Company Final Accounts

Chapter 10

The Corporate Organisation

Corporation
Joint-stock company, or company

Features of a company

Separate legal existence

Limited liability of shareholders
Free transferability of ownership rights
Perpetual existence

Chapter 10

The Corporate Organisation continued

Features of a company continued
Common seal
Professional management
Government regulation

Types of companies
Public companies and private companies
Listed companies and unlisted companies

Schedule VI Part I
Balance Sheet
Liabilities
Share Capital
Reserves & Surplus
Secured Loans
Unsecured Loans
Current Liabilities &
Provisions

Assets
Fixed assets
Investments
Current Assets, Loans
& Advances
Miscellaneous
Expenditure (to the
extent not written off)
Profit & Loss Account

Chapter 10

Share Capital

Shares
Share certificate
Authorised capital
Issued, subscribed, paid-up capital
Par value

Chapter 10

Accounting for Share Capital

Par value
Share premium

Receipt of share capital in installments

Issuance of share capital for non-cash
assets
Rights issue of share capital
Forfeiture of shares

Chapter 10

Preference Share Capital

Meaning of preference shares
Types of preference shares
Cumuative and non-cumulative preference shares
Participating and non-participating preference
shares
Redeemable and non-redeemable preference
shares
Convertible and non-convertible preference
shares

Chapter 10

Bonus Shares
What is a bonus issue?
Why do companies make bonus issues?
Issue of bonus shares from

Retained earnings
Profit and loss (appropriation) account
General reserve
Share premium
Capital redemption reserve

Reserves

Chapter 10

Capital reserve and revenue reserve

Statutory reserve
Examples of reserves

Share premium or securities premium

Capital redemption reserve
Debenture redemption reserve
Investment allowance reserve

Appropriation
Additions and deductions since last balance
sheet to be shown under each specified
head

Liabilities

Chapter 9

Liabilities in Perspective
Defining liabilities
Classification of liabilities
Current and long-term liabilities
Secured and unsecured liabilities

The Companies Act, Schedule VI

presentation

Chapter 9

Long-term Liabilities
Why long-term liabilities?
Examples

Debentures
Lease liabilities
Pension liabilities
Deferred tax liabilities

Deferred tax assets

Long-term liabilities and current liabilities

Duration
Legal formalities

Chapter 9

Debentures Payable
Debenture or bond
Underwriter
Debenture trust deed
Debenture trustee
Covenants

Characteristics of debentures
Secured and unsecured debentures
Registered and unregistered debentures

Chapter 9

Debentures Payable continued

Characteristics of debentures continued
Convertible debentures
Callable bonds
Zero-coupon bonds

Debenture ratings

Chapter 9

Accounting for Debentures

Debentures issued at face value

Debenture prices and interest rates
Debentures issued at a discount
Debentures issued at a premium
Amortisation of debenture discount and
premium
Straight-line amortisation
Effective interest amortisation

Chapter 9

Other Problems in Accounting for

Debentures Payable
Debentures issued between interest dates
Year-end accrual of debenture interest
expense
Debenture issue expenses

Chapter 9

Other Long-term Liabilities

Mortgages payable
Leases
Finance leases
Operating leases

Pensions and other post-retirement benefits

Defined contribution plans
Defined benefit plans

Chapter 9

Deferred Tax Liabilities

Taxable income and accounting profit
Why they differ?

Permanent differences and temporary

differences (timing differences)
Examples of temporary differences
Depreciation
Effect of disallowance Section 43 B of the
Income Tax
Warranty provisions

Chapter 9

Deferred Tax Liabilities

Understanding the effect of tax deferral
Depreciation
Measuring and recognising deferred tax
liability
Measuring and recognising deferred tax
asset

Chapter 9

Current Liabilities
Classification
Definite liabilities
Estimated liabilities

Definite liabilities

Bills payable
Sales tax payable
Current portions of long-term debt
Interest accrued but not due on loans

Chapter 9

Current Liabilities continued

Estimated liabilities
Income tax
Product warranties
Dividends payable

When is dividend payable?

Chapter 9

Contingent Liabilities
Defining contingent liabilities
Examples

Bills discounted
Disputed tax demands
Product liability suits
Demands for increase in wages

Accounting treatment
Recognition
Disclosure

Fixed Assets

Chapter 8

Fixed Assets in Perspective

Defining fixed assets
Assets intended for own use and not for sale

Tangible assets
Fixed assets that have a physical form and
substance

Intangible assets
Natural resources

Chapter 8

Determining Cost of Acquisition

What costs can be capitalised?

Capitalisation of borrowing costs
Basket purchases
Donated assets
Self-constructed assets

Chapter 8

Accounting for Depreciation

What is depreciation?
Issues in depreciation accounting
Establishing the depreciable base
Estimating the useful service life
Choosing a cost allocation method

Depreciable base
Estimating residual value

Useful service life

Obsolescence

Chapter 8

Depreciation Methods
Straight-line method
Accelerated methods:
Written-down-value method
Sum-of-the-years-digits method

Production-units method
Comparing the depreciation methods
Managerial considerations in selecting a
depreciation method

Chapter 8

Special Problems in Depreciation

Accounting

Depreciation for partial periods

Revision of depreciation rates
Accounting for assets of low unit cost
Changing the depreciation method
Managerial motivations
Adequate justification

Group depreciation

Chapter 8

Capital Expenditures and Revenue

Expenditures
Capital expenditure
Revenue expenditure
Importance of the capital-revenue
distinction
Additions and improvements
Ordinary repairs
Managerial motivations for accounting
treatment

Chapter 8

Depreciation and Company Law and

Income Tax Law
Minimum depreciation rates under
Schedule XIV of the Companies Act
Intention
Significance for financial reporting

Depreciation in tax returns

Objective
Rates and asset classes

Chapter 8

Disposal of Depreciable Assets

Discarded
Sold for cash
Exchanged for other assets
Similar assets

Gains
Losses

Dissimilar assets

Gains
Losses

Gains and losses under tax laws

Chapter 8

Accounting for Intangible Assets

Defining intangible assets

Amortisation of intangible assets
Goodwill
Brands
Research and development costs
Computer software costs
Deferred charges

Chapter 8

Impairment of Assets

What is asset impairment?

Why is recording impairment important?
Measuring impairment loss
Reversing impairment loss