Accounting. Financial Accounting: Published Final Accounts and Issues of Shares Pack [ADVANCED HIGHER] Anne Duff. abc

Accounting Financial Accounting: Published Final Accounts and Issues of Shares Pack [ADVANCED HIGHER] Anne Duff abc

The Scottish Qualifications Authority regularly reviews the arrangements for National Qualifications. Users of all NQ support materials, whether published by LT Scotland or others, are reminded that it is their responsibility to check that the support materials correspond to the requirements of the current arrangements. Acknowledgement Learning and Teaching Scotland gratefully acknowledge this contribution to the National Qualifications support programme for Accounting. First published 2005 2005 This publication may be reproduced in whole or in part for educational purposes by educational establishments in Scotland provided that no profit accrues at any stage. ISBN-10: 1-84399-096-2 ISBN-13: 978-184399-096-3

CONTENTS Published Final Accounts Section 1: Theory notes on Published Final Accounts 5 Section 2: Exercises: Published Final Accounts 17 Section 3: Solutions to exercises 33 Issue of Shares Pack Section 1: Theory notes on Issue of Shares 57 Section 2: Exercises: Issue of Shares 73 Section 3: Solutions to exercises 83 FINANCIAL ACCOUNTING (AH) 3

4 FINANCIAL ACCOUNTING (AH)

SECTION 1 THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Published accounts of limited companies What are the differences between internal and external reporting? All companies draw up Final Accounts. When the accounts are for internal use only the directors and management can use any layout they consider most suitable to their needs. As well as internal accounts, all limited companies in the UK are required, by law, to produce financial statements which are published and are available for anyone to examine. These accounts must conform to the Companies Act 1985 (as amended by the Companies Act of 1989). The published accounts must be sent to the shareholders, debenture holders etc of a company before the annual general meeting and are discussed at that meeting. A copy of the accounts (Statutory Accounts) is sent to the Registrar of Companies. The Companies Act 1985 sets out the information which must be shown and also states how it should be shown. What are the procedures for forming a plc? The Companies Act generally allows one or more persons to form a company; however, a public company must have at least two subscribers. When forming a company, a memorandum of association and articles of association must be drawn up and sent to the Registrar of Companies with a registration fee. Details of these documents have been covered in your Higher accounting course Another two forms (10 and 12) must also be completed. Form 10 gives details of first directors, etc., and Form 12 is a declaration that the company will comply with all legal requirements. A private company must have at least one director and one secretary, not necessarily fully qualified. A public company must have at least 2 directors and one qualified secretary. It must have a minimum authorised share capital of 50,000. Before it can start business it must have allotted shares valuing at least 50,000. One quarter of the nominal value must be paid up. A newly formed plc must also have received a certificate from Companies House. FINANCIAL ACCOUNTING (AH) 5

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS What are the Directors responsibilities (Stewardship) Companies are owned by shareholders, but the responsibility of looking after the affairs of a company is held by the directors. The directors are stewards of limited companies. The directors of a limited company must ensure that the provisions of the Companies Act 1985 are followed. The company director is responsible for ensuring that the statutory accounts are produced and filed with the Registrar of Companies. The company s Board of Directors must approve the annual accounts. The directors must prepare a directors report which must be approved by the board. What are the main provisions of the Companies Act? The main provisions of the Companies Act deal with: 1. What the accounting records must show; 2. What the accounting records must contain. 1. The accounting records must: show and explain the company s transactions disclose with reasonable accuracy at any time the financial position of the company enable the directors to ensure that the company s final accounts comply with the Act and give a true and fair view of the company s financial position. 2. The accounting records must contain: day-to-day entries of money received and paid, together with details of the transactions a record of the company s assets and liabilities details of stock held at the end of the year. 6 FINANCIAL ACCOUNTING (AH)

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS What are the main requirements under current accounting practices and statement of principle? As well as ensuring that the main provisions of the Companies Act are followed, companies must also take note of the requirements of the relevant Statements of Standard Accounting Practice (SSAPs) and Financial Reporting Standards (FRSs) as set out by the Accounting Standards Board and the Urgent Issues Task Force (UITF) Abstracts. The requirements of International Accounting Standards must also be observed from 2005 onwards. It is expected that, if the above requirements are met, the financial statements produced will give a true and fair view of the company. What are the Statutory Accounts of a company? The Companies Act requires that the following statements are produced: Profit and loss account Balance sheet Cash flow statement Notes to the accounts Directors report Auditors report Statement of total recognised gains and losses Profit and loss account You are familiar with producing Profit and Loss Accounts for internal use and this is the basis for the preparation of the published version, which does not include as much detail. It is a summarised version. The Companies Act gives a choice of two layouts for this account but the example below shows the most commonly used. The requirements of FRS 3 Reporting Financial Performance must be followed. FINANCIAL ACCOUNTING (AH) 7

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Account for external use Profit and Loss Account of ABC plc for year ending 31 December 20 1. 000s 000s Turnover 150 Cost of Sales 90 Gross Profit 60 Distribution Costs 15 Administration Costs 10 25 35 Other Operating Income 10 45 Income from Interest/Dividends 5 50 Interest Payable 2 Profit/Loss ordinary activities 48 Tax on ordinary activities 12 Profit/Loss on ordinary activities after taxation 36 Extraordinary income/expenses (net of tax) 4 Profit/loss for year 32 Transfer to reserves 5 Dividends paid and proposed 12 17 Retained profit for year 15 8 FINANCIAL ACCOUNTING (AH)

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Turnover is the money derived from the sale of goods and services from the company s ordinary activities. This figure is shown after the deduction of trade discount and VAT. Cost of sales, distribution and administration costs. It is unnecessary to show the details of these amounts. The figures shown should include any depreciation charges which may be split amongst the three headings. Administration expenses include the net figures for discount received and allowed, Bad Debts, changes in Provision for Doubtful Debts, Directors Fees and Audit Charges. Other operating income is any income not resulting from normal trading activities, e.g. profit made from selling assets or rent received from a tenant if the space is surplus to requirements. Income from interest/dividends. This heading includes any dividend received from shares that the company holds in other companies and interest from any amounts lent to other organisations, e.g. government. Interest payable includes any amounts paid on overdrafts, loans and debentures. These amounts should be shown separately. Extraordinary income/expenses are items that do not result from the normal trading activities of the company. They are one-off items which are unlikely to recur, e.g. proceeds from the sale of an antique piece of equipment found in an old store room or the result of the sale of a subsidiary company. Attempt Exercises 1 5 FINANCIAL ACCOUNTING (AH) 9

