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December 6, 2020 at 4:16 pm
Dear Mr. John
I was wondering that who issues the shares of a company, is it the directors or the owners?
November 7, 2020 at 5:05 pm
Thanks for the lecture sir.
If 100 shares were first issued for $1 each. (Nominal).
Then next year 100 more shares were issued at $1.5 each. So $1 is nominal, $0.5 becomes the share premium, and the capital reserve.
My question – if the new share holders paid more – why not record it as more, rather than divide it into nominal and premium? Is the reason technical ? – because the share was printed in $1 value and registered ? If yes, are the company not allowed to changed the print value and re-register with the State ?
Second – this share premium, if the company liquidates – does it get treated as profit and distributed to all the share holders equally, or only to the ones it was taken from initially, to be given back, ie to the ones who both the next 100 shares.
John Moffat says
November 8, 2020 at 9:51 am
First: because it is the law in the UK. Some other countries do record it all as share capital. However it makes no difference anyway.
Second: if a company liquidates then any money left after paying all liabilities is distributed to the then current shareholders in the proportion of the shares they then hold.
October 15, 2020 at 8:37 am
Dear Mr. John
I tried to do the test FA Chapter 13 Questions – Accounting for Limited Companies. I answered all the questions correctly, except for question number 4, which has something I do not understand.
The rules is: The dividend only recorded when actually paid.
Financial year in this question include 30 June 2005 – 30 June 2006, Right?
On September 2005 is paid $100,000, the final dividend for the year ending June 2005( It had been declared in August 2005)
The question is
Why this amount should not be appeared on the SOFP? (as the payment is done on September and the declaration is entered the financial year 2006…
Thank you in advance
October 15, 2020 at 9:06 am
In future please ask this sort of question in the Ask the Tutor Forum and not as a comment on a lecture 🙂
The $100,000 was paid during the year – there is no liability for it at the end of the year and so there is nothing to appear in the Statement of Financial Position. (And, of course, there is nothing to appear for it in the Statement of Profit or Loss because dividends never appear in the SOPL).
October 19, 2020 at 1:47 pm
Thank you for the clarification
September 12, 2020 at 4:10 pm
Sorry Mr. John, please ignore above query since i replaced it with this one. “In case of loss, where the company already have previous retained earning standing on their financial statement. Would the loss be eliminated from that retained earning?
October 15, 2020 at 9:02 am
A loss is simply a negative profit. So just as a profit increases the retained earnings, a loss reduces the retained earning.
June 24, 2020 at 6:49 pm
The accounting treatment of the dividends is a bit confusing to me, so I did a little research also on the Internet. Many sources claim that the amount of the dividends to be paid is treated as a current liability (increase of Dividends payable account) and when the actual payment happens the current liability account is closed. If that is true, would it be right this operation to have an impact on the SOFP at the year-end too?
August 6, 2020 at 3:59 am
As far as I know, current liability treatment, sometimes, is relevant for Preference Shares if they are reedemable within one year, because these dividends have fixed % attached to them (let’s say 20000_7% redeemable preference shares). The company does not have to (but can if directors decided so) pay Ordinary Dividends that’s why it is not liability in the SoFP
November 9, 2018 at 12:50 am
Does Revenue Reserve Contain dividends ,I am confused .I got this that Retained Earnings is the Called the final amount which should be added at the end, after it has Already deducted the Dividends for the Year.
November 9, 2018 at 6:24 am
Retained earnings is a revenue reserve.
It increases each year by the profits less the dividends i.e. the amount retained.
November 4, 2018 at 3:39 pm
Sir, why are dividends not agreeed upon not treated in the same way as contingent liabilities?
November 4, 2018 at 4:17 pm
Because we treat them the way that the Financial Reporting Standards tell us to treat them 🙂
The reason is because dividends go to the owners of the company (and can always be cancelled), whereas other liabilities (whether contingent or not) are liabilities to those external to the company.
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