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LIMITED COMPANY FOR A2
Limited Company
1. What is limited company and why it is so called?
When the liability of share is limited by the number of share he is holding, it
is called limited company. It is so called because maximum liability of a share
holder will be limited by the number of share each shareholder is holding.in
this form of company the necessary finance required by a company is
arranged by issuing or selling shares to the public (here share means
ownership).
2. What are the different types of share?
Authorized Share Capital: the maximum number of share a company is
allowed to issue is called authorized share capital or registered share
capital. it will not be considered for any calculation.
Issued share capital or paid-up: the number of share capital a company
actually issues to public is called issued share capital. it will be used as a
base for all calculation.
Preference share: dividend is paid on priority basis and shareholder does
not carry any vote and trading is secondary market is restricted.
Ordinary Share: dividend is paid after preference dividend and
shareholders carry vote and has the option of selling share in the secondary
market. they are the ultimate stakeholders.
3. What is dividend?
The amount of profit that is actually paid to the shareholder is called
dividend.
Classification of Dividend
In terms of time In terms of Type
Interim Dividend: when dividend is Preference Dividend: when dividend
paid any time within the accounting is paid on preference share it is
period. It will be shown in the profit called preference dividend, it will be
and loss appropriation account but calculated on given fixed %.
not in balance sheet.
Final or Proposed or Declared Ordinary share: dividend paid on
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LIMITED COMPANY FOR A2
dividend: if dividend is proposed or ordinary dividend is called ordinary
declared at the end of the dividend and it will be calculated on
accounting period. It will be shown given rate assigned by the company.
in the P/L Appropriation account and
in the balance sheet as current
liability.
5. what is right share ? when share is issued to existing shareholders it is
called right share. It can be sold at premium.it will be issued directly to the
share holders.
5. What is Bonus Issue/ Scrip Issue? When a company has sufficient profit
and not enough cash to pay dividend, the company issues bonus share to its
existing share holder free of charge. it will be issued from
a. share premium. b. all reserves c. profit and loss account.
4. What is general reserve?
When part of the profit is kept aside for future use it is called general
reserve, it is part of share capital and deducted from profit in P/L
Appropriation account and also shown in the balance sheet. The part of
general reserve shown in P/L A/c will be found in adjustment.
5. Distinguish between Sole proprietorship and limited company
Limited Company Sole Proprietorship
Prepares Income statement Prepares income statement
Capital is termed as Shareholder Capital is termed as the Owner
Profit is withdrawn as dividend Profit is withdrawn as drawings
Capital can be divided as ordinary Capital is unique.
share and preference share
Strict tax law should be followed. Tax is personally paid by the owner
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LIMITED COMPANY FOR A2
If Profit and loss account shows a debit balance it will be treated as loss and
will be deducted in the Balance Sheet.
Statement of financial Position / Balance Sheet (IAS 1)
SAT partners PLC.
As at December, 31,2011
Assets Cost Provision for Net Book
Depreciation Value
Non Current Assets/ Fixed Assets: 120000
Tangible Assets
Land 350000
Building 530000 50000 480000
Furniture 265000 35000 230000
Investment Properties: Investment 90000
Intangible Assets: Goodwill 30000
Patents 5000 35000
(A)Total fixed assets 1305000
Current assets:
1. Stock/ inventory: Raw Materials/Work In 45000
Progress/ Finished Good.