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Balance Sheet The Companies Act gives a choice of two layouts for published Balance Sheets. The vertical layout is used here. It is similar to the internal layout you are familiar with. Balance Sheet of ABC plc as at 31 December 20 1 (for external use). 000s 000s Fixed Assets Intangible Assets 30 Tangible Assets 640 Investments 400 1,070 Current Assets Stock 85 Debtors 105 Investments - Cash/Bank 25 Prepayments and accrued income 4 219 Creditors: amounts falling due within one year Trade Creditors 87 Accruals 26 113 Net Current Assets 106 Total Assets less Current Liabilities 1,176 Creditors: amounts falling due after one year 140 Provisions for liabilities and charges - 140 Net Assets 1,036 Capital and Reserves Called-up share capital 800 Share Premium 40 Reserves 196 Equity Shareholders funds 1,036 10 FINANCIAL ACCOUNTING (AH)

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Fixed Assets are long-term assets owned for use in the business. Intangible Assets are assets which cannot be seen or touched, e.g. patents, trade marks, goodwill. Only intangible assets that have been bought can be shown in the Balance Sheet, i.e. goodwill built up through trading cannot be shown. Tangible Assets are assets like Buildings, Machinery, Vehicles, etc. Investments include shares in and loans to other businesses which are to be held for more than one year. They are shown at either cost or market value whichever is the lower. Current Assets are short-term assets which are expected to be converted into cash within one year. Calls in arrears are shown here. Creditors: amounts falling due within one year are the current liabilities of the company and include trade creditors, overdraft, other short-term loans, calls in advance, tax due dividends proposed, accruals, etc. Creditors: amounts falling due after more than one year include mortgage, debentures with more than one year to run. Provisions for liabilities and charges include items like possible pension obligations and deferred taxation. Reserves include Revaluation Reserves and Capital Redemption Reserves. Cash flow statement All medium and large limited companies must include a Cash Flow Statement as part of their published accounts. This requirement is stated in FRS 1 Cash Flow Statements, a statement to be looked at in detail when studying that topic. Notes to the accounts The published accounts are generally kept short and simple. Any other details and breakdown of figures that are required by the Companies Act are shown in the accompanying notes to the accounts. These notes include: 1. disclosure of accounting policies used, e.g. relating to depreciation and any changes to these policies 2. explanation of any deviation from accounting standards 3. sources of turnover from different geographical markets 4. details of fixed assets, investments, share capital, debentures and reserves 5. directors emoluments pensions, earnings and other benefits 6. auditors remuneration 7. statement of earnings per share. FINANCIAL ACCOUNTING (AH) 11

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS 1. Disclosure of Accounting Policies The basis of this requirement is FRS 18 Accounting policies. Firms should ensure that the policies adopted are the most appropriate to their circumstances so that a true and fair view can be presented. Firms should review their accounting policies regularly to ensure they are still appropriate. If a change is required then this should be explained in the note. The areas requiring accounting policies include: depreciation whether straight-line, reducing balance, etc. stock valuation cost, market value, etc. research and development 2. Deviation from Accounting Standards If, for any reason, the firm has not followed the Accounting Standards then an explanation must be included in the notes. 3. Sources of Turnover A breakdown of Turnover can be shown according to type of product or geographical area, e.g. Analysis of turnover by area: Turnover Profit South of England 2,000,000 160,000 Midlands 1,250,00 75,000 North of England 1,500,000 90,000 Wales 600,000 40,000 Scotland 850,000 46,000 4. Details of fixed assets, investments share capital, debentures and reserves Fixed assets This section gives details of: cost or valuation at beginning and end of year depreciation at beginning and end of year changes during the year. 12 FINANCIAL ACCOUNTING (AH)

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Investments This section gives information on listed investments, i.e. those quoted on stock exchange. cost price additions or disposals during the year market value. Share capital and debentures This section gives information on: authorised and issued capital debentures issued, repayment dates, etc. Reserves The section shows information on: retained profit, revaluation reserve and share premium account opening balances, movements and closing balances. 5. Directors emoluments This section shows: total of directors salaries, fees and bonuses allowances which are taxed benefits in kind. 6. Auditors remuneration This section shows the amount of the fees and expenses paid to the auditors. 7. Statement of earnings per share This states the earnings per share. This topic will be dealt with when doing Ratio Analysis. Attempt Exercises 6 12 FINANCIAL ACCOUNTING (AH) 13

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS Directors report A directors report must be prepared and sent to shareholders along with the accounts. There is no recommended layout for this report but it must include: names of directors, their interests in any trading contracts, the number of shares and debentures held at the start of the year a statement of the principal activities of the company a review of the development of the company during the year and details of any likely future developments information on changes in fixed assets, i.e. purchase, sale or valuation of assets details of proposed dividends significant differences between the book value and market value of land and buildings details of proposed dividends details of transfer to reserves particulars of any significant events since the end of the financial year details of political and charitable donations a health and safety statement including employee statistics policy on employment of disabled people details of action taken on employee involvement and consultation policy on payment of creditors. The report is audited along with the final accounts and may be reported upon by the auditors. Auditors report After the preparation of the accounts they must be checked (audited) by an independent firm of professional accountants. Their report the auditors report has three main sections: respective responsibilities of directors and auditors, i.e. the directors are responsible for preparing the accounts while the auditors are responsible for forming an opinion on the accounts basis of opinion, i.e. how the audit was planned and carried out opinion the auditors opinion of the accounts. The auditors check that the accounts give a true and fair view of the company s affairs. Any figures that cause concern are discussed with the directors and often changed. If there is a major disagreement between 14 FINANCIAL ACCOUNTING (AH)

