9706 · 1.5.4
Limited companies flashcards
Revision flashcards for Cambridge 9706 Limited companies (syllabus 1.5.4). Flip, recall, then mark a real past-paper question.
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Ordinary shares?
Variable dividend; voting rights; residual claim. They are the main risk-bearing shares of a company.
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Preference shares?
Carry a right to a fixed-rate dividend which has priority over ordinary dividends. Usually non-voting.
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Share premium account?
A capital reserve showing the amount received from shareholders above the nominal value of shares issued. It is not distributable as cash dividends.
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How is a proposed final dividend treated in the accounts?
It is disclosed in the notes to the financial statements. It is not recorded as a liability or a reduction in retained earnings until approved by shareholders.
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What is the formula for the movement in Retained Earnings?
Opening Balance + Profit for the year − Dividends paid/declared − Transfers to other reserves = Closing Balance.
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Limited liability?
A legal protection for shareholders where their maximum loss is limited to the amount invested in the company's shares.
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What is the double entry to record the issue of 50,000 $1 ordinary shares at $1.80 each?
Dr Bank $90,000; Cr Ordinary Share Capital $50,000; Cr Share Premium $40,000.
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Define 'retained earnings'.
The cumulative profit of a company after corporation tax and dividends have been deducted. It is a revenue reserve available for future reinvestment or distribution.
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What is the difference between an interim dividend and a final dividend?
An interim dividend is paid part-way through the financial year. A final dividend is proposed at the end of the year and paid after shareholder approval.
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Name two types of capital reserve.
Share Premium and Revaluation Reserve.
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What is the purpose of the Statement of Changes in Equity?
To show the movement in each component of shareholders' equity (share capital, reserves, retained earnings) from the beginning to the end of the accounting period.
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What is a Revaluation Reserve?
A non-distributable capital reserve created when a non-current asset is revalued to a value higher than its carrying amount.
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What are cumulative preference shares?
Preference shares where any unpaid fixed dividends from previous years must be paid in full before any dividend can be paid to ordinary shareholders.
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What is the double entry to create a General Reserve of $20,000 from profits?
Dr Retained Earnings $20,000; Cr General Reserve $20,000. This is an appropriation of profit.