OxfordAQA A-Level Accounting: Limited company accounts (9615)

Section 3.1.7, Limited company accounts, is taught here in full. The source is 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. This is International AS content; Paper 2: Financial & Management Accounting is the paper the specification names for it. Names and numbers in the examples are made up, and the currency is dollars.

Work through it with the revision notes and the practice questions. Year-end adjustments such as depreciation, accrued and prepaid expenses, irrecoverable debts and doubtful debt provisions are taught in Preparation of financial statements of sole traders. What a limited company is, and why it can raise money through ordinary shares and debentures, is covered in Types of business organisation. The course hub is /boards/oxfordaqa/a-level/accounting/, the printable checklist is /checklists/oxfordaqa/a-level/accounting/, and you can take a free diagnostic first.

What 3.1.7 asks of you

The specification has one content statement for this section: how to prepare the internal financial statements of limited liability companies. The additional information spells out what that means.

Part of 3.1.7	What you must be able to do
The statements	Draw up three statements – the income statement, the statement of changes in equity, the statement of financial position – none of them intended for publication
Income statement	Show three profit lines: profit from operations; profit for the year before tax; then profit for the year after tax, in that order
Statement of changes in equity	Start from opening balances; add share issues (any premium included) and the year’s profit, or deduct a loss; deduct dividends paid; finish with closing balances
Statement of financial position	Group every item under five sub-headings: current assets, non-current assets, equity, non-current liabilities, current liabilities
Exclusions	Preference shares and general reserves are not examined. Rights issues, bonus issues and revaluation of non-current assets are not examined at AS level.

How the three statements connect

Think of the three statements as a chain. Each one passes a figure to the next.

1. The income statement ends with profit for the year after tax.
2. That figure is one line in the statement of changes in equity, where it is added to retained earnings and dividends paid are taken away.
3. The closing balances from the statement of changes in equity become the equity section of the statement of financial position.

So prepare them in that order.

Equity in a limited company

Where a sole trader keeps a single capital account, a company records its owners’ stake in several separate balances. Section 3.1.7 uses three of them.

• Ordinary share capital. The number of shares issued multiplied by their nominal value (the face value printed on the share).
• Share premium. The extra received when shares are sold for more than nominal value. It belongs to the shareholders, so it sits in equity.
• Retained earnings. The total of profits after tax that the company has kept since it started, after dividends paid.

Owners of a company are rewarded by dividends, not drawings. A dividend is a share of profit given to shareholders. It is not a cost of earning revenue, so it never goes in the income statement.

Worked example 1: issuing shares at a premium

Quillmere Data Ltd issues 80,000 ordinary shares with a nominal value of 0.25 each. Investors pay 0.90 per share in full.

Cash received   80,000 x 0.90          = 72,000
Share capital   80,000 x 0.25          = 20,000
Share premium   80,000 x (0.90 - 0.25) = 52,000

The double entry is:

Dr Bank                    72,000
   Cr Ordinary share capital      20,000
   Cr Share premium               52,000

Check: 20,000 + 52,000 = 72,000. Both credits are equity. The premium is not trading income, so it stays out of the income statement.

The income statement of a limited company

Down to gross profit, nothing changes from a sole trader. Below that, a company must show three separate profit figures.

Revenue
Less: Cost of sales
Gross profit
Less: Expenses (wages, directors' fees, insurance,
      depreciation, irrecoverable debts ...)
Profit from operations
Less: Finance costs (loan and debenture interest)
Profit for the year before tax
Less: Taxation
Profit for the year after tax

• Profit from operations tells you what the trading activity earned before any interest is paid on borrowing.
• Profit for the year before tax shows the result after the cost of finance.
• Profit for the year after tax is what is left for shareholders; it moves into the statement of changes in equity.

Interest on a loan or debentures is charged for the whole year (the accruals concept), even if part is unpaid; the unpaid part is a current liability. A company pays tax on its own profit, so tax is charged in its income statement, and tax still owed at the year end is a current liability.

The statement of changes in equity

This statement shows why each part of equity moved during the year. Use a column for each component and a total column.

                           Ordinary    Share   Retained
                      share capital  premium   earnings   Total
Balances b/f                    ...      ...        ...     ...
Issue of ordinary shares        ...      ...                ...
Profit (loss) after tax                             ...     ...
Dividends paid                                    (...)   (...)
Balances c/f                    ...      ...        ...     ...

If the company made a loss, show it in brackets in the profit row; it reduces retained earnings. If shares were issued during the year and the trial balance already includes them, take the issue away from the trial balance figures to find the opening balances.

The statement of financial position

Use the five sub-headings named in the specification. One common order is:

• Non-current assets, each shown at carrying amount, which is cost minus accumulated depreciation.
• Current assets: inventory; trade receivables net of the provision for doubtful debts; prepayments and income due (other receivables); cash and cash equivalents.
• Equity: ordinary share capital, share premium, retained earnings, from the closing balances of the statement of changes in equity.
• Non-current liabilities: loans and debentures due more than 12 months after the year end.
• Current liabilities: trade payables, other payables (accrued expenses and interest), taxation owing, bank overdraft, and any part of a loan due within 12 months.

The last point matters. If a loan is repaid in instalments, split it: the instalment due within the next 12 months is current, the rest is non-current.

