ZIMSEC A Level · Accounting · Form 5, Form 6
Share capital and reserves
- Ordinary shares carry voting rights and variable dividends; preference shares receive a fixed dividend before ordinary shareholders.
- Capital reserves (share premium, revaluation reserve) cannot be distributed as dividends; revenue reserves (retained earnings, general reserve) can.
- Bonus (capitalisation) issue: reserves are converted into shares – no cash is received.
- Rights issue: new shares offered to existing shareholders, usually at a discount to market price – cash is received.
Worked example: A company issues 100 000 ordinary shares of US$1 at US$1.50 each. Show the effect.
Bank +150 000; share capital +100 000; share premium +50 000
Published financial statements
- Statement of profit or loss and other comprehensive income.
- Statement of financial position.
- Statement of changes in equity.
- Statement of cash flows and notes.
Debentures and loans
Loan notes (debentures) are long-term borrowings; interest is an expense, paid whether or not the company makes a profit.
Dividends
Interim dividends paid during the year and final dividends approved after the year end (proposed final dividends are disclosed in notes, not recorded as liabilities).
The auditor
Independent external auditors give an opinion on whether the statements show a true and fair view.
Exam tip: Separate capital reserves from revenue reserves – only revenue reserves can fund dividends.
Check yourself
- Give one difference between ordinary and preference shares.
- Does a bonus issue raise cash for the company?
- Name two capital reserves.
Show answers
- Ordinary shares have votes and variable dividends; preference shares have a fixed dividend paid first and usually no votes.
- No – it converts reserves into share capital.
- Share premium and revaluation reserve.
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