Calculations/accounting for

Revaluation gain Dr asset

Dr accumulated depreciation (remove all)
Cr Revaluation surplus – becomes a realised gain if sold
Revaluation loss If previously had a gain:
Dr revaluation surplus
Dr profit/loss (with any excess above revaluation surplus)
Dr accumulated depreciation (remove any depreciation)
Cr NCA

No previous gain:
Dr profit or loss
Dr accumulated depreciation (removal all)
Cr NCA
Impairment Dr impairment (expense in SPL)
Cr NCA (carrying amount)
Corporation tax Current year Following year
Dr income tax expense Journal for under/over provision
Cr taxation payable Dr/Cr income tax expense
Cr/Dr taxation payable
Recognition of a lease Dr right of use asset (PPE) Deposit
Cr lease liability Dr right of use asset
Cr bank
Subsequent measurement of Lease liability must be increased for interest each year either
right of use asset before payment if accrued or paid at start of year
Dr finance cost
Cr lease liability
Then
Dr lease liability
Cr bank
PUP Adjustment USE PROFIT
Dr COS (P&L) (Retained earnings if doing SOFP)
Cr Inventory (SOFP)
Intragroup sale (P&L) Dr Revenue
Cr COS
WITH SALE AMOUNT

(Cr COS with net of I/CO Sale & PUP if not enough space)
Intragroup sale with Do both intragroup sale
inventory remaining at Y/E AND PUP adjustment
Impairment of goodwill Dr Impairment
Cr Goodwill
Cash in transit Dr bank
Cr intragroup receivables
Then
Dr intragroup payable
Cr intragroup receivable
Goods in transit Dr inventory
Cr intragroup payable
Then
Dr intragroup payable
Cr intragroup receivable
Definitions
Director - Appointed by the shareholders
- Manage the business of the company
- Exercise all the powers of the company
- Runs the day-to-day basis
- Enter into contracts
- Takes operational, tactical, and strategic decisions
- Decide whether to pay a dividend to shareholders
Shareholders - Do not take part in day-to-day decision making
- Have the right to insist the directors call a general meeting
- Can vote on key decisions such as appointment/removal of directors
or auditors
Shares - A limited company is owned by shareholders who buy a number of
shares in the company which gives them an ownership stake.
- Once issued shares can be traded, this transaction is nothing to do
with the company
Nominal shares - Face value of shares
- Decided at time of issue, will always remain the same
- Makes up the “share capital” value in equity section of SOFP
Market value of - Value at which existing shares can be traded
shares - Not reflected in the SOFP
Allotted share capital “Issued share capital” shares which have been issued
Ordinary shares - Shareholders receive a dividend decided by directors
- Holders are entitled to vote in general meeting
- Sometimes called equity shares
Preference shares - Carry the right to a fixed rate dividend
- Dividend must be paid before any dividend to ordinary shareholder
- No voting rights
- Redeemable preference shares – may be a liability as there is an
obligation to redeem in cash
- Irredeemable preference shares – classified in equity section of SOFP
Reserves Listed in the equity section of SOFP
- Share premium account
- Revaluation surplus
- Capital redemption reserve
- General reserve
Retained earnings - Undistributed profits
- Main reserve section in accounts
- Accumulation of profits and losses over the years less any dividends
Materiality Information is material if omitting, misstating, or obscuring it could
reasonably be expected to influence decisions
Prudence Exercising caution when making judgements under conditions of
uncertainty
Assets A present economic resource controlled by the entity as a result of past
events. An economic resource is a right that has the potential to produce
economic benefit.
Liabilities A present obligation of the entity to transfer an economic resource as a
result of past events.
Equity The residual interest in the assets of the entity after deducting all its
liabilities.
EQUITY = NET ASSETS = SHARE CAPITAL + RESERVES
Income Increases in assets, or decreases in liabilities, that result in increases in
equity, other than those relating to contributions from holders of equity
claims
Expenses Decreases in assets, or increases in liabilities, that result in decreases in
equity, other than those relating to distributions to holders of equity
claims
Bonus issue of Given in proportion to existing shares, used to redistribute the share
shares premium account, no actual money received
Rights issue of Offered to existing shareholders in proportion to existing shareholding but
shares must pay for them. Usually offered below market value but above N. value
Unrealised gains Types of income which are seen directly in equity, for example, the
revaluation of property
Accruals concept Costs and revenues should be included in the period to which they relate
Stewardship - Directors are accountable to shareholders
- Responsible for safekeeping companies resources
Cash Cash in hand (bank accounts, including overdrafts & petty cash) and
demand deposits (deposits repayable on demand)
Cash equivalents Short term, highly liquid investments, readily convertible into cash
Indirect method More commonly used
(SOCF) Net profit or loss is adjusted for non-cash items and working capital
adjustments
Direct method Shows actual cash receipts and payments from customers and to suppliers
(SOCF) More difficult to prepare as information is not readily available
Directly attributable All costs associated with getting the asset to its location and into a readily
costs usable condition, examples include:
- Salaries paid to employees for constructing the asset
- Costs of site preparation
- Delivery and handling costs
- Installation costs
- Cost of testing for functionality
- Professional fees
- Non-refundable taxes and other costs (duties)

