depreciation is 15% reducing balance on equipment held at the year end.

Workings

Premises charge     2% x 360,000                          =  7,200
Equipment cost c/f  96,000 + 28,000 - 16,000              = 108,000
Equipment dep. b/f  41,000 - 11,000 (disposal)            =  30,000
Equipment charge    15% x (108,000 - 30,000)              =  11,700
Disposal            carrying amount 16,000 - 11,000       =   5,000
                    proceeds 6,800, so profit on disposal =   1,800

	Premises	Equipment	Total
Cost or valuation
At 1 January 2025	360,000	96,000	456,000
Additions	–	28,000	28,000
Disposals	–	(16,000)	(16,000)
Revaluation	102,000	–	102,000
At 31 December 2025	462,000	108,000	570,000
Accumulated depreciation
At 1 January 2025	50,400	41,000	91,400
Charge for the year	7,200	11,700	18,900
Disposals	–	(11,000)	(11,000)
Eliminated on revaluation	(57,600)	–	(57,600)
At 31 December 2025	0	41,700	41,700
Carrying amount
At 1 January 2025	309,600	55,000	364,600
At 31 December 2025	462,000	66,300	528,300

The 18,900 charge is an expense; 528,300 appears among non-current assets.

Revaluation of non-current assets

A gain on revaluation is unrealised: nothing has been sold and no cash has come in. So it is not profit. It is credited to a revaluation reserve in equity.

Charge this year’s depreciation first, then compare the new value with the carrying amount:

Accumulated depreciation  50,400 + 7,200                = 57,600
Carrying amount           360,000 - 57,600              = 302,400
Revaluation surplus       462,000 - 302,400             = 159,600

Dr Premises (360,000 to 462,000)                102,000
Dr Accumulated depreciation: premises            57,600
   Cr Revaluation reserve                               159,600

• Statement of financial position: premises at 462,000 with no accumulated depreciation; revaluation reserve 159,600 in equity.
• Statement of changes in equity: the surplus on its own line (see below).
• Income statement and statement of cash flows: no entry.
• Future depreciation uses the new value: eight of the 50 years have gone, so 462,000 / 42 = 11,000 a year from 2026, up from 7,200.

The reserve cannot fund a cash dividend because the gain is unrealised. A later fall in value is first set against that asset’s revaluation reserve.

Issue of shares, rights issues and bonus issues

	Issue of shares	Rights issue	Bonus issue
Offered to	The public or chosen investors	Existing shareholders, pro rata	Existing shareholders, pro rata
Price	Often above nominal value	Usually below market price	Free
Cash received	Yes	Yes	None
Effect on equity	Total rises by the cash	Total rises by the cash	Total unchanged; reserves become share capital

A bonus issue converts reserves (share premium, revaluation reserve or retained earnings) into share capital.

Sallowby’s equity at 1 January 2025: 500,000 ordinary shares of 0.20 (100,000); share premium 36,000; retained earnings 188,000.

1 March 2025: bonus issue, 1 for 2, using share premium first.

New shares        500,000 / 2 = 250,000;  x 0.20 = 50,000
Dr Share premium          36,000   (all of it)
Dr Retained earnings      14,000   (the balance)
   Cr Ordinary share capital      50,000

1 July 2025: rights issue, 1 for 6 at 0.56, fully taken up. The ratio applies to the 750,000 shares now in issue, not the original 500,000.

New shares        750,000 / 6 = 125,000
Dr Bank                    125,000 x 0.56 = 70,000
   Cr Ordinary share capital   125,000 x 0.20 = 25,000
   Cr Share premium            125,000 x 0.36 = 45,000

Equity rose from 324,000 to 394,000 before profit and dividends: exactly the 70,000 of cash from the rights issue.

Statement of changes in equity

On 30 October 2025, Sallowby paid a dividend of 0.032 per share on 875,000 shares: 28,000. Profit for the year after tax was 61,300.

	Share capital	Share premium	Revaluation reserve	Retained earnings	Total
At 1 January 2025	100,000	36,000	–	188,000	324,000
Bonus issue	50,000	(36,000)	–	(14,000)	–
Rights issue	25,000	45,000	–	–	70,000
Revaluation of premises	–	–	159,600	–	159,600
Profit for the year	–	–	–	61,300	61,300
Dividends paid	–	–	–	(28,000)	(28,000)
At 31 December 2025	175,000	45,000	159,600	207,300	586,900

The bonus issue row totals zero. That is a quick check you have recorded it correctly.

Statement of cash flows (IAS7, indirect method)

IAS7 explains the change in cash and cash equivalents under operating, investing and financing activities. The indirect method adjusts a profit figure for items that did not involve cash. Here we start from profit before tax, so finance costs are added back and interest paid is shown separately.