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS the firm and the auditors which cannot be resolved, the auditors will qualify their report, i.e. they will give an explanation of why they cannot certify that the accounts give a true and fair view. The auditors also certify that the accounts conform to the requirements of the Companies Act. Statement of recognised gains and losses This statement shows total recognised profits and losses from the profit and loss account together with unrealised profits. Unrealised profits are profits resulting from, for example, the revaluation of fixed assets which would not be shown in the profit and loss account. An example of a statement of recognised gains and losses is shown below: Trial plc Statement of Total Recognised Gains and Losses for year ended 31 December 20 1 000s Profit for year 750 Unrealised surplus on revaluation of assets 240 Total recognised gains for year 990 Do all companies have to file full sets of accounts? Small and medium-sized private companies are permitted to file modified accounts with the Registrar of Companies, however they still must prepare full accounts to present to their members. A small company (turnover less than 2.8m) does not need to file a profit and loss account. The directors report can be shortened and details of directors emoluments are not required. The balance sheet need only show the main asset and liability headings. The required notes on the balance sheet are also abbreviated. A medium-sized company (turnover less than 11.2m) is required to file a profit and loss account but it can start with the Gross Profit figure. Other than this a full set of accounts must be filed. FINANCIAL ACCOUNTING (AH) 15

THEORY NOTES ON PUBLISHED FINAL ACCOUNTS The above concessions are for private limited companies only. All public limited companies, no matter of size, must file full accounts. Attempt Exercises 13 15 16 FINANCIAL ACCOUNTING (AH)

SECTION 2 EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 1 The following ten items have been taken from the books of RTF plc. Place each item under the correct heading in the box for inclusion in the Profit and Loss Account for distribution to shareholders. Repairs to delivery vehicles Depreciation of fork-lift trucks used in warehouse Audit Fees Fuel for company cars Advertising Warehouse heat and light Bank Interest Discount allowed Carriage In Wages of delivery van drivers Cost of Sales Distribution Costs Administration Costs FINANCIAL ACCOUNTING (AH) 17

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 2 The following Trading Profit and Loss Accounts have been prepared for internal use by Lee plc. Trading and Profit and Loss Accounts for year ended 31 December 20 1. 000 000 000 Sales 270 Less Cost of Sales: Opening Stock 35 Add Purchases 80 115 Less Closing Stock 25 90 Gross Profit 180 Distribution Costs: Advertising 13 Depreciation of Vehicles 8 Wages 30 Selling Expenses 5 56 Administration Costs: Salaries 50 Depreciation of Office Equipment 2 Provision for Doubtful Debts 1 Heat and Light 4 Audit Fees 5 62 118 62 Rent Received 5 67 Debenture Interest 4 Net Profit before Tax 63 Corporation Tax 16 Net Profit after Tax 47 Preference Share Dividend 6 Ordinary Share Dividend 20 26 Retained Profit for year 21 Add Retained Profit brought forward 9 Retained Profit carried forward 30 You are required to prepare the Profit and Loss Account for the year for distribution to shareholders. 18 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 3 The following Trading and Profit and Loss Accounts have been prepared for internal use by Narsapur plc. Trading and Profit and Loss Accounts for year ended 31 December 20 1. 000 000 000 Sales 3,200 Less Cost of Sales: Opening Stock 320 Add Purchases 920 1,240 Less Closing Stock 220 1,020 Gross Profit 2,180 Distribution Costs: Vehicles Expenses 130 Depreciation of Vehicles 100 Wages 500 Selling Expenses 120 850 Administration Costs: Salaries 470 Depreciation of Office Equipment 40 Discount Allowed 30 Bad Debts 60 Directors Fees 80 Audit Fees 50 730 1,580 600 Discount Received 40 Interest Received 50 Decrease in Provision for Doubtful Debts 20 Profit on Sale of Vehicles 10 120 720 Debenture Interest 40 Net Profit before tax 680 Corporation Tax 170 Net Profit after Tax 510 General Reserve 50 Ordinary Share Dividend 200 250 Retained Profit for year 260 Add Retained Profit brought forward 40 Retained Profit carried forward 300 You are required to prepare the Profit and Loss Account for external use. FINANCIAL ACCOUNTING (AH) 19

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 4 The following balances have been taken from the ledger of Philips plc at 30 June 20 1. 000s Sales 7,170 Purchases 3,300 Returns In 250 Returns Out 410 Stock at 1.7.20-0 620 Carriage In 65 Warehouse Costs 40 Wages and Salaries 1,599 Selling Expenses 58 Audit Fees 10 Directors Emoluments 12 Rent Received 6 Equipment at cost 1,400 Vehicles at cost 700 Provision for Doubtful Debts 1.7.20-0 8 Provision for Depreciation 1.7.20-0 Equipment 560 Vehicles 250 Loss on sale of equipment 2 Dividends Received 20 Ordinary dividend paid 300 Profit and loss Balance brought forward 205 20 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS Notes 1. Stock at end of year is valued at 470,000 2. Depreciation for the year is to be charged as follows: Equipment 15% of cost Vehicles 20% on diminishing balance Depreciation of Equipment is to be charged to Cost of Sales, Distribution and Administration in the ratio of 2:1:2 respectively. Vehicles are used solely for the delivery of goods to customers. 3. Wages and Salaries owing 25,000. Wages and Salaries are to be split between Cost of Sales, Distribution and Administration in the ratio of 3:2:2. 4. Selling Expenses paid in advance 7,000 5. Provision for Doubtful Debts is to be increased by 3,000 6. Corporation Tax for year is estimated at 448,000 7. The Directors propose to: pay a final dividend of 450,000 transfer 200,000 to Reserves You are required to prepare the Profit and Loss Account for year ended 30 June 20 1 for publication. Do not produce Notes to the Accounts but show working notes. FINANCIAL ACCOUNTING (AH) 21