NOT: overheads, advertising, initial losses

Fair value Amount at which an asset could be exchanged between knowledgeable
willing parties in an arm’s length transaction usually “market value”
Amortisation Equivalent of depreciation but for intangibles

Finite intangible life = requires amortising

Indefinite intangible life (i.e. life unknown) = annual impairment review

Residual life always zero

Carrying amount Recognised value of asset once depreciation/amortisation removed
Impairment loss Amount at which carrying amount exceeds recoverable amount
Recoverable amount High of:
Value in use
Fair value less costs to sell
Value in use Present value of future cash flows generated through the asset
Lease A contract that conveys the right to use an asset for a period of time in
exchange for consideration (usually cash)
Right of use asset An asset that represents a lessee’s right to use an underlying asset for a
period of time
Short term lease A lease of 12 months or less (a lease that contains a purchase option is not
a short term lease)
Lessee The entity that obtains the right to use an asset
Lessor The entity that provides the asset
Interest rate implicit Interest rate on the lease “loan”
Incremental Rate of interest that the lessee would have to pay on a similar lease (have
borrowing rate we got a good deal)
Provisions – legal Arises as a result of a contract or legislation
obligation
Provisions – a. From an established pattern of past practice, published policies or
constructive specific statement the entity has indicated
obligation b. As a result, the entity has created a valid expectation in other
parties that it will discharge those responsibilities
Probable Outcome is more likely to occur than not, i.e. 50% or more
Reliable estimate Each year end the amount of the provision should be considered to ensure
it is valid and recorded at the correct amount, just the increase is posted
Parent The acquirer, an entity that controls another
Subsidiary Acquiree, an entity that is controlled by another
Acquisition date Date control is gained
Acquisition method Method of accounting used in acquisition which measures the cost of
assets and liabilities resulting in recognition of goodwill
Business Formation of a group through acquisition
combination
Goodwill Excess of the cost of the acquisition over the fair value of the identifiable
assets and liabilities acquired
PUP Provision for unrealised profit –inventory as ‘overvalued’ so profit needs
removing
Key Areas
Preparing the Cash receipts from customers
operating cash flows (Cash payments to customers)
using direct method (Cash payments to employees)
Cash generated from operations
Depreciation All assets should be depreciated except land which is infinite
Use straight line or reducing balance
Method of depreciation and useful life should be reviewed annually
If the rate of depreciation or useful life is changed, calculate depreciation
prospectively by:
Carrying amount – residual value
Remaining useful life
Intangible asset An intangible NCA must meet the definition of an asset and:
- Probable that the expected future economic benefits attributed
will flow to the entity
- Cost of the asset can be measured reliably

Can be purchased or internally generated:

