Company Financial Statements

Question 1

What is share capital?

Answer 1

A company’s initial capital is divided into par, nominal and face value shares

Question 2

Equity shares

Answer 2

No entitlement to a dividend, treated as capital, dividends charged to retained earnings.

Question 3

Redeemable preference shares

Answer 3

A non-current liability on SFP.
Dividend treated as interest expense - finance charge

Question 4

Irredeemable preference shares

Answer 4

Capital in the equity section of SFP.
Dividend charged to retained earnings

Question 5

Double entry for equity or irredeemable shares with dividend paid during/ before period

Answer 5

Dr retained earnings Cr cash/ accruals

Question 6

Double entry for redeemable shares with dividend paid during/ before period

Answer 6

Dr finance charge Cr cash/accruals

Question 7

Double entry for share issue

Answer 7

Dr cash (sharesshare price)
Cr share capital (sharesequity price)
Cr share premium (shares*(share price - equity price)

Question 8

What is a rights issues?

Answer 8

Made to existing shareholders in proportion to their shareholdings for company to raise new cash. Discounted share price for existing customers

Question 9

What is x for y rights issue?

Answer 9

x new shares for every y shares you own
shares *x/y * equity share price

Question 10

What is a bonus issue?

Answer 10

Giving existing shareholders free shares

Question 11

Double entry for bonus issue

Answer 11

Dr share premium or retained earnings, Cr share capital

Question 12

Double entry for issue of debt

Answer 12

Dr cash Cr N-C liability

Question 13

Double entry for repayment of debt

Answer 13

Dr N-C liability Cr cash

Question 14

Double entry for interest paid

Answer 14

Dr interest expense (finance cost) Cr cash

Question 15

Double entry for outstanding interest owed

Answer 15

Dr interest expense (finance cost) Cr accruals

Question 16

Double entry for repayment of loan with shares

Answer 16

Dr loan (full amount)
Cr share capital (nominal value of additional shares)
Cr share premium (balancing figure)

Question 17

What is a provision?

Answer 17

A liability of uncertain timing or amount, eg. a lawsuit settlement.

Question 18

When is a provision created?

Answer 18

When likelihood of payment is >50%

Question 19

Double entry for provision

Answer 19

Dr expense Cr provision

Question 20

Double entry for increase in provision

Answer 20

Dr expense Cr provision (required increase)

Question 21

Double entry for decrease in provision

Answer 21

Dr provision Cr expense (required decrease)

Question 22

Double entry to incur expenditure

Answer 22

Dr provision Dr expense Cr cash

Question 23

Double entry to remove excess provision

Answer 23

Dr provision Cr expense

Question 24

Double entry for tax charge

Answer 24

Dr tax expense Cr tax payable

Question 25

Double entry for tax charge payment

Answer 25

Dr tax payable Cr cash

Question 26

Over and under provisions

Answer 26

Paid less than expected - Cr on payable, over provision in prev. year so take away, reduces tax expense in following year. Paid more than expected - Dr on payable, under provision in prev. year so add, increases tax expense in following year.

Question 27

Where are rules and regulations applied?

Answer 27

Content, accounting concepts, presentation

Question 28

The processes must be.....

Answer 28

honest and truthful transparent and adaptable legally compliant consistent