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

Company Accounts

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

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

Journal Entries Capital Introduced Sole Proprietorship Cash A/c xxx 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/cxxx Share capital A/cxxx Non-cash resources Fixed Assets A/c xxx Share capital A/cxxx

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

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

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

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

Profits Realized profit Unrealized profit 1.Share premium 2.Revaluation surplus Profit after tax Transferred to reserve Paid as dividend to share holder Capital redemption reserve General reserve Plant replacement reserve Inventory replacement 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 assetsxxx Intangible Fixed assetsxxx Long term investments xxx Long term advances xxx Deposits xxx Prepaymentsxxx Deferred cost xxx Total Non-current Assets xxx Current Assets xxx xxx

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

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

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