C2 - Ltd Company Financial Statements Flashcards Preview

AAT Financial Statments L4 AQ2016 > C2 - Ltd Company Financial Statements > Flashcards

Flashcards in C2 - Ltd Company Financial Statements Deck (20)
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1
Q

What is a limited company?

A

A separate legal entity owned by shareholders and managed by directors.

2
Q

Advantage of Ltd company

A

Limited liability - only lose up to your investment. Assets are also protected.

Separate legal entity - legal action against company only and not the shareholder.

3
Q

Two criteria points to become a public limited company

A
  1. Issued share capital of over £50,000

2. At least two members(shareholders) and minimum on two directors

4
Q

What is the Articles of Association?

A

A document that sets out the rules for running the company including the powers of directors and the holding of company meetings

5
Q

What does authorised share capital mean?

A

This is the maximum share capital of the company is allowed to issue.

6
Q

What are ordinary (equity) shares?

A

The most common use of shares which carries the risks and rewards of the business.

Risk: losing the value of the shares if the company becomes insolvent.

Rewards: taking a share of the profit in the form of a dividend after allowance has been made for all expenses (inc tax and finance cost)

7
Q

Company becoming insolvent with ordinary shares invested..

A

Shareholders with ordinary shares will be the last people to receive their dividend or any repayment after liabilities have been cleared.

8
Q

What are preference shares?

A

Shares that carries a fixed percentage rate of dividend.

These shares are paid in preference to ordinary shares but will only get paid if the company makes a profit.

Does not carry voting rights.

Preference shares will receive repayment of capital before ordinary shareholders would.

9
Q

What does nominal value of shares mean?

A

The amount at which the shares were entered at on the accounts of the company.

10
Q

What does market value mean?

A

The price at which issued shares or second hand shares are traded at

11
Q

What is the issue price of shares?

A

The amount at which shares are issued to shareholders by the company.

12
Q

What does share premium mean?

A

The amount difference between issue price (issued to shareholders) and nominal value (amount entered into accounts)

13
Q

What are debentures?

A

Formal certificates issued by companies raising long teen financial from lenders and investors.
Debentures are commonly secured against assets in the event of the company ceasing to trade and are paid before shareholders

14
Q

What are directors remuneration?

A

The amount paid to the shareholders of a company which appears in the overheads section of the FS

15
Q

What are capital reserves?

A

Capital reserves are profits which can not be distributed to shareholders and are therefore held for contingency plans and long term investment.

16
Q

What is revaluation surplus/reserve

A

An example of capital reserve when a non current asset such as property is revalued in an upwards direction.

The revaluation is recorded as other comprehensive income and placed in revaluation surplus on balance sheet.

17
Q

What are revenue reserves?

A

Revenue reserves are profits generated from trading activities that have been retained in the company to help build the future.

18
Q

What are intangible non-current assets?

A

Assets that belong to the company but do not have a material substance.

Eg goodwill (amount paid for reputation and connections of a business)

19
Q

Between capital and revenue reserves, which one is distributable to shareholders?

A

Revenue reserves are distributable

20
Q

What is a public limited company?

A

A company with an issued share capital of over £50k and at least two members/shareholders and two directors