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 5 The following balances were taken from the ledger of Balmay plc on 31 March 20 1. 000s Net Sales 15,010 Opening Stock 940 Net Purchases 6,470 Warehousing Expenses 996 Wages 3,206 Insurance 350 Rent 954 Discounts 24 (Cr) Bad Debts 5 Distribution Expenses 34 Administration Expenses 22 Debenture Interest (half year) 6 Delivery Vehicles at cost 860 Equipment at cost 200 Provision for Depreciation at 1 April 20-0: Delivery Vehicles 360 Equipment 75 Provision for Doubtful Debts at 1 April 20-0 8 Investment Income 25 Directors Fees 120 Auditors Fees 80 Profit on Sale of Delivery Vehicles 8 Interim Ordinary Dividend 70 Retained profits brought forward 185 22 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS Notes 1. Stock at 31 March 20 1 was valued at 980,000 2. Provide for depreciation as follows: Delivery Vehicles 25% on the diminishing balance Equipment 10% on cost Equipment depreciation is to be split as follows Cost of sales 40% Distribution 10% Administration 50% 3. On 31 March 20 1 the following amounts were outstanding Rent 12,000 Debenture Interest 6,000 4. On 31 March 20 1 Distribution Expenses of 9,000 were prepaid 5. Rent, Insurance and Wages are to be split 2:2:3 amongst Cost of Sales, Distribution and Administration respectively. 6. Provision for Doubtful Debts is to be increased to 10,000 7. Provide for Corporation Tax at the rate of 25% 8. The Directors propose to: Pay Preference dividend of 60,000 Pay a final Ordinary dividend of 70,000 You are required to prepare, from the above information: (a) (b) Trading and Profit and Loss Accounts for the year ended 31March 20 1 for internal use. Profit and Loss Account for the year ended 31 March 20 1 for external use. These accounts should conform to the requirements of the Companies Act. FINANCIAL ACCOUNTING (AH) 23

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 6 Give 2 examples of items which would be included under each of the following headings in a Balance Sheet for distribution to shareholders. (i) (ii) (iii) (iv) (v) (vi) Intangible assets Tangible assets Investments Creditors: amounts falling due within one year Creditors: amounts falling due after one year Reserves Exercise 7 When preparing Final Accounts for distribution to shareholders state the information which is shown in the following notes to the accounts: (i) (ii) (iii) Disclosure of Accounting Policies Fixed Assets Reserves Exercise 8 Name another 3 notes which could be prepared when completing the Notes to the Accounts. 24 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 9 The following Balance Sheet for internal use has been prepared for Anderson Appliances plc. Balance Sheet as at 31 December 20 1. Fixed Assets 000s 000s 000s Cost Agg Depn NBV Land and Buildings 500 (150) 650 Machinery 540 192 348 Fittings 80 32 48 1,046 Investments 35 Intangible Assets Trade Marks 78 Goodwill 15 93 1,174 Current Assets Stock 89 Debtors (104 10) 94 Prepayments 21 204 Current Liabilities Bank Overdraft 6 Creditors 53 VAT 26 Accruals 12 Debenture Interest owing 3 Corporation Tax 20 Ordinary Dividend owing 35 155 Working Capital 49 Total Net Assets 1,223 Long-term Liabilities 10% Debentures 60 Total Net Assets 1,163 financed by Capital and Reserves 200,000 5% 2 Preference Shares 400 500,000 1 Ordinary Shares 500 900 Reserves Share Premium 50 Revaluation Reserve 150 Profit and Loss 63 263 1,163 You are required to prepare the Balance Sheet as at 31 December 20 1 for external use. Do not prepare any notes to the accounts. FINANCIAL ACCOUNTING (AH) 25

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 10 Nairn Products plc have just completed their first year of trading. The following balances have been taken from the ledger after the Trading and Profit and Loss Accounts have been prepared. Trial Balance as at 30 September 20 1 m m Fully paid Issued Capital: Ordinary Shares of 1 100 Stocks 30.09.-1 35 Debtors 14 Bank 8 Creditors 12 Prepayments 6 Accruals 3 Buildings cost 60 Vehicles cost 15 Equipment cost 9 Investments cost 23 Provision for Depreciation Vehicles 30.09.-1 2 Provision for Depreciation Equipment 30.09.-1 1 Provision for Doubtful Debts 30.09.-1 1 Goodwill 2 Patents 8 8% Debentures (2020) 10 Share Premium 25 Tax due 10 Dividends due 10 Retained Profit 6 180 180 Notes 1. Buildings are to be revalued at their current estimated market value of 68,000,000 2. The market value of Investments is 26,000,000 3. The authorised share capital is 150,000,000 1 Ordinary Shares 26 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS You are required to prepare: (a) (b) (c) The Balance Sheet as at 30 September 20 1 for presentation to the directors of Nairn Products plc. The Balance Sheet at 30 September 20 1 for presentation to the shareholders. Notes to the Accounts to explain (i) Movement of Fixed Assets (ii) Investments (iii) Share Capital and Debentures FINANCIAL ACCOUNTING (AH) 27