- Scientific or technical knowledge
- Design and implementation of new processes
- Licenses
- Intellectual property
- Trademarks
- Goodwill
Intangible assets – Purchased goodwill – can be recognised in SOFP as it has a cost attached
Goodwill
Internally generated goodwill – cannot be recognised in SOFP as it cannot
be reliably measured (no open market)
PIRATE Probable future economic benefits
Intention to complete/use/sell
Resources adequate and available to complete/use/sell
Ability to use/sell
Technical feasibility to complete/use/sell
Expenditure can be measured reliably
Impairment review Lower of:
Carrying amount
And
Recoverable amount (higher of: fair value less costs to sell and
value in use)
Lease payments in Lease payments in advance (as opposed to in arrears), interest is
advance calculated after payment is taken
Accounting for short 12 months or less or low value assets are expensed through SPL on
term or low value straight line basis
leases Will usually create a reducing prepayment due to deposit at the start of
period being paid
Events after the - Provisions
reporting period – - Assets – impairment
adjusting - Receivables – insolvency
- Going concern – any event that affects the going concern
- Fraud – discovery
Events after the - Disclosure required if material
reporting period – - Assets – destruction of a major asset
non-adjusting - Investments – acquisition/disposal of a major business
combination/subsidiary
- Discontinued operations
- Shares – major ordinary share transactions
- Dividends – dividends declared after SFP date
The Regulatory Framework
Aims of financial Identify how well a business is performing
statements Identify the value of the assets and liabilities
Understand cashflow position
To communicate information in a clear manner
Regulatory International Accounting Standards (IAS’s) 1970 – 2005
framework International Financial Reporting Standards (IFRS’s) 2005 onwards
Companies Act 2006
Conceptual Framework for Financial Reporting
IFRS Foundation Appoint the:
- IFRS Advisory Council – take recommendations from individuals,
corporations, auditors, and national standard setters (before)
- IASB – Set international standards (write the rules)
- IFRS Interpretations Committee – Reports to the IASB with
interpretations of IFRS’s (after rules written)
Raise funds for IASB
Monitor IASB effectiveness
Setting standards 1. Topic is identified
2. Topic is discussed – IASB may set up working group
3. Discussion paper issued and public comment invited
4. Exposed draft is issued and circulated for comment
5. IASB consults with IFRS Advisory Council before IFRS is voted on
and issued
Companies Act 2006 Legislation which governs Limited Companies. Lays out regulations on how
the Company is to be managed and reporting requirements.
Directors are responsible for:
a. Keeping proper accounting records
b. Preparing financial statements, having them audited and
presenting them to shareholders
c. Filing the accounts at Companies House
Conceptual Accepted accounting principles
framework for NOT accounting standard rules but a set of principles which provide a
financial reporting basis for accounting transactions
Conceptual Individuals must use judgement rather than “tick box”
framework No set scenarios so less likely to go out-of-date
advantages Harder to avoid requirement/find loopholes
Spirit of regulation can be followed as no specific rules
Conceptual 1. The objective of general purpose financial reporting
framework sections 2. The qualitative characteristics of useful financial information
3. Financial statements and the reporting entity
4. The elements of financial statements
5. Recognition and derecognition
6. Measurement of elements
7. Presentation and disclosure
8. Concepts of capital and capital maintenance
Fundamental ethical Integrity
principles Objectivity
Professional competence and due care
Confidentiality
Professional Behaviour
Complete set of Statement of profit or loss and other comprehensive income
financial statements Statement of financial position
 Statement of changes in equity
Statement of cashflows
Notes to the financial statements
What must be The name of the entity
displayed on If financial statements are for a single company or a group
financial Accounting period end date
information? The currency
Rounding level i.e. £’000

Where financial statements comply with IFRSs, this must be explicitly

stated on financial statements but only if ALL requirements are met.

IFRS Foundation

IFRS
IFRS Advisory
IASB Interpretations
Council
Committee
Conceptual Framework Sections
The objective of The objective is to provide financial information about the reporting entity
general purpose that is useful to existing and potential investors, lenders and other
financial reporting creditors in making decisions relating to providing resources to the entity.
Must follow accruals concept
The qualitative Fundamental qualitative:
characteristics of 1. Relevance – capable of making a difference to the decisions of a
useful financial user: predictive value, confirmatory value, materiality
information 2. Faithful representation – complete, neutral, free from error
Enhancing qualitative:
1. Comparability – with own historic/similar entities info
2. Verifiability – faithful economic reality
3. Timeliness – available in time to influence decisions
4. Understandability – classifying and presenting clearly
Financial statements Objective of financial statements is to provide financial information about
and the reporting the reporting entities assets, liabilities, equity, income, and expenses,
entity provided by:
- Statement of financial position – asset/liability/equity
- Statement of financial performance – income/expense
- Other statements and disclosure notes – cash flow, changes in
equity, accounting policies, notes

Stewardship – directors accountable to shareholders

Going concern – continue trading for the foreseeable
The elements of SOFP – assets, liabilities, equity
financial statements P&L – income, expenses
Recognition and An element of the financial statements should be recognised if:
derecognition 1. Meets the definition of an element, AND
2. Provides relevant information, AND
3. Can be faithfully represented

