Adv Acc Company Accounts

MEMORANDUM OF ASSOCIATION:
Memorandum of association is the basic document of a joint stock company. It is known
as the Charter of the Company. It defines the limits outside which the company can not
go. Its main purpose is to enable shareholders, creditors and all those who deal with the
company to know what the permitted range of enterprise is.

Clauses of Memorandum:
 Name clause
It states name of the company. Company can use any name but it should not be
similar to name of any other company. It should also not include words like king,
queen, government, UNO etc. Company name must end with the word “Limited”.
In case of private limited companies, the words “(Private) Limited should be used
at the end”.
 Situation clause
It states the exact address and name of the city where company is located.
 Object clause
It defines the sphere of the company’s activities. It includes a series of objectives
for which the company is started.
 Liability clause
This clause of memorandum declares that liability of the members of the company
is limited to the extent of the value of shares purchased by them.
 Capital clause
It defines the values of “Authorized Capital or Registered Capital”. The capital is
divided into shares of a certain value which is specified in the capital clause.
 Association and subscription clause
This clause contains a declaration by the subscribers (7 persons in public
company and 2 in a private Ltd. company) that they are desirous of forming a
company and agree to have number of shares written against their respective
names.

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Adv Acc Company Accounts

ARTICLES OF ASSOCIATION:
It is a legal document which is second in importance to Memorandum of Association.
The Articles of Association are the regulations or by laws which govern the internal
organization and conduct of a company. In other words, it is concerned with the
procedural matters in the routine conduct of company affairs.
Remember!

 Being subordinate to Memorandum of Association, Articles of Association can

not go beyond the limits defined by it.
 The articles of association describe the powers of directors, other officers and of
shareholders etc.

Contents of Articles:
1) Amount of share capital issued, transmission of shares
2) Rights of shareholders
3) Rules for issuance of shares and debentures
4) Procedures as well as regulations for making calls on shares
5) Manner to transfer shares
6) Rules for appointment of directors & managing directors, agents, secretaries and
treasures
7) Number, qualifications, remunerations, powers and liabilities of directors
8) Declaration of dividends
9) Convening and conduct of meetings with reference to notice, quorum, poll, proxy,
resolutions etc
10) Rules regarding forfeitures and surrender of shares
11) Matters relating to account and audit
12) Rules for winding up of the company

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Adv Acc Company Accounts

PROSPECTUS:
After receipt of “Certificate of Incorporation”, from the registrar of companies, the
promoters of a public company invite the public and financial institutions to subscribe to
the capital of the company. This notice, advertisement or other documents inviting offers
for subscription to the share capital of the company is called Prospectus. Only public
companies can issue a prospectus.
Following are the purposes for issuing prospectus;

 To bring into notice of the public that a new company has been formed.
 To convince those who have saving to invest about genuineness of the company
and its future prospects.
 To keep an authenticated record of the conditions on which the capital has been
raised.
 To secure that directors of the company accept responsibility for the statements in
prospectus.

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Adv Acc Company Accounts

FINANCIAL STATEMENTS OF JOINT STOCK COMPANIES

All types of businesses have to prepare their financial statements at the end of the
financial year because it is the requirement of companies law and IAS 1.
Followings are the financial statements;
 Statement of comprehensive income
 Statement of financial position
 Statement of cash flow
 Statement of changes in equity
All these things you have already studied in IAF but not in detail. Now we are going to
study, first two statements in detail.
Grasp the following terms and these will help you not only in understanding the topic but
also in practical life.
 Dividend
 Cash dividend
 Stock dividend
 Interim dividend
 Proposed dividend
 Fund/ Reserve/ Provision
 Deferred Cost:

An advance payment which has been paid for goods and services which are to be
supplied latter or where benefit is to be received later. e.g.,
1) Preliminary expenses
2) Discount allowed on issue of shares

Debentures – The term debenture is used when a limited company receives money on
(long term)loan, and certificates called debenture certificates are issued to the lender.
Interest will be paid to the holder, the rate of interest being shown on the certificate.
Debenture interest have to paid whether profits are made or not they are therefore

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Adv Acc Company Accounts

different from shares where dividends depends on profits being made. A debenture may
redeemable (repayable at or by a particular date) or irredeemable ( normally repayable
only when the company is officially terminated by its going into liquidation.

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Adv Acc Company Accounts

Question – 1:
The following is the trial balance of the Oman Cement Company for the year ending 31
December 2007.

