Inter-Company Billing - Automatic Posting to Vendor Account (SAP-EDI)
Company Account
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Transcript of Company Account
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Company Accounts
Final Accounts
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Introduction
Limited companies are so popular compared withpartnership business.
Limited companies enable larger businesses to beformed, and help an owner safeguard his privateassets
The owners(shareholders) loss is only limited tothe amount of shares they bought
The law governing the preparation andpublication of final accounts of limited companiesin Hong Kong is the Companies Ordinance ofHong Kong
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Types of Companies
Unlimited Company
Limited Company
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Unlimited Company
Some businesses which are small in sizeor provide highly specialized professionalservices
E.g. firms of solicitors or accountants arenot limited liability companies
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Limited Company
The capital of a limited company is divided intoshares
The par valueof each share can be $1,$5 orother
A person who buy the shares, become themember of company called shareholder
Their liabilities of a company can be limited byshares.
This means that shareholders are not obliged tointroduce funds to pay off the debts of thecompany beyond the amount of share capitalthey have purchased
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Types of Limited Company
Private Company
Public company
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Private Company
The number of members is limited to 50
Prohibited to subscribe for any shares ordebentures to the public
Strict the right to transfer its shares
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Means of funding
Share Capital
Debentures
Reserves
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Types of Share Capital
Preference Shares
Ordinary Shares
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Preference Shares
Preference shares are entitled to a fixedpercentage of dividends before anyordinary dividends are paid
They usually do not have voting rights The different types of preference shares
are:
Cumulative preference shares
Non-cumulative preference shares
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Cumulative preference shares
Any unpaid dividends on cumulativepreference shares can be carried forwardto a later year
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Non-cumulative preference shares
If the profits are insufficient to pay thedividends, the unpaid dividends cannot becarried forward to later years
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Ordinary Shares
The dividends of ordinary shares are notfixed. They depend on the return of thecompany
Ordinary shareholders are paid only afterall other claim (e.g. loan interest andpreference share dividends) have beenmet
Ordinary shareholders usually have votingrights
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Debentures
Debentures are long-term loans evidencedby deeds which set out the rate of interestpayable and the date of redemption
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Reserves
Reserves are profits or gains which accrueto ordinary shareholders
They are undistributed profits which have
been retained within the company There are two types of reserves:
Revenue reserves
Capital reserves
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Revenue reserves
They are undistributed trading profits
They can be used to pay dividends
E.g. the balance on the profit and loss
account and general reserve
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Capital reserves
They are gains or profits arising from non-trading or non-operating activities
They are not available for distribution as
dividends E.g. Share premium, revaluation reserve,
capital redemption reserve and debentureredemption reserve
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Share premium
When a company issues shares at a priceabove par, the excess amount is calledshare premium
The reserve is restricted to be used in thefollowing ways: To write off preliminary expenses
To write off expenses of issuing shares
To write off commission paid and discounts onshares
To pay up a bonus issue
To provide premium on redemption ofdebentures
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Revaluation reserve
This is the unrealized gain from anincrease in the value of an asset afterrevaluation
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Capital redemption reserve and
Debenture redemption reserve
This arises as a result of a companyredeeming its shares or debentures byusing its retained profits
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Capital Structure
Authorized
Capital
It is the maximum amount of share
capital which the company isallowed to issue
Issued Capital It is the nominal value of a portionof the authorized capital which has
been taken up (purchased) byshareholders
Called Up Capital It is the amount of issued capitalwhich the company has called to
be paidPaid Up Capital It the amount of issued capital
which has actually been received
Calls in Arrears It the amount of called up capital
which has not been received
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Final Accounts
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Final accounts
For internal reporting and managementpurposes, the final accounts of the limitedliability companies are similar as those of
the sole trader and partnership with theexception of certain types of expenses andthe appropriation of net profit
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XX Ltd. CompanyTrading and Profit and Loss Account for the year ended 31 Dec XXXX
Sales XLess: Returns inwards X
(X)Less: Cost of Goods Sold
Opening Stock XAdd: Purchases XAdd: Carriage inwards XLess: Returns outwards (X)
Less: Closing Stock (X) XGross profit XAdd: Gains on disposal X
XLess: Expenses
Rent X
Directorsremuneration XDebenture interest (% * Debenture) X X
Profit for the year before taxation (PBIT) XLess: Taxation (X)Profit for the year after taxation (PAT) X
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Add: Retained profit b/f XX
Less: Appropriations:Goodwill written off XPreliminary expenses XTransfer to general reserve XPreference dividend interim (paid) X
- proposed (final) XOrdinary dividend - interim (paid) X
- proposed (final) X X
Retained profit c/f X