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 11 The following figures were taken from the books of Kuper Krafts plc at 31 December 20 1. 000s Sales 23,000 Stock at 1 January (at cost) 3,306 Buildings (cost) 6,400 Land (cost) 600 Vehicles (cost) 1,500 Plant and Machinery (cost) 1,800 Investments (market value 300,000) 250 Goodwill 100 Bank Overdraft 502 Debtors 1,740 Trade Creditors 620 Audit Fees 156 Prepayments 100 Accruals 292 Distribution Expenses 160 Dividends Received 24 Bank Interest 14 Purchases 14,000 Wages and Salaries 3,392 Administration Expenses 2,940 Interim Ordinary Share Dividend 200 Provision for Depreciation (1 January): Buildings 2,200 Vehicles 900 Plant and Machinery 1,100 Issued Share Capital (fully paid): 10,000,000 50p Ordinary Shares 5,000 1,000,000 1 8% Preference Shares 1,000 Share Premium 540 Profit and Loss Account at 1 January 1,480 Notes 1. Stocks at 31 December were 3,020,000 (at cost). 2. Wages and Salaries should be allocated as follows: Cost of Sales 2,160,000 Administration costs 440,000 Distribution costs 792,000 28 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS 3. Provide for Depreciation on Fixed Assets as follows: Buildings 1% per annum using straight line method Vehicles 25% per annum using reducing balance method Plant and machinery 20% per annum using straight line method 4. Depreciation for the year should be allocated as follows: Buildings Cost of sales 50% Distribution costs 25% Administration costs 25% Plant and machinery Cost of sales 60% Distribution costs 20% Administration costs 20% Vehicles are used for delivery of goods to customers only. 5. Corporation tax on profits for the year is estimated to be 240,000. 6. The directors propose that: (a) the Preference Share dividend be paid in full (b) a dividend of 5p per share be paid to Ordinary Shareholders. 7. The Authorised Share Capital of the company consists of: 15,000,000 Ordinary Shares of 50p each 2,000,000 8% Preference Shares of 1 each. You are required to: (a) Calculate the total of (i) Costs of sales (ii) Distribution costs (iii) Administration costs (b) Prepare the draft Profit and Loss Account for year ended 31 December 20 1 and a Balance Sheet as at that date for presentation to the shareholders. (Show working notes.) The accounts should conform to the requirements of the Companies Act. (c) Prepare Notes to the Accounts to explain (i) Movement of Tangible Fixed Assets (ii) Disclosure of Accounting Policies. FINANCIAL ACCOUNTING (AH) 29

EXERCISES: PUBLISHED FINAL ACCOUNTS Exercise 12 The financial year of Easson Electronics plc ends on 30 June and the following balances were taken from the accounts on 30 June 20 1. Trial Balance as at 30 June 20 1. 000s 000s Issued Share Capital (fully paid): 1,000,000 6% 1 Preference Shares 1,000 10,000,000 1 Ordinary Shares 10,000 Share Premium 360 8% Debentures (2018 2020) 100 Profit and Loss Account Balance at 1 July 20 0 156 Sales: Highlands 8,000 Central 14,000 Borders 6,000 Stocks at 1 July 20 0 2,300 Advertising 120 Bank Charges 12 Purchases 10,000 Carriage on Purchases 82 Trade Marks 245 Directors Fees 1,650 Auditors Fees 89 Insurance 310 Carriage on Sales 150 Wages and Salaries 14,400 Land and Buildings cost 7,000 Equipment cost 800 Fixtures and Fittings cost 450 Provision for Depreciation at 1 July 20 0: Equipment 30 Fixtures and Fittings 25 Trade Debtors 4,180 Trade Creditors 2,100 Provision for Doubtful Debts at 1 July 20 0: 120 Sundry Warehouse Expenses 4 Goodwill 38 Sundry Office Expenses 17 Bank 13 Sundry Selling Expenses 31 41,891 41,891 30 FINANCIAL ACCOUNTING (AH)

EXERCISES: PUBLISHED FINAL ACCOUNTS Notes 1. Stock at 30 June 20 1 at cost 3,200,000 2. Depreciation is charged as follows Equipment 15% per annum on cost Fixtures and Fittings 20% per annum on diminishing balance basis 3. Depreciation is to be charged to Cost of Sales, Distribution and Administration respectively as follows: Equipment 1:1:2 Fixtures and Fittings 2:1:2 4. Provision for Doubtful Debts is to be decreased to 105,000 5. Land and Buildings is to be revalued at 7,200,000 6. An equipment replacement reserve is to be created with an initial transfer from profits of 50,000. 7. Provide for the following: Insurance prepaid 10,000 Carriage on sales due 20,000 Debenture Interest for year due Corporation tax at 25% 8. Wages and Salaries and Insurance are to be split equally between Cost of Sales, Distribution and Administration. 9. The Authorised Share capital is 2,000,000 6% Preference Shares and 15,000,000 1 Ordinary Shares. 10. The Directors propose to: (i) Pay the preference share dividend for the year (ii) Pay a final dividend of 8% on ordinary shares (iii) Write down goodwill to zero FINANCIAL ACCOUNTING (AH) 31

EXERCISES: PUBLISHED FINAL ACCOUNTS From the Trial Balance and Notes, you are required to: (a) Calculate the totals for Cost of Sales, Distribution Costs and Administration Costs (b) Prepare the Profit and Loss Account for the year ended 30 June 20 1 and a Balance Sheet at that date for external use and to conform, as far as possible, to the requirements of the Companies Act. (c) Prepare Notes to the Account to show Sources of Turnover from different geographical markets and Details of Reserves. Exercise 13 For the above exercise, prepare a Statement of Total Recognised Gains and Losses for year ended 30 June 20 1. Exercise 14 State five items of information which should be included in the Directors Report. Exercise 15 Name the three main sections of an Auditors Report. 32 FINANCIAL ACCOUNTING (AH)

SECTION 3 SOLUTIONS TO EXERCISES Solutions Exercise 1 Cost of Sales Distribution Costs Administration Costs Depreciation of fork Repairs to delivery Audit Fees lift trucks vehicles Warehouse heat and Advertising Fuel for company cars light Carriage In Wages of delivery Bank Interest van drivers Discount allowed Exercise 2 Lee plc Profit and Loss Account for year ended 31 December 20 1 000 000 Turnover 270 Cost of Sales 90 Gross Profit 180 Distribution Costs 56 Administration Costs 62 118 62 Other Operating Income 5 67 Income from Interest/Dividends 67 Interest payable 4 Profit on Ordinary activities 63 Tax on ordinary activities 16 Profit on ordinary activities after taxation 47 Transfer to Reserves Dividends paid and proposed 26 26 Retained profit for year 21 FINANCIAL ACCOUNTING (AH) 33