Further data for 2025

• Profit from operations 84,600; finance costs 6,000; profit before tax 78,600; tax charge 17,300.
• Interest owing: 900 at the start, 1,200 at the end. Tax payable: 14,900 at the start, 16,100 at the end.
• Inventory fell from 47,300 to 42,900. Trade receivables rose from 37,900 to 45,400. Trade payables fell from 29,600 to 26,850.
• 40,000 of 6% debentures were repaid on 30 June 2025. Cash and cash equivalents were 12,650 at 1 January 2025.

Workings

Interest paid  900 + 6,000 - 1,200      = 5,700
Tax paid       14,900 + 17,300 - 16,100 = 16,100

Sallowby Signage Ltd -- Statement of cash flows, year ended 31 December 2025
Cash flows from operating activities
Profit before tax                                     78,600
Adjustments for:
  Finance costs                                        6,000
  Depreciation                                        18,900
  Profit on disposal of equipment                     (1,800)
  Decrease in inventories                              4,400
  Increase in receivables                             (7,500)
  Decrease in trade payables                          (2,750)
Cash generated from operations                        95,850
  Interest paid                                       (5,700)
  Tax paid                                           (16,100)
Net cash from operating activities                    74,050

Cash flows from investing activities
  Purchase of equipment                  (28,000)
  Proceeds from sale of equipment          6,800
Net cash used in investing activities                (21,200)

Cash flows from financing activities
  Proceeds from rights issue              70,000
  Repayment of debentures                (40,000)
  Dividends paid                         (28,000)
Net cash from financing activities                     2,000

Net increase in cash and cash equivalents             54,850
Cash and cash equivalents at 1 January 2025           12,650
Cash and cash equivalents at 31 December 2025         67,500

• The profit on disposal is deducted; the cash (6,800 proceeds) is under investing.
• The bonus issue and the revaluation do not appear: no cash moved.
• IAS7 allows interest paid under operating or financing activities, and dividends paid under financing or operating. Label your choice.

The requirement to publish accounts

Why companies publish. Shareholders own the company but usually do not run it, so directors report on how their money has been used (stewardship). With limited liability, lenders and suppliers need to see the company’s position before risking money. In the UK, the Companies Act 2006 requires directors to deliver the annual accounts and reports to the registrar, where the public can inspect them.

Main elements and their purpose

Element	Source	Purpose
Statement of financial position	IAS1	What the company owns and owes, and the owners’ stake, on the last day of the year
Statement of profit or loss (income statement)	IAS1	Financial performance over the year
Statement of changes in equity	IAS1	Movements in share capital and each reserve during the year
Statement of cash flows	IAS1, prepared under IAS7	Where cash came from and where it went
Notes, including accounting policies	IAS1	Explain the figures and break them down, for example the schedule of non-current assets
Previous year’s figures	IAS1	Allow comparison with last year
Directors’ report	Companies Acts	The directors’ report on the company for the year
Strategic report (unless the company is entitled to the small companies exemption)	Companies Acts	A fair review of the business and its principal risks and uncertainties
Auditor’s report (unless exempt from audit)	Companies Acts	An independent opinion on whether the accounts show a true and fair view

Stakeholders. Investors decide whether to buy, keep or sell shares. Banks and debenture holders check that interest and repayments are affordable. Suppliers check liquidity before giving credit. Employees look for job security. Tax authorities use the profit figures.

Benefits: consistent content set by law and standards; audit adds credibility; open to anyone.

Limitations: historic and published months after the year end; summarised; no non-financial factors such as staff morale; depreciation and valuations rest on judgement; directors may present results favourably; competitors read them too.

The international accounting standards framework

The International Accounting Standards Board (IASB) issues the standards. Older ones keep the name IAS (IAS1, IAS7); newer ones are called IFRS.

Purpose: common rules for recognising, measuring, presenting and disclosing items, so companies prepare accounts the same way.

Importance: users can compare companies across countries, which encourages cross-border investment; fewer permitted choices leave less room for misleading presentation; the same rules each year make trends meaningful; auditors have a clear benchmark.

Common errors

• Calculating rights or bonus shares on the share total before an earlier issue in the same year.
• Leaving the old accumulated depreciation on a revalued asset, or crediting the surplus to profit or retained earnings.
• Adding back the sale proceeds in operating activities instead of adjusting for the profit or loss on disposal.
• Using the tax charge, or the interest charge, as the amount paid.
• Putting a bonus issue or a revaluation into the statement of cash flows, although no cash moved.
• Not adding back finance costs when starting from profit before tax.

See Analysis and evaluation of financial information for ratios built on these statements.

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.