Financial Reporting
Limited Companies
Limited company questions require you to prepare financial statements including income statements, statements of financial position, and statements of changes in equity — handling share capital, dividends, debentures, and retained earnings with precision.
Show workings for any adjustments clearly — accruals, prepayments, depreciation, and loan interest must all be correctly treated before preparing the final statements. In the statement of financial position, classify equity and non-current liabilities separately, and always reconcile retained earnings through the statement of changes in equity.
Key Concepts to Revise
Share Capital
Ordinary shares: Voting rights, variable dividends based on profit
Preference shares: Fixed dividend, priority on liquidation, usually non-voting
Income Statement
Revenue − Cost of sales = Gross profit
Gross profit − Expenses = Profit before tax → less tax = Profit for year
Retained Earnings
Opening retained earnings + Profit for year − Dividends paid = Closing retained earnings
Presented in the Statement of Changes in Equity
Debentures & Loans
Debenture interest: A finance cost — charged to the income statement regardless of profit
Shown as non-current liability in the SoFP; accrued interest is a current liability
Statement of Financial Position
Equity section: Share capital + Share premium + General reserve + Retained earnings
Non-current liabilities: Debentures/loans. Current liabilities: Trade payables, accruals, tax owing
Key Adjustments
Depreciation, provision for doubtful debts, accruals, prepayments, and closing inventory must all be applied before the final statements are produced.