An element of the financial statements should be derecognised if it no

longer meets the definition of an asset or liability, and the entity has lost
control of the asset, or no longer has a present obligation
Measurement of Historical cost – original price paid or received
elements Current value – values updated to reflect conditions at reporting date:
- Fair value – price received to sell an asset or paid to settle a
liability
- Value in use (A) / fulfilment value (L) – present value of all the
cash flows we expect.
- Current cost – cost of an equivalent item to replace or settle today
Presentation and Focus on objectives not rules
disclosure Grouping of similar items together (PPE)
Separation of dissimilar items (intangibles / PPE)
Aggregation of similar items – avoid unnecessary detail
Offsetting assets and liabilities generally not accepted
Concepts of capital Ensures excessive dividends are not paid:
and capital 1. Financial capital maintenance – capital is maintained if net assets
maintenance at end of period are = or > than start of period
2. Physical capital maintenance – capital is maintained if the
operating capacity is = or > than start of period
IAS/IFRS
Identifies Identifies:
1. The purpose of financial statements
2. Complete set of financial statements

Requires compliance with:

a. Accruals
b. Going concern
c. Consistency – of presentation & classification from one period
to the next
IAS1
d. Offsetting – assets and liabilities should not be offset unless
required or permitted (i.e. bank current AC and bank overdraft
represented separately)
e. Materiality and aggregation – each material class should be
presented separately
Expenses Expenses can be analysed by nature or function.

Most entities use the function method (COS, distribution costs, admin
costs etc.)
Inventories Deals with the classification and valuation of inventories
Inventory Lower of:
valuation Cost
And
IAS 2
Net realisable value

Where goods are not interchangeable value at FIFO, AVCO, or LIFO

(LIFO not allowed under IAS 2)
IAS 7 SOCF Provides guidelines for the presentation of the statement of cash flows
Identifies Events after the reporting period and before statements authorised
Adjusting Provide evidence of conditions that existed at the end of the reporting
events period, if material should be included
Non-adjusting Do not confirm existence of conditions at the period end but if
events material, should be disclosed
IAS 10
Dividends declared or proposed after reporting period end
Going If an event after the year end results in the entity no longer being a
concern going concern, therefore accounts shouldn’t be prepared as going
concern
Income taxes Deals with the amount of tax recognised at the end of the year,
IAS 12
provisions for tax, and under/over provisions for tax
PPE Deals with the recognition of these assets, initial measurement,
measurement post acquisition and derecognition.

PPE covers any tangible assets that are:

- Held for use
IAS 16 - Expected to be used for more than one accounting period
Recognition To recognise an asset, it must meet the definition of an asset then it
must meet:
- Probable that future economic benefits associated with the
item will flow to the entity; and
- The cost of the item can be measured reliably
 Initial All assets should initially be measured at cost
measurement
Cost is the purchase price plus all directly attributable costs
Subsequent Split into two types of cost:
expenditure Expenses – repairs/maintenance but be expensed in P&L
Enhancement – expenditure which results in an enhancement to
performance can be added to the asset in SOFP
Measurement Measured one of two ways:
post 1. Cost model – asset is carried at cost less accumulated
acquisition depreciation
2. Revaluation model – asset carried at fair value less any
subsequent accumulated depreciation
IF USED: all assets in that class must be held at fair value
FREQUENCY: not specified but should be made with sufficient
frequency so that the carrying amount doesn’t differ materially
from fair value
Derecognition Assets should be derecognised when:
It is disposed of
No future economic benefits are expected from use or disposal
Disclosures In the financial statement notes there should be a note which
reconciles the opening position to the closing position in terms of:
Cost/valuation
Depreciation
Carry amount by asset class
Impairment Impairment considers the effect of a fall in the value of an asset and
of assets how we account for this
Used for: intangibles with indefinite lives, goodwill acquired,
intangibles not yet available for use, and any asset with indicators of
impairment
Indicators of External sources
impairment - Significant fall in market value of asset
- Adverse effect on the business in the technological, market,
IAS 36
economic or legal environment
- Increased market interest rates that reduce value in use
Internal sources
- Evidence of obsolescence or physical damage
- Asset not used as much as once was
Internal evidence that assets performance will be worse than expected
Impairment Any impairment loss must be disclosed in the notes to the financial
disclosure statements indicating which line it is shown in SPL
Provisions States that a provision is a liability of uncertain timing or amount, and
and does not apply to depreciation and irrecoverable debts
contingents
A provision is a type of liability
Recognition Present obligation
IAS 37 Probable that an outflow of economic resources will be required
Reliable estimate of the amount
Contingent Where an obligation is only possible (<50%) or cannot be reliably
liabilities measured
Must be disclosed in the notes with estimation of financial effect and
an indication of timing
 Contingent An asset arising from past events whose existence will only be
assets confirmed by the occurrence of one or more uncertain future events
not wholly in control of the entity

