A comprehensive document containing all of the relevant information pertaining to the weekly SBS on Demand videos, weekly seminar questions, weekly seminars, weekly lectures, exam insight and further reading.
Net Assets (Assets – Liabilities) = Capital
Or:
Assets = Capital + Liabilities
Capital (Equity) represents the amounts that owners would receive once all assets were sold
and all liabilities were settled at their SFP amounts (Equity = Net Assets).
Business Organisations
Types of Organisations:
• Sole Traders.
• Partnerships.
• Clubs and Societies.
• Charities.
• Limited Companies (Ltd).
• Public Limited Companies (Plc).
Statement of Financial Position (SFP)
Assets:
• Fixed (Non-Current) Assets.
• Current Assets.
Liabilities:
• Long-Term (Non-Current Liabilities).
• Current Liabilities.
Capital (Equity):
• Capital/ Share Capital.
• Profit/ Retained Earnings.
Capital (Sole Traders and Partnerships)
Capital:
,Capital
+ Capital Introduced.
+ Profit For the Year.
- Drawings.
Equity (Limited Companies)
Equity:
Ordinary Share Capital.
Share Premium.
Retained Earnings.
General Reserve. – Like a savings pot where some funds can be transferred from retained
earnings to be set aside for investment in the future/ in some way for contingency.
Revaluation Reserve- Assets have increased in value and a business decides o revalue the
asset – e.g., revaluing a building that has increased in value- the increase can then be added
into the books of account added onto the asset and the revaluation reserve (Books must
balance).
Capital Redemption Reserve- A reserve set up where a company buys back its own shares.
Limitations of SFP
• Historic Costs vs. Current Value.
• A Snapshot at one point in time.
• Doesn’t reflect all assets and liabilities and current market value of the entity.
o E.g., Human Capital, Goodwill, etc.
Limited Companies
Characteristics:
• Legal requirements for content and format in accordance with Companies Act 2006
and IAS1.
• Separate Legal Entity.
• Perpetual existence.
o Owners can come and go/ change and the company will continue.
• Limited Liability.
o Owners of the company are not liable for any debts of the company.
o Limited to you as a shareholder to the amount you have invested into the
company.
• Shared Ownership and Profits.
o Two or more owners.
o Different size stakes in the company.
o All owners are entitled to a share in the profits as a result of their invest.
• Voting Rights.
o Equity shareholders usually have voting rights. One vote attached to each
vote owned (usually).
• Ownership and Management are Separated.
o Owners are not necessarily the management.
, o Owners don’t necessarily have the right to have any say in the company
unless they have a large stake in the company.
o Not all management are owners in the company (hold shares of that
company).
• Annual Accounts.
o Prepared yearly.
o Rigid Structure and Preparation.
• Independent Auditors.
o Acting on behalf of the shareholders to make sure owners are given a true
and fair impression of the company.
Private vs. Public Limited Companies
• Private Companies (Ltd):
o Can’t sell shares to the General Public.
o Usually Few Shareholders.
▪ Can only be sold privately.
▪ Various Website where you can find investors in this way.
• Public Companies (Plc):
o Can issue shares to General Public.
o Can be Traded on Stock Exchange.
▪ Vulnerable to a hostile takeover.
o Can have Many Shareholders.
o More Onerous Rules and Regulations.
o Public Accountability.
Financing
• Sole Traders and Partnerships:
o Capital Introduced (Sole Traders and Partnerships).
• All Businesses:
o Bank Finance (Overdrafts and Loans),
• Limited Companies:
o Debenture (Loans/ Bonds).
▪ A type of loan but the loan is divided up into smaller units.
▪ E.g., A. bit like Getting a loan of £1,000 from 100 investors of £10
each.
▪ These units can also be traded on the stock exchange like shares.
o Ordinary Share Capital.
▪ Selling shares.
o Preference Share Capital.
Share Capital
• Issued by all Limited Companies.
• Permanent Source of Finance.
o Never have to pay back the money invested into the company through sales
of shares.
o Never obliged to buy back shares.
o Redeemable Preference Shares.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller georgedady. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £7.49. You're not tied to anything after your purchase.
