Chapter 4 Flashcards
(28 cards)
What can a limited company be described as ?
An artificial person that has been created by law
What does perpetual life mean ?
This means that the life of a company is quite separate from the lives of those individuals who own or manage it
What does limited liability mean ?
This means that the company takes its own responsibility. For example, shareholders who invest into the company can only lose what they have paid in or what they have committed to pay
What are the legal safeguards for protecting individuals and businesses regarding limited companies ?
- requirement to indicate that it is a limited company
- restrictions based on the ability of shareholders to withdraw their equity from the company
- limited companies have to produce annual financial statements and make them available to the public
Is tax reported on financial statements of limited companies ?
yes - they are charged corporation tax
What does corporate governance mean?
This means that those who usually own a company elect other people to actually run the company (day-to-day)
What are the three guiding principles are rules regarding avoiding shortages of funds ?
- Disclosure
- Accountability
- Fairness
What is the UK governance code ?
This is a code of best practise
What is revenue reserve ?
This is profit that has came specifically from sales revenue
What are ordinary shares ?
These are the basic units ownership of a business, ordinary shareholders are only paid dividends when other claims have been dealt with. However, there is the possibility of a high dividend in return for their investment
What are preference shares ?
These are shareholders that are guaranteed a fixed rate of dividend.
What are reserves ?
the shareholders equity consists of share capital and reserves
What are bonus shares ?
These are free shares given out to shareholders
How do you work out the profit before taxation figure ?
You have to deduct the interest charges from the operating profit
What is the statement of changes in equity ?
This aims to help users to understand the changes in share capital and reserves that took place during the pleriod
What is the IASB?
The international accounting standards board - an independent body that is at the forefront of the move towards harmonisation
What is the IASs ?
This is International Accounting Standards- is a rule which aims for transparency etc
What is the IFRSs?
International Financial Reporting Standards . - This is another rule which aims for transparency
What is the aim of a directors report ?
This is prepared by a director and it related to the financial period, the content is required by law and contains things such as years performance, and future prospects
What is the Strategic report ?
This aims to help shareholders to understand how well the directors have performed in promoting the success of the company
What does creative accounting mean?
This is when companies misrepresent the actual performance and position of the business
How is a limited company governed?
by a board of directors who are elected by shareholders
What does share capital consist of ?
- ordinary shares
2. preference shares
Which type of shares are the more risky ?
ordinary shares because they aren’t guaranteed dividends and they are given voting rights at the AGM
