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Topic 3 of 6 · Form 5

Limited companies and published financial statements

Ordinary and preference shares; issued and called-up capital; share premium; revaluation reserve; retained earnings; general reserve; bonus and rights issues; redemption of shares and debentures.

Notes for this topic 1 file, in order

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  1. PDFLimited companies and published financial statements – Accounting notes (Cambridge A Level)45.3 KB

Share capital and reserves

Ordinary and preference shares; issued and called-up capital; share premium; revaluation reserve; retained earnings; general reserve; bonus and rights issues; redemption of shares and debentures.

Published financial statements

Statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity, notes; IAS 1 requirements; directors' and auditors' reports; the role of the auditor.

Worked example: A company makes a rights issue of 1 for 4 at US$1.50 on 800 000 ordinary shares of US$1. Show the effect.

New shares = 200 000 → cash +300 000; share capital +200 000; share premium +100 000

Statement of cash flows (IAS 7)

Operating activities (indirect method), investing and financing activities; interpreting cash flows.

Events after the reporting period and provisions

Adjusting and non-adjusting events; provisions, contingent liabilities and contingent assets.

Exam tip: Bonus issues use reserves (no cash); rights issues raise cash.

Check yourself

  1. Give one difference between an adjusting and a non-adjusting event.
  2. Where is the share premium shown?
  3. Why is depreciation added back in a cash flow statement?
Show answers
  1. An adjusting event provides evidence of conditions at the reporting date and changes the figures; a non-adjusting event arises after the date and is only disclosed.
  2. In equity, as a capital reserve.
  3. It is a non-cash expense that reduced profit.
Next topicAnalysis and interpretation of financial statements

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