Business: Company Accounts, Share Capital Reserves and Dividends

Why do companies prepare accounts?

Because they are obliged to do so by statute

Can a company choose its own accounting reference period?

Yes this is allowed

What is company's accounting reference date?

Last day of the month in which the anniversary of its incorporation fails.

Can a company change its ARD?

Yes to a date of its choice as long as it complies with the CA

When must a private company file its accounts at Companies House?

- nine months after the end of the relevant accounting reference period.

When must a public company file its accounts at Companies House?

- six months after the end of the relevant accounting reference period

What is the main difference about company accounts?

1. Capital accounts: bottom half of the balance sheet

2. Tax - companies have a separate legal personality and pay tax on their own account

3. Dividends - shareholder's return on investment is the dividend they may receive

What if companies have one or more subsidiaries?

Required to publish accounts for the group of companies as well as their own annual accounts

What entries are at the bottom half of a company's balance sheet?

- Called up share capital

- Share premium account

- Revaluation reserve

What does the bottom half of a company's balance sheet show and balance with?

Shows equity and will balance with the top half of the balance sheet

What is called up share capital?

Amount of the nominal value of its shares that the company has requested its shareholder to pay

What are reserves?

the capital of the company more than the called-up value of the issued share capital.

What are capital reserves?

- share premium account, revaluation reserve, capital redemption reserve)

What are revenue reserves?

retined earnings

What is the share premium account?

= Capital reserve.

Represents the difference between the nominal value of the shares and the amount that the shareholders actually paid for the shares (subscription price) - if greater.

What is the revaluation reserve?

Created when a company's directors, as a matter of accounting policy, wish to show more up to date values of non-current assets in the accounts.

• The revaluation reserve represents a notional profit to the company from the rise in value of the asset. This profit is, however, unrealised until the asset is sold, and as such it is a capital reserve and is not distributable as a dividend until the company sells the asset and realises the profit

What are dividends?

Shareholders' return on their investment

usually appear in a financial statement called the statement of equity

What are retained earnings?

reserve account for retained profits.

What is an final dividend?

declared after the year end and paid some time thereafter

What is an interim dividend?

paid during, and in respect of, the current accounting period

articles of a company normally gives directors power to decided to pay interim dividends

What is a declared dividend?

final dividend that has been approved by the shareholders

What about profits after tax not paid to shareholders as dividends?

They are retained in the company