BPP University College Of Professional Studies Limited (BPP)
Legal Practice Course
Business Law and Practice
Summary
Summary Accelerated LPC - Business Law and Practice (BLP) Business Accounts Cheat Sheet
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Course
Business Law and Practice
Institution
BPP University College Of Professional Studies Limited (BPP)
These are for the Accelerated LPC Business Accounts part of BLP. Overall score received for BLP was 87% using these notes.
**Available as part of a bundle with overall BLP Consolidation notes.
BPP University College Of Professional Studies Limited (BPP)
Legal Practice Course
Business Law and Practice
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LPC
BLP Business Accounts Consolidation
Ignore final dividends = not tax deductible
Look at distributable profits for buyback shares
SPT work out net asset value for substantial test
No of shares could be relevant
Could be asked:
o To explain effect on balance sheet of taking out loan, or issuing new shares
o Show effects on the accounts in numbers
Issue of shares, buyback of shares out of profits, taking out a loan + creating revaluation reserve [all have effect on balance sheet]
Reduction of share capital effect on balance sheet in activity in SGS 23 + finding info on profit/loss account
[Issuing new shares] only affects balance sheet, not PL acct
[Issuing bonus shares]
It converts share premium account into fully paid shares for no consideration co does not receive money so top half doesn’t
change
Let’s say you have 1,000,000 ordinary shares of £1
And then the company decides to issue bonus ordinary shares on a 1 for 10 basis
1 is 10% of 10 number of bonus shares is calculated by calculating 10% of 1,000,000 = 100,000
So 100,000 new shares of £1 each will be issued to existing shareholders
[Balancing process]
The 100,000 new shares would have to be added to the ordinary shares figure of 1,000,000 under the capital and reserves heading
to make 1,100,000
Also under the capital and reserves heading, you deduct the number of bonus shares from the share premium account figure
o Deduct the share premium account by 100,000
Top half generally no effect
[Issuing new shares at a premium]
Let’s say the company decides to make an issue of 50 million new ordinary shares of £1 each (for cash) at a price of £6 per share
[Balancing process]
Need to times the number of new ordinary shares by the price (£300 million) and add it to the current assets (cash) account
Need to add the nominal value of the new shares issued to the called up share capital (£50 million)
Need to times the nominal value of the new shares (£50 million) by the difference between the nominal value and the share
premium (£5) and add the result (£250 million) to the share premium account
[Appreciation of an asset]
Say you have land that was bought for £555,000
But the new market value of the land is now £900,000
Note that the initial cost stays the same, so you don’t need to to anything to the left hand column
And note that there hasn’t been any accumulated depreciation, so the middle column also remains the same
[Balancing process]
It’s the Net Book Value column that needs amending – should simply change the £555,000 figure to £900,000 (rmb to change final
sum figure too if there is more than one asset)
Then you add a Revaluation Reserve Account to the bottom half of the balance sheet (under capital and reserves, under share
premium account) and write down the difference between the £555,000 and £900,000 (£345,000) to balance it out
[Taking out an additional loan]
Let’s say the company takes out an additional 5-year loan of £50,000
[Balancing process]
The loan would have to be added under the ‘creditors: amounts falling due after more than one year’ heading
But would be balanced out by an increase of cash in bank by £50,000 (rmb to change final sum figure too)
Bottom half = no effect
[Final dividends]
A final dividend will appear in the accounts for the accounting year in which the shareholders approve it (i.e. the year in which it is
declared) bc only then does it become a legal obligation of the co
o So if you have a final dividend proposed before the end of the current accounting period and the GM approving it occurs in
the next accounting period (where the dividend will be declared), the next accounting period is the accounting period in
which the final dividend will be accounted for in the balance sheet
o If declared in Sept 2019 when accounting period ended in June 2019 it becomes a debt only for June 2020 as
shareholder approval marks the beginning of the legal obligation.
If the final dividend has been declared and paid within an accounting period, it will only appear in the company’s ‘analysis of profit &
loss account reserve’ (the co’s cash at back will already have been reduced AAR of the payment of the dividend)
If the final dividend has been declared but not yet paid within an accounting period, it will also appear in the co’s balance sheet as a
creditor falling due within one year
[Buybacks/reduction of share capital]
[Share buyback out of distributable profits]
, LPC
Make changes to the following:
o Net assets
That is – minus cash in bank by share price total which affects NET ASSET TOTAL
Minus by (number of shares bought back x price bought for)
o Share capital (Ordinary shares of £1)
Minus number of shares bought back
o Capital redemption reserve (had nothing, but now you have one after buying back)
Plus number of shares bought back if 5k shares sold = add 5k
o Distributable profits
Minus by (number of shares bought back x price bought for) = if 5k shares x £5 sale price minus 25
So realised but undistributed profits becomes Y (old profit – X)
Note no change to Share Premium Account bc there is no fresh issue of shares
So deduct same amount from net assets + distributable profits (which is bottom of BS)
Share Premium account w/o court procedure
S641(1)(a) can reduce capital using SR + D’s SS
Subject to AAs prohibiting co share capital [no restriction or prohibition in Mas]
S641(3) reduce share capital in any way, preventing co from having redeemable shares in issue
S610(4) provisions of CA relating to reducing share capital apply as if share premium = part of co’s paid up share cap
Co has a lot of flex in reducing capital [and hence SPA]
[Changes to SPA]
SPA can only be used:
o if there is a fresh issue of shares; and
o if the shares were issued at a premium
S 692(3) CA 2006: if shares to be purchased were issued at a premium, any premium payable on their purchase by the co may be
paid out of the proceeds of a fresh issue of shares made for the purpose of financing the purchase, up to an amount equal to-
o (a) the aggregate of the premiums received by the co on the issue of the shares purchased; or
o (b) the current amount of the co’s share premium account (including any sum transferred to that account in respect of
premiums on the new shares)
(Whichever is the less)
S 692(4) CA 2006: the amount of co’s share premium account is reduced by a sum corresponding to the amount of any payment
made under (3)
So make changes to the following:
o Share Premium Account
Reduce SPA by amount stipulated
o Total capital + distributable reserves
Reduce by same amount stipulated
o Distributable profits
Add same amount stipulated
(‘Total shareholder funds’ sum is = (total capital and distributable reserves + distributable profits) –
DOESN’T take into account change to SPA)
S 654 CA 2006: any reserve arising from reduction of capital ≠ distributable unless ordered by SOS
Companies (Reduction of Share Capital) Order 2008: where a private co reduces its share cap supported by a solvency statement, the
reserve will be treated for the purposes of Part 23 CA as a realised profit (and therefore distributable): Art 3(2) RSC Order
o BUT note that this is subject to:
anything to the contrary in shareholder resolution relating to reduction; and/or
anything in the co’s articles (but if MA, then fine)
o So reducing from SPA = distributable profit
[Payment to shareholders of a cash dividend]
Make changes to the following:
Step 1
o Leave assets and liabilities alone – stays the same
o Remember that a reduction from SPA goes into distributable profits as part of 3(2) RSC
o So the only thing that gets changed atm is SPA is reduced by the amount, and at the bottom, increase distributable profits
but total shareholder funds stays the same
Step 2
o Assets
Minus by cash dividend amount
( Net assets correspondingly diminished by same amount)
Accounts for the dividend being paid in cash
o Distributable profits
Minus by cash dividend amount
( Total shareholder funds correspondingly diminished by same amount)
Accounts for company using its newly created distributable reserves to pay the dividend
Commenting on fin health of a co
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