Disclosure required, with a brief description

Identifies Account for: Liabilities and Provisions
Disclose: contingent liabilities and assets

Certain = asset/liability
Probably (>50%) = provision, contingent asset
Possible (<50%) = contingent liability
Remote = no recognition
Intangible Sets out the accounting treatment on acquiring, developing,
assets maintaining, or enhancing intangible assets.
R&D Research and development treated as separate items

Research – must be expensed through P&L as the entity cannot be

certain that projects will generate any future economic benefit
IAS 38
Development – can be recognised in SOFP if it meets all PIRATE criteria
Subsequent Cost – cost less accumulated amortisation
measurement or
Revaluation – carried at fair value less any accumulated amortisation –
rarely used as difficult to determine
IFRS 3 Identifies Provides key definitions as well as rules to follow for goodwill.
Identifies Consolidated financial statements are produced by the parent in
addition to their single entity statements and are for the shareholders
IFRS 10
Need to use uniform accounting policies
Identifies how we establish control and therefore a ‘group’
Revenue Revenue – income arising in the course of an entity’s ordinary activities

Adopts 5 stage process for recognising revenue:

1. Identify the contract with customer
Supply goods/services or an element of both
Only falls inside IFRS 15 if:
o Contracts approved and commitment to carry out
o Rights and payment terms identified
o Commercial substance
o Probable entities will collect consideration they are
IFRS 15
entitled to
2. Identify the separate performance obligations
Goods and services only split if the company can benefit from
either item individually (“distinct”), i.e., a mobile phone and
line contract “bundle arrangement”
3. Determine the transaction price
4. Allocate the transaction price
5. Recognise revenue as each performance obligation is satisfied
Control either passes at a point in time (usual for goods) or
over time (usual for services)
Identifies Leases governs how to account for leasing
IFRS 16 The means by which a company obtains the right to use NCAs
IFRS 16 states cars are NOT low value assets
Financial Statements
Disclosure of shares Normally in the notes, disclosure must be made of:
a. Number of shares authorised
b. Number of shares issued and paid for
c. Nominal value of shares
d. Class of shares
Reserves Revaluation surplus – non-distributable reserve used wen revaluing
an asset

Retained earnings – accumulation of profit and losses made over

the year after deducting dividends i.e. the undistributed profits
Dividends Always treated as a reduction to retained earnings
Often paid in two stages: interim and final
Should only be included in the accounting period if they have been
approved (“declared”)
Statement of financial Shows assets/liabilities as at a date in time
position
Statement of cashflows Shows the cash inflows and outflows of the business and reconciles
the opening and closing balance of the cash position
Notes to the financial Provides additional detail or explanation to make the information in
statements the financial statements more meaningful to users
Statement of profit or loss SPLOCI – shows the profit (realised gains) and other income not
and other comprehensive shown in profit (unrealised gains)
income
Statement of changes in SOCIE – shows the movements in the equity section of the SOFP and
equity links the SOFP to the SPLOCI with realised gains shown in retained
earnings in the equity section.
Statement of cash flows
Elements Operating activities – cash flows from normal revenue (indirect or direct)
Investing activities – cash flows from acquisition/disposal of non-current
assets and cash returns from investments (dividends and interest)
Financing activities – cash flows resulting in a change in size and
composition of the contributed equity and borrowings of the entity
Operating activity – Depreciation
non-cash items Amortisation
(Profit)/Loss disposal
Movement in provision
Operating activity – Other income (from investments)
items dealt with
elsewhere
Operating activity – Required as accounts work on accrual basis but we are only concerned with
working capital cash here.

