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Financial Statements of Joint Stock Company

Components of a limited company appropriation account


For a limited company the appropriation account is constructed differently
and may include the following entries.
Corporation tax
Corporation tax is a tax on business profits and is accounted for first in the
appropriation account.
Interim dividends
Interim dividends are dividends that are paid part-way through a
companys financial year before final profits are calculated.
Proposed dividends
Dividends paid by the company at the end of the financial year, after profits
have been calculated, are called proposed dividends.
Reserves
Limited companies will often retain some profit in the company rather than
distribute it all to shareholders; retained profits are called reserves.
Various reserves accounts may be set up for different purposes. For example,
some reserves may be put on one side to pay for the replacement of a
capital asset, such as a machine, at a later date.
Retained profit
Any profit left over after transfers to reserves is also retained for future use,
and is called retained profit.
Here is an example of an appropriation account for a limited company.
Net profit before tax
10,140
Less corporation tax
3,500
Profit for year after tax
6,640
Less interim dividend paid 450
Final dividends proposed
Preference shares
450
Ordinary shares
4,000 4,900
1,740
Less transfer to general reserve
1,500
Retained profit for year
240
Add balance of retained profits B/F
0
Balance of retained profits C/F
240

Q1 .Moon and Star Limited is a company with an authorized capital of RO 500000


divided into 5000 equity shares of RO 100 each on 31.12.2003 of which 2500 shares
were fully called up. The following are the balances extracted from the ledger as on
31.12.2003.
Debit
Opening stock
Purchases
Wages
Discount allowed
Insurance (up to
31.3.2004)
Salaries
Rent
General Expenses
Printing
Advertisement
Bonus
Debtors
Plant
Furniture
Bank
Bad Debts
Call-in-arrears

RO
50000
200000
70000
4200
6720
18500
6000
8950
2400
3800
10500
38700
180500
17100
34700
3200
5000

Credit
Sales
Discount received
Profit and Loss A/c
Creditors
Reserves
Loan from managing
director
Share capital

RO
325000
3150
6220
35200
25000
15700
250000

660270
660270
You are required to prepare Profit and Loss Account for the year ended 31.12.2003
and a balance sheet as on that date. The following further information is given:
(a) Closing stock was valued at RO 191500
(b) Depreciation on plant at 15% and on furniture at 10% should be provided
(c) A tax provision of RO 8000 is considered necessary
(d) The directors declared an interim dividend on 15.8.2003 for 6 months ending
30 June 2003 @6%