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Balance Sheet as at 31 Dec XXXXFixed Assets Cost Dep NetMachinery X X XFurniture X X X
X X X
Current AssetsStock XDebtors XBank X
XLess: Current Liabilities
Creditors XProposed dividend XDebenture interest accrued XProvision for taxation X
Working Capital XX
Financed by:Share Capital Authorized IssuedXXXX Ordinary Shares of $1 each X XXXXX 8%Preference Shares of $1 each X X
X XNo. of shares
Par value
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ReservesShare Premium XGeneral Reserve XProfit and loss X
X
Long-term Liabilities10% Debentures XX
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Debenture interest
The amount of the debenture interest willbe calculated according to the pre-setpercentage of debenture as the interest
expenses of the company
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Trial Balance as at 31 Dec 20-1Dr Cr
10% Debentures 10000Debenture interest 5000
Ans.:Trading and profit and loss a/c for the year ended 31 Dec 20-2
$ $Gross profit XLess: Expenses
Debenture interest (10000*10%) 10000
Balance Sheet as at 31 Dec 21-1$ $
Less: Current Liabilities
Paid debenture interest
Actual debenture interest
Accrued expenses(1000-5000) 5000
Debenture interest not yet paid
Example
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Directors fee/emolument
Directors fee and directors emolument are
salaries and services charges of thedirectors of the limited company
It will be treated as one of expenses in theprofit and loss account
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Appropriation of net profit
Taxation payable on profit
Amounts written off as goodwill
Preliminary expenses
Retained profit from last year/after nextyear
Dividends
Transfer to/(from) reserve
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Taxation payable on profits
Profit tax is not an expenses, it is anappropriation of profits
However, for the purpose of presentationand to make the accounts moreunderstandable, it is not shown with theother appropriation
It is shown as a deduction form profit for
the year before taxation (i.e. this is thenet profit figure) to show the net result(i.e. profit for the year after taxation)
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Amounts written off as goodwill
Goodwill, in a company, may have beenwritten off it from time to time.
When this is done, the amount written off
should be shown in the appropriationaccount
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Preliminary expenses
When a company is formed, there aremany kinds of expenses concerned withits formation
These include, for example, legalexpenses and various government taxes
These cannot be shown as an asset in thebalance sheet, and can be charged to theappropriation account
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Retained profit to next year/ from last
year
All profits may not be appropriated duringa period
This then will be balance on the
appropriation account as brought forwardfrom the previous year or carried forwardto next year
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Dividends
Net profit from ordinary activities of thebusiness of a company will be distributedto its shareholders of preference shares
and ordinary shares according to the levelof net profit and the dividend policy of thecompany
Dividend can be divided into:
Interim/paid dividend
Final/proposed dividend
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Interim/Paid Dividend
Interim dividend is the paid dividend tothe shareholders in the middle of thefinancial year
The amount of interim dividend will besubject to the performance of the businessin the first half of the financial year
Descriptions Book-keeping entries
Interim dividend paid Dr Interim DividendCr Bank
Transfer interim dividendpaid to appropriationaccount
Dr Profit & loss appropriation
Cr Interim Dividend
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Proposed/Final Dividend
The amount of proposed dividend will besubjected to the performance of thebusiness in whole financial year and theshareholdersapprovals in the Annual
General Meeting Proposed dividend will be paid in the early
of next financial year, it will be treated asone of appropriations to the shareholders
in the profit & loss account of currentfinancial year and as current liabilitiesinthe balance sheet
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Transfer to /(from) Reserve
Part of the net profit for the financial yearmay be transferred from the appropriationaccount to the reserves to meet the future
requirements or specific reason Revenue reserve can be transferred back
to appropriation account for dividendspurposes in the future financial period
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Descriptions Book-keeping entries
Transfer part of net profitfrom appropriationaccount to specificreserves
Dr Profit & lossappropriation account
Cr Reserves
Transfer specific reservesback to appropriation
account
Dr Reserves
Cr Profit & lossappropriation
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Example
Trial Balance as at 31 Dec 2000(extract)Dr Cr400000 ordinary shares of $0.5 each, fully paid 200000250000 10% preference shares of $1 each, fully paid 250000General reserves 15000Interim ordinary dividend 5000
Interim preference dividend 8000
Additional information:The director proposed a final dividend of $0.05 per ordinary shareThe director resolved to transfer $5000 to the general reserve
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Ans.:
Trading and profit and loss a/c for the year ended 31 Dec 20-2$ $Net profit XAdd: Retained profit from last year X
XLess: Appropriation
Balance Sheet as at 31 Dec 21-1$ $
Less: Current LiabilitiesDividend owning(17000+20000) 37000
Dividend not yet paid to shareholders
Preference dividend interim 8000- final (250000*0.1-8000) 17000
Ordinary dividend - interim 5000- final (400000*0.05) 20000
Transfer to general reserve 5000
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Bonus Shares/Script Issue
Bonus shares are freeshares issued to
shareholders without any cash being paidfor them
The reserves are utilised for the purpose The accounting entry is:
Dr Reserve/Share premium/Retained earnings
Cr Ordinary share capital
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Example
$20000 Ordinary Share Capital of $1 each 20000Reserves 12000
A bonus issue of 1 for 4 were made. (i.e. 1 bonus share for every 4
shares already held)
Ans:Bonus issue (20000/4)=5000 shares
The entry: Dr Reverse (5000*$1) $5000Cr Ordinary share capital $5000
Ordinary share capital (20000+5000) 25000Reserve (12000-5000) 7000