Professional, Practical, Proven

Academy 2019/2020

Advanced Financial AccountingLectures 9 & 10

Limited Company Financial Statements

1) Preparation of the Financial Statements of a Limited Company

2) Period End Adjustments

3) Treatment of Income Tax

4) Statement of Changes in Equity

5) The Non-Current Asset Note

2

Learning Outcomes

• Inventory

• Depreciation

• Accruals and Prepayments

• Irrecoverable Debts

• Allowance for Receivables

• Corporation Tax

• Correction of Errors

• Government Grants

• Leases

• Dividends

• Loan Interest / Loan Repayments 3

Period End Adjustments

4

The Format of FinancialStatements for a Ltd Company(Suitable for publication)

5

The Treatment of Income Tax

6

CORPORATION TAX:

Double Entry

For Charge for Corporation Tax: 

Dr Corporation Tax A/C X SOCICr Corporation Tax A/C X SOFP

For Payment of Corporation Tax:

Dr Corporation Tax A/C X SOFPCr Bank X SOFP

Note:

Preliminary Corporation Tax is usually paid 11 months into the accounting year and the actual charge will be calculated after the year end a/c’s are finalised. This will result in either a remaining liability or a refund owing.

7

TREATMENT OF INCOME TAX (CORPORATION TAX)

Prescribes the Accounting Treatment of Income Taxes (only current tax provisions are examinable)

Current tax for the current and prior periods should be recognised as a liability to the extent that it has not yet been paid.

Current tax for the current and prior periods should be recognised as an asset to the extent that the amounts already paid exceed the amount due.

Example: page 177 Adv FA Manual –

Scenario A: Scenario B:

Income Tax A/C (SOFP)Bank                      100,000Bal c/d                    5,000

105,000 

I. Tax (SOCI)         105,000_______105,000

Bal b/d                      5,000    

Income Tax A/C (SOFP)Bank                      100,000

_______100,000

Bal b/d                      8,000   

I. Tax (SOCI)            92,000Bal c/d                     8,000

100,000

8

Capital Structure of a Limited Company

9

SHARES:  Authorised

— The maximum amount of shares the company is permitted to sell/issue.

Issued

— The value of shares the company has actually sold to the public.

Ordinary

—Held by the Owners; dividends payable will fluctuate according to company profits

Preference

— Source of additional financing; dividends will be based on the guaranteed % rate & are payable before the ordinary dividend.  

DIVIDENDS:  The portion of company profits paid out to shareholders.

Interim

—A part dividend payment made during the year

Final

— The balancing payment made at the end of the year.

10

DEBENTURES: A form of loan, usually with a fixed rate of % interest.

EQUITY RESERVES: Everything owed to the ordinary shareholders.

Share Capital Account

— reflects the (par) value of issued share capital

Retained Profits

— reflects the profits earned by the company over its life

Revaluation Reserve

— reflects the increase/decrease in value of revalued non‐current assets

Share premium account

— reflects the premium value of shares issued above par

11

The Statement of Changes in Equity

Statement of Changes in Equity

12

Accumulated Profits

Revaluation Reserve

Issued Share Capital

Share PremiumTotals

€ € € € €

Balance as at 01.01 X X X X X

Profit / Loss for the period X / (X) X

Ordinary dividends ftp (X) X

Revaluation Surplus X X

Share Capitalissued / redeemed X / (X) X / (X) X

Balance as at31.12 X X X X X

13

The Non-Current Asset Note

14

Class Activity:

May 2016 – Question 3

15

Class Activity:

Oct 2019 – Question 3

16

Class Activity:

May 2017 – Question 3

DisclaimerCare has been taken to ensure that all data and information in Academy lectures is factual and that numerical values are accurate. To the best of our knowledge, all information in the Academy lectures is accurate at the time of publication. Accounting Technicians Ireland and its lecturers assume no responsibility for errors or misinterpretation of the information contained in these lectures or in its use.