Worked example 2: from trial balance to all three statements

Ottercombe Hardware Ltd extracted this trial balance on 30 November 2025:

Account	Dr	Cr
Revenue		486,000
Purchases	274,500
Inventory at 1 December 2024	31,800
Wages	72,600
Directors’ fees	38,000
Insurance	9,600
Electricity	7,450
Irrecoverable debts	1,150
Loan interest paid	3,000
Land at cost	205,000
Vehicles: cost / accumulated depreciation	64,000	25,600
Equipment: cost / accumulated depreciation	50,000	18,000
Trade receivables / trade payables	36,000	24,950
Provision for doubtful debts		1,400
Bank	12,480
Dividends paid	12,000
Ordinary shares of 0.50 each		120,000
Share premium		38,000
Retained earnings at 1 December 2024		43,630
8% bank loan		60,000
Totals	817,580	817,580

Additional information at 30 November 2025:

1. Inventory is valued at 35,400.
2. Insurance of 1,600 is prepaid. Electricity of 850 is owing.
3. The loan was taken out before 1 December 2024. 12,000 of it is repayable on 30 November 2026 and the rest later.
4. Land is not depreciated. Vehicles are depreciated at 25% a year on cost (straight line). Equipment is depreciated at 20% a year (reducing balance).
5. Maintain a provision for doubtful debts equal to 5% of trade receivables.
6. Tax for the year is estimated at 11,650.
7. During the year the company issued 40,000 ordinary shares at 1.25 each. This is already included in the trial balance.

Workings

Cost of sales     31,800 + 274,500 - 35,400        = 270,900
Insurance         9,600 - 1,600                    =   8,000
Electricity       7,450 + 850                      =   8,300
Loan interest     8% x 60,000 = 4,800; owing 4,800 - 3,000 = 1,800
Dep. vehicles     25% x 64,000                     =  16,000
Dep. equipment    20% x (50,000 - 18,000)          =   6,400
Provision         5% x 36,000 = 1,800; increase 1,800 - 1,400 = 400
Share issue       capital 40,000 x 0.50 = 20,000; premium 40,000 x 0.75 = 30,000

Income statement for the year ended 30 November 2025

Revenue                                           486,000
Less: Cost of sales                               270,900
Gross profit                                      215,100
Less: Expenses
  Wages                                    72,600
  Directors' fees                          38,000
  Insurance                                 8,000
  Electricity                               8,300
  Irrecoverable debts                       1,150
  Increase in provision for doubtful debts    400
  Depreciation: vehicles                   16,000
  Depreciation: equipment                   6,400
                                                  150,850
Profit from operations                             64,250
Less: Finance costs (loan interest)                 4,800
Profit for the year before tax                     59,450
Less: Taxation                                     11,650
Profit for the year after tax                      47,800

Statement of changes in equity, year ended 30 November 2025

                      Ordinary     Share   Retained
                 share capital   premium   earnings      Total
At 1 Dec 2024          100,000     8,000     43,630    151,630
Share issue             20,000    30,000                50,000
Profit for the year                          47,800     47,800
Dividends paid                              (12,000)   (12,000)
At 30 Nov 2025         120,000    38,000     79,430    237,430

The opening share capital (120,000 - 20,000) and share premium (38,000 - 30,000) remove the issue that the trial balance already contains.

Statement of financial position at 30 November 2025

                                  Cost   Acc. dep.  Carrying
Non-current assets
  Land                         205,000          -    205,000
  Vehicles                      64,000     41,600     22,400
  Equipment                     50,000     24,400     25,600
                                                     253,000
Current assets
  Inventory                                           35,400
  Trade receivables (36,000 - 1,800)                  34,200
  Other receivables (insurance prepaid)                1,600
  Cash and cash equivalents                           12,480
                                                      83,680
Total assets                                         336,680

Equity
  Ordinary share capital                             120,000
  Share premium                                       38,000
  Retained earnings                                   79,430
                                                     237,430
Non-current liabilities
  8% bank loan (60,000 - 12,000)                      48,000
Current liabilities
  Trade payables                                      24,950
  Other payables (850 + 1,800)                         2,650
  Taxation                                            11,650
  Bank loan instalment due 30 Nov 2026                12,000
                                                      51,250
Total equity and liabilities                         336,680

Both sides total 336,680. If yours do not agree, check each adjustment has been entered twice: once in the income statement and once in the statement of financial position.

What 3.1.7 leaves out

Preference shares and general reserves sit outside the examined content, according to the specification, so equity in a 3.1.7 question uses only the three components above. Rights issues, bonus issues and the revaluation of non-current assets are not examined at AS level. They appear in 3.2.6 Accounting for limited companies, which is International A-level only, together with statements of cash flow, schedules of non-current assets and published accounts.

Common errors

• Deducting dividends paid in the income statement. They belong only in the statement of changes in equity.
• Charging the interest actually paid rather than the full year’s interest, then forgetting the amount owing under current liabilities.
• Recording the whole issue price as share capital, so share premium is missing.
• Carrying profit before tax into retained earnings instead of profit after tax.
• Leaving the tax charge out of current liabilities when it has not yet been paid.
• Treating an entire instalment loan as non-current when part is due within 12 months.
• Using trial balance share figures as opening balances when the trial balance already includes an issue made during the year.

Next steps

Test what you remember using the revision notes, and move on to the practice questions. How the AS and A-level papers fit together is explained in the exam preparation guide for 9615.

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 3.1.7, Limited company accounts.