(Increases in asset)/decrease in asset

Increase in liability/(decrease in liability)
Operating activity – Remove finance cost (don’t touch tax, as we use Profit before tax)
interest/tax Add finance paid and tax paid after operating activity calculated
Investing activity (Cash paid out for NCA purchase)
Cash proceeds from sale of NCA
Interest received
Dividends received
Investing activity – Opening balance
NCA journal (Depreciation)
(Disposal)
Revaluation surplus
(Revaluation impairment)
(Carried forward)
Cash paid additions (balancing figure)
Financing activity Proceeds from share issue
Proceeds from borrowing
(Repayment of borrowing)
(Dividends paid)
 Group accounting
Control Established where parent owns more than 50% of the voting power i.e., from
ordinary shares
Control <50% Can exist if:
- Power over 50%+ voting rights established by virtue of agreement
- Power to govern the financial and operating policies via statute
- Power to appoint/remove majority of members on the board
- Power to cast majority of votes at the meeting of the board of
directors
Rules Investment in the subsidiary never appears in the consolidated accounts –
shown under goodwill
Share capital is parent company only
Assets and liabilities added together with some adjustments
Goodwill needs to be an intangible asset
Retained earnings separately calculated
Goodwill journal Consideration
Add: NCI (from journal or goodwill at acquisition x NCI%)
Less: 100% of subsidiary net assets at acquisition date
(Share capital)
(Retained earnings)
(Fair value)
Goodwill at acquisition
(Impairment)
Final goodwill in SFP
Retained earnings 100% of retained earnings of parent
journal Share of post-acquisition earnings of subsidiary
(PUP adjustment)
(Dividends paid)
(Goodwill impairment)
Retained earnings for SFP
NCI journal – for Share capital x NCI%
goodwill Retained earnings x NCI%
Fair value x NCI%
NCI
Intercompany Items which need elimination:
transactions - Intercompany sales and purchase
- Intragroup loans and any interest on loans
- Intercompany dividends
- Intragroup receivable and payable balances

Fair value adjustment

Acquisition Movement in year (if any) Year end

Goodwill To retained earnings SFP
NCI
Ratio Analysis
Profitability & Gross profit margin (%) (Gross profit / sales) * 100
efficiency Net profit margin (%) (Net profit (PBIT) / sales) * 100
ratios Cost of sales as a % of
(Cost of sales / sales) * 100
turnover
Asset turnover Sales / capital employed (TALCL)
(Net profit (PBIT) / capital employed (TALCL)) *
ROCE
100
Asset turnover (NCA) Revenue / NCA
Return on shareholders’ (Profit after tax / Equity) * 100
funds
Liquidity ratios Current ratio Current assets / current liabilities
Quick ratio (acid test) (Current assets – inventory) / current liabilities
Use of Debtor days (Trade receivables / sales) * 365
resources Creditor days (Trade payables / purchases or COS) * 365
Stock days (Closing inventory / COS) * 365
Working capital cycle Inventory days + receivable days – payable days
Financial Gearing (Debt (NCL) / Equity + Debt) * 100
position Interest cover PBIT / interest charges
Limitations of Historical information – based on past info
ratio analysis Comparison to other companies – accounts may use different basis’
Window dressing – a company may recover lots of debt or ensure inventory is
delivered at the start of a new year to ‘dress’ accounts
Non-financial information – ignores qualitative aspects
Markets and size – businesses in the same industry may operate in different
markets. Any large business can utilise economies of scale
 Sole trader/partnership Company
Type of business Sole trader – one LTD – Private Limited Company. Cannot invite
proprietor members of the public to become
shareholders
Partnership – more than
one proprietor/partner PLC – Public Company. Shares are traded
publicly, often of the stock exchange
Owned by Proprietor Shareholders
Managed by Proprietor Directors
Legal entity Not a separate legal entity Separate legal entity – the company itself
– it is the owners who enter contracts
enter contracts
Liability Unlimited liability – Limited liability – shareholders liability is
personally liable limited to the shares they have paid for them.
Company responsible for debts
Financial Profit and loss account Statement of profit or loss
statements (P&L) Statement of financial position
Balance sheet (SOFP) Statement of changes in equity
Statements of cashflows
Notes to the financial statements
Difference in SOFP Capital + profit – drawings Equity = share capital + retained earnings +
= proprietors’ interest other reserves
Characteristics No need to file accounts to Limited liability
Companies House – greater Easier to raise finance
privacy Company continues to operate regardless of
Less regulation ownership – perpetual succession
Unlimited liability Taxed under corporation tax
Taxed under income tax Must comply to Companies Act 2006
Accounts may need auditing
Issue of shares highly regulated