SOLUTIONS TO EXERCISES Exercise 3 Narsapur plc Profit and Loss Account for year ended 31 December 20 1 000 000 Turnover 3,200 Cost of Sales 1,020 Gross Profit 2,180 Distribution Costs 850 Administration Costs (730 (40 + 20)) 670 1,520 660 Other Operating Income 10 670 Income from Interest/Dividends 50 720 Interest payable 40 Profit on Ordinary activities 680 Tax on ordinary activities 170 Profit on ordinary activities after taxation 510 Transfer to Reserves 50 Dividends paid and proposed 200 250 Retained profit for year 260 34 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 4 Philips plc Profit and Loss Account for year ended 30 June 20 1 000s 000s Turnover 6,920 Cost of Sales 3,925 Gross Profit 2,995 Distribution Costs 647 Administration Costs 573 1,220 1,775 Other Operating Income (6 2) 4 1,779 Income from Interest/Dividends 20 1,799 Interest payable Profit on Ordinary activities 1,799 Tax on ordinary activities 448 Profit on ordinary activities after taxation 1,351 Extra ordinary Income 0 1,351 Transfer to Reserves 200 Dividends paid and proposed 750 950 Retained profit for year 401 FINANCIAL ACCOUNTING (AH) 35

SOLUTIONS TO EXERCISES Working Notes Cost of Sales: Opening Stock 620 Net Purchases (3,300 410) 2890 3510 Closing Stock 470 3040 Carriage In 65 Warehouse costs 40 Depreciation Equipment 84 Wages and Salaries (3/7 1624) 696 885 Cost of sales 3925 Distribution Costs: Selling Expenses (58 7) 51 Wages and Salaries (2/7 1624) 464 Depreciation Equipment ((1400 15%) 1/5) 42 Depreciation Vehicles (700 250) 20% 90 647 Administration Costs: Wages and Salaries (2/7 1624) 464 Depreciation Equipment ((1400 15%) 2/5) 84 Provision for Doubtful Debts 3 Directors Emoluments 12 Audit Fees 10 573 Other Operating Income: Rent Received 6 Loss on Sale of Equipment (2) 4 36 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 5(a) Balmay plc Trading and Profit and Loss Accounts (for internal use) for year ended 31 March 20 1. 000s 000s 000s Sales 15,010 Less Cost of Sales: Opening Stock 940 Purchases 6,470 7,410 Closing Stock 980 6,430 Warehouse Expenses 996 Rent (2/7 (954 + 12)) 276 Insurance (2/7 350) 100 Wages (2/7 3,206) 916 Depreciation Equipment (40% 20) 8 2,296 Cost of Sales 8,726 Gross Profit 6,284 Add: Profit on Sale of Delivery Vans 8 Investment Income 25 Discounts (net) 24 57 6,341 Less Expenses: Distribution Wages (2/7 3,206) 916 Insurance (2/7 350) 100 Rent (2/7 966) 276 Depreciation Delivery Vans (25% (860 360)) 125 Depreciation Equipment (10% 20) 2 Distribution Expenses (34 9) 25 1,444 Administration Wages (3/7 3,206) 1,374 Insurance (3/7 3500) 150 Rent (3/7 966) 414 Depreciation Equipment (50% 20) 10 Administration Expenses 22 Bad Debts 5 Directors Fees 120 Auditors Fees 80 FINANCIAL ACCOUNTING (AH) 37

SOLUTIONS TO EXERCISES Increase in Provision for Doubtful Debts 2 2,177 Debenture Interest 12 3,633 Net profit before Tax 2,708 Corporation Tax 677 2,031 Preference Share Dividend 60 Ordinary Share Dividend (70 + 70) 140 200 Retained Profit for year 1,831 Retained profit brought forward 185 Retained profit 2,016 38 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 5(b) 000s 000s Turnover 15,010 Cost of Sales 8,726 Gross Profit 6,284 Distribution Costs* 1,420 Administration Costs 2,177 3,597 2,687 Other Operating Income 8 2,695 Income from Interest/Dividends 25 2,720 Interest payable 12 Profit on ordinary activities 2,708 Tax on ordinary activities 677 Profit on ordinary activities after taxation 2,031 Extra-ordinary Income 0 2,031 Transfer to Reserves 0 Dividends paid and proposed 200 200 Retained profit for year 1,831 * Working Note Distribution Costs 1,444 Less Net Discounts 24 1,420 FINANCIAL ACCOUNTING (AH) 39

SOLUTIONS TO EXERCISES Exercise 6 Items included in (i) (ii) (iii) (iv) (v) (vi) Intangible Assets patents, trade marks, goodwill. Tangible Assets Land, Buildings, Vehicles, Machinery, Plant, Equipment, Fittings, etc. Investments shares in other organisations, loans to other businesses (if they have more than one year to run). Creditors: amounts falling due within one year creditors, bank overdraft, other short term loans, call sin advance, accruals, dividends due, tax due. Creditors: amounts falling due after one year debentures, loans with more than one year to run, mortgages. Reserves revaluation reserves, capital redemption reserves; unappropriated profits. Exercise 7 (i) Disclosure of Accounting Policies This note should give details on the following: depreciation whether straight-line, reducing balance, etc. (no actual figures are required) stock valuation cost, market value, etc. research and development any changes in these policies (ii) Fixed Assets This section gives details of: cost or valuation at beginning and end of year depreciation at beginning and end of year changes during the year (iii) Reserves The section shows information on: retained profit, revaluation reserve and share premium account opening balances, movements and closing balances 40 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 8 Other notes include: deviation from accounting standards sources of turnover details of share capital, debentures and investments Directors Emoluments Auditors Remuneration Statement of earnings per share Note Any other relevant notes will be accepted although knowledge of them is not required for this course. FINANCIAL ACCOUNTING (AH) 41