2. Trade and Other Receivable:
a. Trade Debtors less Provision for Bad 90000
Debt
b.Prepaid Expenses. 1000
c.Accrued Income 35000
d. *Called up Share Capital not paid. 45000 171000
3. Cash and Cash Equivalent( Bank and 19000
in hand)
4. Accrued Income/ Income in Arrear ----
(B)Total Current Assets 235000
Total Assets (A+B) 1540000
Equity and Liabilities
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LIMITED COMPANY FOR A2
a. 6% Preference Share Capital 250000
b. Ordinary Share Capital 1000000
c. Share premium 23000
d. General Reserve 2000
e. Revaluation Reserve ( if any) 44000 69000
f. Redemption Reserve (if any) ---
g. Foreign Exchange Reserve (if any) ---
h. Profit and Loss Reserve (if any) ---
1319000
5. Creditors : Amount falling due
more than one year/Non Current
Liability
Debenture/Loan/ Loan Notes/Loan 118000
Stock
7. creditors : Amount falling due less
one year (Current Liability)
a. Bank O/D 34999
b. trade creditors 30000
c. accrued expense 4500
d. prepaid Income 4000
e. provision for Liabilities and
Charges 1000
f. accruals and Deferred Income 28501
1540000
Format of Statement of Changes in Equity (Profit and Loss Appropriation account):
Foreign
Share Share Retained General Exchange Total
Capital Premium Earnings Reserve Reserve Equity
Balance at Start Year 500 100 200 100 50 950
Comprehensive Income for Year 320 320
Dividends Paid in Year -80 -80
Transfer to General Reserve -30 30 0
Issue of Share Capital 100 80 180
Transfer from Foreign Exchange
Res. 10 -10 0
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LIMITED COMPANY FOR A2
Balance at End Year 600 180 420 130 40 1370
SAT partners PLC
Income statement
For the year ended 31st December, 2011
£
Sales 4150000
Less Cost of Sales (W3) (970000)
Gross Profit 3180000
Less other expenses
Selling and Distribution cost (W1) (178000)
Administration Cost (W2) (126000)
Operating Profit 2876000
Interest receivable/income/ other sales 12000
Investment income: interest received 45000
Income from discontinued Operations (if any) 31000
Profit before Tax 2964000
Taxation (if any) (296400)
Net Profit 2667600
Profit & Loss as at Opening/Retained
Earnings/profit and loss reserve as at 658400
opening(Cr)
3326000
Less appropriations
Preference Dividend (if any): Interim 50000
Final/proposed/ Declared 200000 (250000)
Ordinary Dividend: Interim 200000
Final/proposed/ Declared 350000 (550000)
Transfer to Reserves: General
Reserve/redemption reserve/foreign currency 100000 (100000)
reserve (if any)
Profit & Loss as at Closing/Retained
Earnings/profit and loss reserve as at Closing. 2426000
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LIMITED COMPANY FOR A2
Cost of Goods Sold/ Cost of Sales (W3)
Trading Co. Format Manufacturing Co. Format
Opening stock 230000 Opening Finished goods 330000
Purchase 760000 Cost of Production:
Carriage inwards 25000 Raw Materials/Materials consumed
Return outwards 45000 Labor 200000
Overheads: DPN of plant (etc) 120000
Factory rent 50000
Production directors salary
35000
Other Indirect factory expenses
10000
R &D
Less: discount received
5000
Closing stock (150000) Closing finished goods (230000)
Warehouse cost: 60000
rent/salary
Total 970000 Total 520000
Selling and Distribution cost (W1) Administrations cost (W2)
Commission on sales 12000 Bad debt written off/PBD 10000
Promotions and 16000 Admin. Staff wages 23000
advertising
Fuel 24000 Directors 5000
salary/Remuneration
Motor lorries Depn 36000 Professional fees 35000
Shop rent 5000 Legal fees 17000
Showroom rent and 34000 Auditors 1000
salary remuneration/fees
Transport staff wages 12000 Office rent 20000
Marketing director 10000 Office furniture Depn. 35000
Warehouse expense (if 14000 Discount allowed 1000
manufacturing Co.)
Sales directors salary 6000
Carriage outwards 9000
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LIMITED COMPANY FOR A2
Total 178000 Total 126000
Example of expenses
Cost of goods sold/Cost of sales Selling and Distribution Cost Administration Cost
Direct Materials Commission on sales Rent on shop premises Bad Debts Written Off
LESS Discount Received Sales director Sales staff travel and Finance director
Factory Depreciation Fuel Shop staff wages Discount allowed
Machinery Depreciation Motor lorries depreciation Warehousing Office stationery
Factory Power Promotions and advertising Commission on sales Accountancy staff wages
Machinery maintenance Rent on shop premises Promotions and Advertising Office staff wages
Production staff Running cost of lorries Fuel Computer depreciation
Production Director Shop staff wages Motor Lorries Depn Fees to debt collection agency
Hire of Plant and machinery Transport staff wages Shop Rent Hire of photocopiers
Factory staff Commission on sales Transport Staff Wages Insurance
Direct Labor Delivery charges Shop staff wages Administration staff wages
Factory Rent Distribution cost Marketing Director Bad Debts Written Off
Machinery Depreciation Marketing and advertising Advertising and promotions Office staff wages
Research and Development Shipping Cost Discount on sales Finance Director
Stock adjustment WIP Motor Lorries expenses Professional fees
Shop Premises Depreciation
Lorry Drivers Wages
Shop staff wages
Sales Director
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