Company Final Accounts

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The Corporate Organisation

CorporationJoint-stock company, or companyFeatures of a companySeparate legal existenceLimited liability of shareholdersFree transferability of ownership rightsPerpetual existenceChapter 10

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The Corporate Organisation continuedFeatures of a company continuedCommon sealProfessional managementGovernment regulationTypes of companiesPublic companies and private companiesListed companies and unlisted companiesChapter 10

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Schedule VI Part IBalance Sheet LiabilitiesShare CapitalReserves & SurplusSecured LoansUnsecured LoansCurrent Liabilities & ProvisionsAssetsFixed assetsInvestmentsCurrent Assets, Loans & AdvancesMiscellaneous Expenditure (to the extent not written off)Profit & Loss Account

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Share Capital

SharesShare certificateAuthorised capitalIssued, subscribed, paid-up capitalPar valueChapter 10

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Accounting for Share CapitalPar valueShare premiumReceipt of share capital in installments Issuance of share capital for non-cash assetsRights issue of share capitalForfeiture of sharesChapter 10

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Preference Share CapitalMeaning of preference sharesTypes of preference sharesCumuative and non-cumulative preference sharesParticipating and non-participating preference sharesRedeemable and non-redeemable preference sharesConvertible and non-convertible preference sharesChapter 10

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Bonus SharesWhat is a bonus issue?Why do companies make bonus issues?Issue of bonus shares fromRetained earningsProfit and loss (appropriation) accountGeneral reserveShare premiumCapital redemption reserveChapter 10

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ReservesCapital reserve and revenue reserveStatutory reserveExamples of reservesShare premium or securities premiumCapital redemption reserveDebenture redemption reserveInvestment allowance reserveAppropriationAdditions and deductions since last balance sheet to be shown under each specified headChapter 10

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Liabilities

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Liabilities in PerspectiveDefining liabilitiesClassification of liabilitiesCurrent and long-term liabilitiesSecured and unsecured liabilitiesThe Companies Act, Schedule VI presentationChapter 9

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Long-term LiabilitiesWhy long-term liabilities?ExamplesDebenturesLease liabilitiesPension liabilitiesDeferred tax liabilitiesDeferred tax assetsLong-term liabilities and current liabilitiesDurationLegal formalitiesChapter 9

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Debentures PayableDebenture or bondUnderwriterDebenture trust deedDebenture trusteeCovenantsCharacteristics of debenturesSecured and unsecured debenturesRegistered and unregistered debentures

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Debentures Payable continuedCharacteristics of debentures continuedConvertible debenturesCallable bondsZero-coupon bondsDebenture ratingsChapter 9

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Accounting for DebenturesDebentures issued at face valueDebenture prices and interest ratesDebentures issued at a discountDebentures issued at a premiumAmortisation of debenture discount and premiumStraight-line amortisationEffective interest amortisationChapter 9

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Other Problems in Accounting for Debentures PayableDebentures issued between interest datesYear-end accrual of debenture interest expenseDebenture issue expensesChapter 9

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Other Long-term LiabilitiesMortgages payableLeasesFinance leasesOperating leasesPensions and other post-retirement benefitsDefined contribution plansDefined benefit plansChapter 9

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Deferred Tax LiabilitiesTaxable income and accounting profitWhy they differ?Permanent differences and temporary differences (timing differences)Examples of temporary differencesDepreciationEffect of disallowance Section 43 B of the Income TaxWarranty provisionsChapter 9

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Deferred Tax LiabilitiesUnderstanding the effect of tax deferralDepreciation Measuring and recognising deferred tax liabilityMeasuring and recognising deferred tax assetChapter 9

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Current LiabilitiesClassificationDefinite liabilitiesEstimated liabilitiesDefinite liabilitiesBills payableSales tax payableCurrent portions of long-term debtInterest accrued but not due on loansChapter 9

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Current Liabilities continuedEstimated liabilitiesIncome taxProduct warrantiesDividends payableWhen is dividend payable?Chapter 9

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Contingent LiabilitiesDefining contingent liabilitiesExamplesBills discountedDisputed tax demandsProduct liability suitsDemands for increase in wagesAccounting treatmentRecognitionDisclosureChapter 9

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Fixed Assets

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Fixed Assets in PerspectiveDefining fixed assetsAssets intended for own use and not for saleTangible assetsFixed assets that have a physical form and substanceIntangible assetsNatural resourcesChapter 8

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Determining Cost of AcquisitionWhat costs can be capitalised?Capitalisation of borrowing costsBasket purchasesDonated assetsSelf-constructed assetsChapter 8

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Accounting for DepreciationWhat is depreciation?Issues in depreciation accountingEstablishing the depreciable baseEstimating the useful service lifeChoosing a cost allocation methodDepreciable baseEstimating residual valueUseful service lifeObsolescenceChapter 8

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Depreciation MethodsStraight-line methodAccelerated methods:Written-down-value methodSum-of-the-years-digits methodProduction-units methodComparing the depreciation methodsManagerial considerations in selecting a depreciation methodChapter 8

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Special Problems in Depreciation AccountingDepreciation for partial periodsRevision of depreciation ratesAccounting for assets of low unit costChanging the depreciation methodManagerial motivationsAdequate justificationGroup depreciationChapter 8

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Capital Expenditures and Revenue ExpendituresCapital expenditureRevenue expenditureImportance of the capital-revenue distinctionAdditions and improvementsOrdinary repairsManagerial motivations for accounting treatmentChapter 8

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Depreciation and Company Law and Income Tax LawMinimum depreciation rates under Schedule XIV of the Companies ActIntentionSignificance for financial reportingDepreciation in tax returnsObjectiveRates and asset classesChapter 8

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Disposal of Depreciable AssetsDiscardedSold for cashExchanged for other assetsSimilar assetsGainsLossesDissimilar assetsGainsLossesGains and losses under tax lawsChapter 8

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Accounting for Intangible AssetsDefining intangible assetsAmortisation of intangible assetsGoodwillBrandsResearch and development costsComputer software costsDeferred chargesChapter 8

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Impairment of AssetsWhat is asset impairment?Why is recording impairment important?Measuring impairment lossReversing impairment lossChapter 8

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