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Title: Company Accounts
Description: These notes cover the entire chapter of company accounts

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COMPANY ACCOUNTS
The net assets of the company are represented with capital and reserves
...
There are two main types of reserves
...

These are transferred from the Appropriation Account
...
Dividends can only be paid to the amount of revenue reserves
on the balance sheet
...
e
...

Capital Reserves: These are reserves which the company is required to set up by law and
cannot be distributed as dividends
...
These
include Share Premium and Revaluation Reserve and Capital Redemption Reserve (See details
of CRR)
Revaluation Reserve
This is created when the value of an asset is increased in the books due to a permeant increase
in market value
...
This is a gain which cannot be transferred to the profit
and loss account as it is still not realized (earned) by the company
...
This can also be used for Bonus Issue
Share Premium
Share premium occurs when a company issue shares at a price above its nominal (par) value
...

What are the uses of Share Premium?




Issue Bonus Shares
Write off Formation (Preliminary Expenses)
Write off Goodwill

What are the different Types of Preference Shares?






Non Cumulative Preference Shares: In case company doesn’t have enough profits
these shareholders will get no dividend in the year and that amount of dividend will never
be given
Cumulative Preference Shares : : In case company doesn’t have enough profits these
shareholders will get no dividend in the year and that amount of dividend will be carried
forward to next year , when the company makes enough profit the entire amount will be
payable as dividend
...
They are
recorded as non current liabilities and the dividends paid to them are treated like interest
( finance cost)

ISSUE OF SHARES
Public Issue: This is normal issue of shares to general public
...
Public issues
have higher cost of issue (this means the company has to incur high expenses when
issuing the shares I
...
advertising and administration)
...

Rights Issue: A rights issue represents the offer of shares to the existing shareholders
in proportion to their existing holding at a lower price compared to the market value
...

Disadvantages




Market price will fall
The company could have raised more funds through a public issue

Bonus Issue:
Is the issue of shares to existing shareholders for free
...
Other reasons
for bonus issue include
...

When doing bonus issue company will always use capital reserves first and then the
revenue reserves i
...

We can use either of revaluation reserve or share premium first but if we don’t have
enough balance in both of these reserves then we will move to



General Reserve
Profit and Loss

WHAT IS CONVERTIBLE DEBENTURE/CONVERTIBLE LOAN STOCK?
Special type of debenture which can be converted into shares at a specified date
...
The shares are sold to them in return of debentures, so that’s
usually done at market price of share (so share premium will be involved)
...
They decided to convert it into
shares by issuing 10 Ordinary shares of $1 each for every $15 of debenture
...
5
Title: Company Accounts
Description: These notes cover the entire chapter of company accounts