4.4 Accounting for Limited Companies

• What is a Limited Company and what is its defining characteristic?

  Separate legal entity; limited liability
• In a Limited Company, owners are not personally liable for the company's debts
• The ownership of a Limited Company is divided into shares held by shareholders.
• Who manages a Limited Company?

  Directors
• Match the type of Limited Company with its characteristic:

  Private Limited Company ↔️ Restricted share transferability

  Public Limited Company ↔️ Freely transferable shares
• Share capital refers to the total value of shares a company is allowed to issue to raise funds
• Order the components of share capital from the maximum amount permitted to the available capital for future issuance:

  1️⃣ Authorised Capital

  2️⃣ Issued Capital

  3️⃣ Paid-Up Capital

  4️⃣ Unissued Capital
• Paid-up capital represents the amount of issued capital that shareholders have fully paid to the company.
• What is the key difference between a Private Limited Company and a Public Limited Company in terms of ownership?

  Open to public vs restricted
• A Public Limited Company can raise capital through public offerings
• What are the two types of limited companies?

  Private and Public
• The share transferability of a Private Limited Company is restricted
• Public Limited Companies can raise capital through public offerings.
• Match the type of limited company with its characteristics:

  Private Limited Company ↔️ Smaller group of shareholders

  Public Limited Company ↔️ Freely transferable shares

  Restricted Ownership ↔️ Private investments

  Open to Public ↔️ Public capital raising
• Which type of limited company faces more stringent regulations?

  Public Limited Company
• Private Limited Companies have more restricted capital raising abilities compared to Public Limited Companies.
• Share capital is the total value of shares a company is permitted to issue
• What is the maximum capital a company can issue called?

  Authorised Capital
• Paid-Up Capital refers to the amount shareholders have paid for their issued shares.
• Retained earnings represent the cumulative net profits of the company that have not been distributed as dividends
• What is the formula for calculating Retained Earnings (RE)?

  $RE =$$Prior RE +$$Net Profit - Dividends$
• Match the type of reserve with its description:

  Capital Reserves ↔️ Profits not available for distribution

  Revenue Reserves ↔️ Derived from operating profits

  Retained Earnings ↔️ Cumulative net profits not distributed
• What is the purpose of a Statement of Profit or Loss?

  Summarizes revenues and expenses
• The first item in a Statement of Profit or Loss is revenue
• Cost of Sales is deducted from Revenue to calculate Gross Profit.
• Arrange the components of a Statement of Profit or Loss in their correct order:

  1️⃣ Revenue

  2️⃣ Cost of Sales

  3️⃣ Gross Profit

  4️⃣ Operating Expenses

  5️⃣ Operating Profit

  6️⃣ Interest and Tax

  7️⃣ Net Profit
• What is the formula for calculating Net Profit in a Statement of Profit or Loss?

  $Net Profit =$$Operating Profit - Interest - Tax$
• What does a Statement of Profit or Loss summarize for a company?

  Revenues and expenses
• The formula for calculating Net Profit is: Net Profit = Operating Profit - Interest - Tax</latex>
• A Statement of Profit or Loss is prepared for all types of companies.

  False
• How is Gross Profit calculated in a Statement of Profit or Loss?

  Revenue - Cost of Sales
• Operating Profit is calculated as Gross Profit minus Operating Expenses
• Net Profit is the final figure in a Statement of Profit or Loss.
• Steps in preparing a Statement of Profit or Loss for a limited company

  1️⃣ Calculate Gross Profit

  2️⃣ Determine Operating Profit

  3️⃣ Deduct Interest and Tax

  4️⃣ Arrive at Net Profit
• What is the purpose of preparing a Statement of Profit or Loss?

  Summarize revenues and expenses
• Match the components of a Statement of Profit or Loss with their descriptions:

  Revenue ↔️ Income from sales

  Cost of Sales ↔️ Direct costs of goods sold

  Gross Profit ↔️ Revenue minus Cost of Sales

  Operating Expenses ↔️ Costs of running the business
• The formula for calculating Net Profit is: Net Profit = Operating Profit - Interest - Tax</latex>
• What is a Statement of Profit or Loss for limited companies?

  Summarizes revenues and expenses
• The first calculation in preparing a Statement of Profit or Loss is to determine Gross
• Steps to calculate Net Profit in a Statement of Profit or Loss

  1️⃣ Gross Profit - Operating Expenses = Operating Profit

  2️⃣ Operating Profit - Interest - Tax = Net Profit