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Statement of Changes
| Question | Answer |
|---|---|
| Define Profit from Operations | Profit earned before deducting finance costs and taxation. |
| Explain Finance Costs | Finance costs comprise interest paid on all debt. |
| Describe Dividends | Dividends are rewards paid to shareholders out of profits. Most limited companies pay an interim dividend during the year and a final dividend at the end of the year. |
| Define Debenture Interest | Debenture interest is paid to investors who have loaned money to a company and is usually paid in two equal instalments during the year. |
| How is the Income Statement of a Sole Trader different from a Limited Company? | They are similar except a limited company may include directors' remuneration as an expense and must deduct finance costs and taxation after operating profit is calculated. |
| State the Profit for the Year formula. | Profit for the Year = Operating Profit − Finance Costs − Tax. |
| How should Provision for Depreciation be treated in a Limited Company SOCI? | It should not be included. Only the depreciation charge for the year is entered as an expense. |
| Define Issued Share Capital | Issued share capital is the value of shares issued by a company shown at nominal value. |
| Define Share Premium | Share premium arises when shares are issued for more than their nominal value. |
| Describe Revaluation Reserve | Revaluation reserve is created when a non-current asset is revalued upwards above its previous carrying value. |
| Define Retained Earnings | Retained earnings are accumulated profits kept in the business instead of being distributed as dividends. |
| How does the Capital section of a Sole Trader SOFP differ from a Limited Company? | A limited company has an Equity section including issued share capital, share premium, revaluation reserve, retained earnings and liabilities rather than a single capital account. |
| State the formula for the number of shares issued | Number of Shares Issued = Share Capital ÷ Nominal Value per Share. |
| What is the formula for dividends paid? | Dividends Paid = Total Number of Shares × Dividend per Share. |
| Define Interim Dividend | A dividend paid before a company's annual general meeting and before the final financial statements are released. |
| Define Final Dividend | A dividend declared at the end of the financial year and presented for approval at the AGM. |
| Where do opening balances come from in a Statement of Changes in Equity? | They come from the equity section of the previous year's Statement of Financial Position. |
| Explain Bonus Issue Shares | Bonus issue shares are free shares issued to existing shareholders and funded from share premium or retained earnings. |
| How is a Bonus Issue shown in the Statement of Changes in Equity? | Add the bonus issue amount to Issued Share Capital and deduct the same amount from Share Premium or Retained Earnings. |
| How are Dividends Paid shown in the Statement of Changes in Equity? | Dividends paid are deducted from Retained Earnings. |
| Define a Rights Issue | A rights issue is an invitation to existing shareholders to purchase additional shares in the company. |
| How do you calculate a Rights Issue? | 1) Existing Shares = Share Capital ÷ Nominal Value. 2) New Shares = Existing Shares ÷ Rights Ratio. 3) Increase in Share Capital = New Shares × Nominal Value. 4) Increase in Share Premium = New Shares × Premium per Share. |
| How do you calculate a Final Dividend? | 1) Total Shares = Existing Shares + Bonus Shares + Rights Shares. 2) Final Dividend = Total Shares × Final Dividend per Share. 3) Add Interim Dividend. 4) Deduct total dividends from Retained Earnings. |
| How do you calculate a Bonus Share Issue? | 1) Existing Shares = Share Capital ÷ Nominal Value. 2) New Bonus Shares = Existing Shares ÷ Bonus Ratio. 3) Bonus Issue Value = New Bonus Shares × Nominal Value. 4) Add to Issued Share Capital. 5) Deduct from Share Premium. |
| What are the column headings in a Statement of Changes in Equity? | Issued Share Capital, Share Premium, Retained Earnings and Revaluation Reserve. |
| What are the row headings in a Statement of Changes in Equity? | Opening Balances, Issue of Shares, Revaluation, Profit for the Year, Dividends Paid and Closing Balances. |
| What does DRIP stand for in the Statement of Changes in Equity? | Dividends, Revaluation, Issued Shares, Profit for the Year. |
| What appears after Operating Profit in a Limited Company SOCI? | Finance Costs are deducted, followed by Taxation, to arrive at Profit for the Year. |
| What is the relationship between Share Premium and Bonus Issues? | Share Premium is often used to fund a Bonus Issue, reducing Share Premium and increasing Issued Share Capital. |
| What is the purpose of a Revaluation Reserve? | To record gains arising from upward revaluations of non-current assets. |
| Why are Retained Earnings important? | They represent profits reinvested in the business rather than distributed to shareholders. |
| What is the difference between a Bonus Issue and a Rights Issue? | A Bonus Issue provides free shares to existing shareholders, while a Rights Issue requires shareholders to purchase additional shares. |
| What happens to Retained Earnings when dividends are paid? | Retained Earnings decrease by the amount of dividends paid. |
| What happens to Issued Share Capital during a Rights Issue? | It increases by the nominal value of the new shares issued. |
| What happens to Share Premium during a Rights Issue? | It increases by any amount received above the nominal value of the new shares. |
Created by:
durquhart1
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