SOLUTIONS TO EXERCISES Exercise 9 Anderson Appliances plc 000s 000s Fixed Assets Intangible Assets 93 Tangible Assets 1,046 Investments 35 1,174 Current Assets Stocks 89 Debtors 94 Investments Cash/Bank Prepayments and accrued Income 21 204 Creditors: amounts falling due within one year Bank Overdraft 6 Creditors 53 VAT 26 Accruals 12 Debenture Interest owing 3 Corporation Tax 20 Ordinary Dividend owing 35 155 Net Current Assets 49 Total Assets less Current Liabilities 1,223 Creditors: amounts falling due after one year 60 Provisions for liabilities and charges 60 Net Assets 1,163 Capital and Reserves Called-up Share Capital 900 Share Premium 50 Reserves 213 Equity Shareholders Funds 1,163 42 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 10(a) Nairn Products plc Balance Sheet as at 30 September 20 1 m m m Fixed Assets Cost Agg Depn NBV Buildings 60 (8) 68 Vehicles 15 2 13 Equipment 9 1 8 84 (5) 89 Investments 23 Intangible Assets Patents 8 Goodwill 2 10 122 Current Assets Stocks 35 Debtors 14 Less Provision for Doubtful Debts 1 13 Bank 8 Prepayments 6 62 Current Liabilities Creditors 12 Accruals 3 Tax due 10 Dividends due 10 35 Working Capital 27 149 8% Debentures 10 Total Net assets 139 financed by: Capital and Reserves 1 Ordinary Shares 100 Share Premium 25 Building Revaluation Reserve 8 Retained Profits 6 Shareholders interest 139 FINANCIAL ACCOUNTING (AH) 43

SOLUTIONS TO EXERCISES Exercise 10(b) Nairn Products plc Balance Sheet (for external use) as at 30 September 20 1 m m Fixed Assets Intangible Assets 10 Tangible Assets 89 Investments 23 122 Current Assets Stocks 35 Debtors 13 Investments Cash/Bank 8 Prepayments and accrued Income 6 62 Creditors: amounts falling due within one year Creditors 12 Accruals 3 Dividends due 10 Tax due 10 35 Net Current Assets 27 Total Assets less Current Liabilities 149 Creditors: amounts falling due after one year 10 Provisions for liabilities and charges 10 Net Assets 139 Capital and Reserves Called-up Share Capital 100 Share Premium 25 Reserves 14 Equity Shareholders Funds 139 44 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 10(c) Notes to the Accounts Tangible Assets Buildings Vehicles Equipment Total m m m m Cost at 1.10. 0 60 15 9 84 Additions Revaluations 8 8 Disposals At 30.9. 1 68 15 9 92 Depreciation at 1.10. 0 Charge for year 2 1 3 At 30.9. 1 2 1 3 NBV at 1.10. 0 60 15 9 84 NBV at 30.9. 1 68 13 8 89 Intangible Assets Goodwill Patents Total m m m Cost 1.10. 0 2 8 10 Value 30.9. 1 2 8 10 Investments Purchased during year (cost) 23m Market value at 30 September 20 1 26m Share Capital and Debentures Authorised Share Capital 150,000,000 1 Ordinary Shares Debentures 8 % 10,000,000 (Repayable 2020) FINANCIAL ACCOUNTING (AH) 45

SOLUTIONS TO EXERCISES Exercise 11(a) Kuper Krafts plc Cost of Sales Administration Costs Opening Stocks 3,306 Audit Fees 156 Purchases 14,000 Bank Interest 14 17,306 Wages and Salaries 440 Closing Stocks 3,020 Admin Expenses 2,940 14,286 Depreciation: Wages and Salaries 2,160 Buildings 16 Depreciation: Plant and Machinery 72 Buildings (50% 64) 32 Admin Costs 3,638 Plant and Machinery (60% 360) 216 Cost of sales 16,694 Distribution Costs Distribution Expenses 160 Depreciation: Buildings (25% 64) 16 Vehicles (25% (1500 900)) 150 Plant and Machinery (20% 360) 72 Wages and Salaries 792 Distribution Costs 1,190 46 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 11(b) Kuper Krafts plc Profit and Loss Account for year ended 31 December 20 1. 000s 000s Turnover 23,000 Cost of Sales 16,694 Gross Profit 6,306 Distribution Costs 1,190 Administration Costs (3,638 14) 3,624 4,814 1,492 Other Operating Income 0 1,492 Income from Interest/Dividends 24 1,516 Interest payable 14 Profit on ordinary activities 1,502 Tax on ordinary activities 240 Profit on ordinary activities after taxation 1,262 Extra-ordinary Income 0 1,262 Transfer to Reserves 0 Dividends paid and proposed (200+500+80) 780 780 Retained profit for year 482 FINANCIAL ACCOUNTING (AH) 47

SOLUTIONS TO EXERCISES Balance Sheet as at 31 December 20 1 000s 000s Fixed Assets Intangible Assets 100 Tangible Assets 5,526 Investments 250 5,876 Current Assets Stocks 3,020 Debtors 1,740 Investments 0 Cash/Bank 0 Prepayments and accrued Income 100 4,860 Creditors: amounts falling due within one year Bank Overdraft 502 Trade Creditors 620 Accruals 292 Tax 240 Preference Share Dividend 80 Final Ordinary Dividend 500 2,234 Net Current Assets 2,626 Total Assets less Current Liabilities 8,502 Creditors: amounts falling due after one year 0 Provisions for liabilities and charges 0 0 Net Assets 8,502 Capital and Reserves Called-up Share Capital 6,000 Share Premium 540 Reserves (1,480 + 482) 1,962 Equity Shareholders Funds 8,502 48 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 11(c) Notes to the accounts (i) Movement of Tangible Fixed Assets Land Buildings Vehicles Plant and Total Machinery 000s 000s 000s 000s 000s Cost at 1.1. 0 600 6,400 1,500 1,800 3,900 Additions Revaluations Disposals At 31.12. 1 600 6,400 1,500 1,800 10,300 Depreciation at 1.1. 1 2,200 900 1,100 4,200 Charge for year 64 150 360 574 At 30.9. 1 2,264 1,050 1,460 4,774 NBV at 31.12. 1 600 4,200 600 700 6,100 NBV at 30.9. 1 600 4,136 450 340 5,526 (ii) Disclosure of the accounting policies Fixed Asset Buildings Plant and Machinery Vehicles Method of Depreciation Straight line Straight line Diminishing Stock is valued at cost. There have been no changes in accounting policies. FINANCIAL ACCOUNTING (AH) 49

