Advanced Financial Accounting FIN611 Mian Ahmad Farhan Lecture21

Advanced Financial Accounting FIN-611 Mian Ahmad Farhan Lecture-21 Limited Companies

Company Accounts

Owner’s Equity Sole Proprietorship Opening capital Add Net profit Less Drawings xxx xxx Partnership Capital Account Add/Less Current Account xxx xxx Company Capital xxx Reserves xxx

Sole proprietorship Partnership Company Members Owner Sole Proprietor Partners Share holders/

Journal Entries Capital Introduced Sole Proprietorship Cash A/c Capital A/c xxx Partnership Cash A/c xxx Partner’s Capital A/c xxx Company Cash A/c xxx Shares Capital A/c xxx

Issue of Share Capital Cash resources Cash A/c xxx Share capital A/c xxx Non-cash resources Fixed Assets A/c xxx Share capital A/c xxx

Share Premium 1, 700, 000 1, 000 Bank A/c 1, 700, 000 Share Capital A/c Share Premium A/c 1, 000 700, 000

Ledger Account Share capital Balance 1, 000 Share premium Bank 700, 000 Bank Share capital 1, 000 Share premium 700, 000

Reserves are the profits of a company that are retained (not distributed) to its share holders. Reserves Capital Reserves Those profit which are not distributed to share holders as cash dividend Revenue Reserves Those profit which are distributed to share holders as cash dividend

Reserves Capital Reserves Revenue Reserves 1. Share premium 1. Retained profit / Unappropriated / Undistributed profit 2. Revaluation reserve 3. Capital redemption reserve 2. General reserve 3. Any named reserve a. Stock replacement b. Plant replacement

Profits Realized profit Unrealized profit 1. Share premium Profit after tax Transferred to reserve 2. Revaluation surplus Paid as dividend to share holder General reserve Plant replacement reserve Inventory replacement reserve Capital redemption reserve

Transfer of Profit to Reserves (Journal Entry ) Profit & Loss A/c xxx Reserve (type) A/c xxx

---Balance sheet As on 31 st Dec---- Assets Non-current Assets Tangible Fixed assets xxx Intangible Fixed assets xxx Long term investments xxx Long term advances xxx Deposits xxx Prepayments xxx Deferred cost xxx Total Non-current Assets xxx Current Assets xxx

---Balance sheet As on 31 st Dec---- Owner’s capital Share capital xxx Reserves Capital reserve xxx Revenue reserve xxx Total owner’s equity xxx Liabilities Non current liabilities xxx Current liabilities xxx

---Income Statement For the year ended 31 st Dec---- Sales Less Cost of goods sold Gross profit Less Operating expenses Administrative expenses Selling & distribution Profit from operations Add other incomes Less Financial expenses Income before tax Less Income tax Profit after tax xxx xxx xxx

Statements of Changes in Equity Opening retained profit xxx Less Dividend payment xxx Less transfer to reserves xxx Closing retained profit xxx