Advanced financial accounting - Lecture 21: Limited companies

Advanced Financial
Accounting
FIN-611
Mian Ahmad Farhan
Lecture-21
Limited Companies


Company Accounts


Owner’s Equity
Sole Proprietorship
Opening capital
Add Net profit
Less Drawings

xxx
xxx
xxx
xxx

Partnership
Capital Account
Add/Less Current Account

xxx
xxx
xxx

Company

Capital

xxx

Reserves

xxx
xxx


Sole proprietorship
Partnership
Company
Members

Owner
Owner
Owner

Sole Proprietor
Partners
Share holders/


Journal Entries
Capital Introduced
Sole Proprietorship
Cash A/c
Capital A/c

xxx
xxx

Partnership
Cash A/c
xxx
Partner’s Capital A/c

xxx

Company
Cash A/c
xxx
Shares Capital A/c

xxx


Issue of Share Capital
Cash resources
Cash A/c
xxx
Share capital A/c

xxx

Non-cash resources
Fixed Assets A/c
xxx
Share capital A/c

xxx


Share Premium

1,700,000

700,000

1,000,000
Bank A/c

1,700,000
Share Capital A/c
Share Premium A/c

1,000,000
700,000


Ledger Account
Share capital
Balance 1,000,000

Share premium
Bank 700,000

Bank
Share capital 1,000,000

Share premium 700,000


Reserves

Reserves are the profits of a company that are retained (not distributed) to its share
holders.
Reserves

Capital Reserves
Those profit which are not
distributed to share holders as
cash dividend

Revenue Reserves
Those profit which are distributed
to share holders as cash dividend


Reserves

Capital Reserves

Revenue Reserves

1. Share premium

1. Retained profit / Unappropriated
/ Undistributed profit

2. Revaluation reserve
3. Capital redemption
reserve

2. General reserve
3. Any named reserve
a. Stock replacement
b. Plant replacement


Profits

Realized profit

Unrealized profit
1. Share premium

Profit after tax

Transferred to
reserve

2. Revaluation surplus

Paid as dividend
to share holder

General
reserve
Plant replacement

reserve
Inventory replacement
reserve
Capital redemption
reserve


Transfer of Profit to Reserves
(Journal Entry )

Profit & Loss A/c

xxx

Reserve (type) A/c

xxx


---Balance sheet
As on 31st Dec----

Assets
Non-current Assets
Tangible Fixed assets

xxx

Intangible Fixed assets

xxx

Long term investments

xxx

Long term advances

xxx

Deposits

xxx

Prepayments

xxx

Deferred cost

xxx

Total Non-current Assets

xxx

Current Assets

xxx
xxx

---Balance sheet
As on 31st Dec----

Owner’s capital
Share capital

xxx

Reserves
Capital reserve

xxx

Revenue reserve xxx
xxx
Total owner’s equity

xxx

Liabilities
Non current liabilities

xxx

Current liabilities

xxx
xxx

---Income Statement
For the year ended 31st Dec----

Sales
Less Cost of goods sold
Gross profit
Less Operating expenses
Administrative expenses
Selling & distribution
Profit from operations
Add other incomes
Less Financial expenses
Income before tax
Less Income tax
Profit after tax

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx

Statements of Changes in Equity

Opening retained profit

xxx

Less Dividend payment 

xxx

Less transfer to reserves

xxx

Closing retained profit  

xxx