SOLUTIONS TO EXERCISES Exercise 12(a) Easson Electronics plc Cost of Sales 000s 000s Opening Stock 2,300 Purchases 10,000 Carriage 82 12,382 Closing Stock 3,200 9,182 Depreciation: Equipment 30 Fixtures and Fittings 34 Warehouse Expenses 4 Wages and Salaries 4,800 Insurance 100 4,968 14,150 Distribution Costs 000s Advertising 120 Insurance 100 Carriage on Sales 170 Wages and Salaries 4,800 Depreciation: Equipment 30 Fixtures and Fittings 17 Selling Expenses 31 5,268 Administration Costs 000s Bank Charges 12 Directors Emoluments 1,650 Auditors Fees 89 Insurance 100 Wages and Salaries 4,800 Depreciation: Equipment 60 Fixtures and Fittings 34 Office Expenses 17 Decrease in Provision for Doubtful Debts (15) 6,747 50 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 12(b) Profit and Loss Account for year ended 30 June 20 1 000s 000s Turnover 28,000 Cost of Sales 14,150 Gross Profit 13,850 Distribution Costs 5,268 Administration Costs 6,747 12,015 1,835 Other Operating Income 0 1,835 Income from Interest/Dividends 0 1,835 Interest payable 8 Profit on ordinary activities 1,827 Tax on ordinary activities 457 Profit on ordinary activities after taxation 1,370 Extra-ordinary Income 0 1,370 Transfer to Reserves 50 Goodwill 38 Dividends paid and proposed (60 + 800) 860 948 Retained profit for year 422 FINANCIAL ACCOUNTING (AH) 51

SOLUTIONS TO EXERCISES Balance Sheet as at 30 June 20 1 000s 000s Fixed Assets Intangible Assets 245 Tangible Assets* 8,190 Investments 0 8,435 Current Assets Stocks 3,200 Debtors 4,075 Investments 0 Cash/Bank 13 Prepayments and accrued Income 10 7,298 Creditors: amounts falling due within one year Trade Creditors 2,100 Accruals 20 Debenture Interest 8 Tax 457 Dividends due 860 3,445 Net Current Assets 3,853 Total Assets less Current Liabilities 12,288 Creditors: amounts falling due after one year 100 Provisions for liabilities and charges 0 100 Net Assets 12,188 Capital and Reserves Called-up Share Capital 11,000 Share Premium 360 Reserves 828 Equity Shareholders Funds 12,188 * Land and Equipment Fixtures and Total Buildings Fittings Cost 7,000 800 450 8,250 Revaluation 200 Depreciation1.7. 0 30 25 55 Depreciation for year 120 85 205 Depreciation 30.6. 1 150 110 260 NBV at 30.6. 0 7,200 650 340 8,190 52 FINANCIAL ACCOUNTING (AH)

SOLUTIONS TO EXERCISES Exercise 12(c) Note to the Accounts Sources of Turnover Area Turnover ( 000s) Highlands 8,000 Central 14,000 Borders 6,000 Total 28,000 Details of Reserves 000s Retained Profits at 1.7. 0 156 Retained Profits for year 422 Retained Profits at 30.6. 1 578 Revaluation of Land and Buildings at 30.6. 1 200 Equipment Replacement Reserve at 30.6. 1 50 Total Reserves at 30.6. 1 828 Exercise 13 Statement of Total Recognised Gains and Losses For year ended 30 June 20 1 000s Profit for the financial year 1,370 Unrealised surplus on revaluation of buildings 200 Total recognised gains 1,570 Prior year adjustments 0 Total gains and losses for year 1,570 FINANCIAL ACCOUNTING (AH) 53

SOLUTIONS TO EXERCISES Exercise 14 Items of information included in Directors Report: names of directors, their interests in any trading contracts, the number of shares and debentures held at the start of the year statement of the principal activities of the company a review of the development of the company during the year and details of any likely future developments information on changes in fixed assets, i.e. purchase, sale or valuation of assets details of proposed dividends significant differences between the book value and market value of land and buildings details of proposed dividends details of transfer to reserves particulars of any significant events since the end of the financial year details of political and charitable donations a health and safety statement including employee statistics policy on employment of disabled people details of action taken on employee involvement and consultation policy on payment of creditors. Exercise 15 The three main sections of the Auditors Report are: respective responsibilities of directors and auditors, i.e. the directors are responsible for preparing the accounts while the auditors are responsible for forming an opinion on the accounts basis of opinion, i.e. how the audit was planned and carried out opinion the auditors opinion of the accounts. 54 FINANCIAL ACCOUNTING (AH)

Accounting Financial Accounting: Issues of Shares Pack [ADVANCED HIGHER] Anne Duff abc

SECTION 1 THEORY NOTES ON ISSUE OF SHARES Theory notes on issue of shares Introduction Limited companies raise capital by issuing shares. The people buying these shares become shareholders. Shareholders receive part of the company s annual profit in the form of dividends. The liability of a shareholder is limited to the value of the shares owned and private possessions cannot be used to pay the debts of the company. The two main types of shares are Ordinary Shares (Equity) and Preference Shares. Ordinary Shares carry more risk as the dividends can vary and if the company is not performing well then the Ordinary shareholders may receive no dividend. However, when a company is prospering the Ordinary shareholders stand to obtain substantial rewards. Ordinary shareholders have no say in the day-to-day running of the business. They are, however, able to vote at the Annual General Meeting of the company and can influence the election of the board of directors who manage the company. Preference Shares carry less risk because they are issued at a fixed rate of dividend, e.g. 6%, which means that no matter how well the company is doing, the shareholders will receive the same dividend. Preferences shareholders have no voting rights but if a company goes into liquidation their capital will be paid back before that of the Ordinary shareholders. How many shares can a company issue? The Memorandum of Association, one of the statutory documents of a company, must state the Authorised Share Capital of the company. This is the maximum amount of Ordinary and Preference share capital that can be issued. It is not necessary for a company to issue all of its authorised capital at one time. The part that is actually issued is called the Issued Share Capital. The shares are given a face value, i.e. Ordinary shares of 1 each. This is often referred to as the nominal or par value of the shares. FINANCIAL ACCOUNTING (AH) 57