Stock 50,000
Premises 144,000
Plant and Machinery 171,000
Debtors 39,000
Purchases 90,000
Cash at bank 30,000
Cash in hand 800
Custom duty 5,000
150,00
Paid up Capital 0
200,00
6% Debentures 0
Retained profit of 2006 17,500
240,00
Sales 0
Bad debts provision 1,200
Directors fee 4,000
Repair and renewal 2,400
Salaries 46,000
Insurance 4,100
Bad debts 1,000
Preliminary expenses 4,000
Interim dividend 9,000
Furniture & Fixture 30,000
General Reserve 10,000
Share Premium 9,500
Creditors 18,100
Bills payable 10,000
Investment 26,000
656,30
656,300 0

The following additional information is also provided:

1) Create a reserve for bad debts @5% on debtors.

2) Provide depreciation on Plant and machinery at 10% and furniture at 5%

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Adv Acc Company Accounts

3) Directors recommended following in annual general meeting, which is;

a. Proposed final dividend of 10%.
4) Closing stock as on 31 December 2007 is valued at 74,000
5) Market value of the investment on 31 December 2007 on MSM was RO. 19,000.

Required: Prepare Statement of comprehensive income and Statement of financial

position
.

Question – 2:
Al Omania Company SAOG presents the following data for the year ending 31
December 2006.

Sales 75,000
Salaries 6,250
General expenses 1,875
Creditors 4,375
Opening stock 8,125
Purchases 41,250
Share capital 50,000
General Reserve 12,500
Retained profit 3,125
Bank loan @ 6% 25,000
Share premium 2,500
Sundry Assets 7,500
Patent 11,250
Cash 1,875
Land & Building 38,750
Plant & Machinery 42,500
Preliminary expenses 1,875
Director's fee 375
Auditor's fee 250
Wages 7,500
Manufacturing
expenses 2,500
Advertising 625
172,50
172,500 0

The following adjustments are given:

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Adv Acc Company Accounts

 Directors recommended a dividend of 10%.

 Depreciation should be provided at the following rates
o Land and building 5%
o Plant and machinery 10%
 General expenses include prepaid insurance of RO. 40
 The closing stock on 31 December 2006 was RO. 6750.
 The company has an authorised capital of RO. 200,000

Required: Prepare Statement of comprehensive income and Statement of financial

position.

Question – 3:
Following is the trial balance of Beeta company for the year ending 31 December 2007.

Dr Cr
Cash at bank 6,510
Preliminary expenses 18,667
Audit fee 10,000
Carriage 3,333
Plant and Machinery 49,467
Sales 386,967
Creditors 20,530
Profit & Loss of last
year 10,000
Office salaries 23,000
Director's Remuneration 8,820
Premises 65,333
Furniture 11,667
Stock 62,140
Returns 4,227 3,283
Manufacturing expenses 13,080
9% Bank Loan 16,000
Cash in hand 3,333
Investments 16,000
Share Capital 133,333
Debtors 35,133
Purchases 239,403

570,113 570,113

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Adv Acc Company Accounts

The following additional information is given:

 Provide a final dividend of 5%
 Interest on bank loan is not paid.
 Provision for bad debts is for RO. 3,000
 Charge depreciation on plant and machinery 10% & furniture by 5%
 Closing stock is valued at RO. 50,000
 Office salaries unpaid are RO. 4,000

Required: Prepare Statement of comprehensive income and Statement of financial

position

Question – 4:
Following is the trial balance of Sohar furniture company SAOG for the year ending 31
December 2007.

Dr Cr
Sales 400,000
Carriage 11,500
Purchases 260,000
Insurance 3,000
Rent 5,000
Issued and paid up
capital 250,000
General Expenses 6,900
Debtors 40,000
Advertisement 500
Salaries 25,000
Bad debts 1,600
Plant and Machinery 90,500
Equipment 100,000
Furniture 60,000
Profit and loss account of last year 8,000
General Reserve 12,400
Stock 45,000
Cash at bank 21,400
670,400 670,400

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Adv Acc Company Accounts

Further adjustments are:

1) Closing stock is RO. 105,000
2) Insurance of RO. 300 is paid in advance
3) Depreciation is to be charged @ 10% on plant and equipment and 5% on furniture.
4) Rent of RO. 600 is outstanding
5) Debtors worth 400 are bad and create a provision of 5% on remaining.
6) Directors proposed a dividend of 5%
7) Make a provision of 2,500 for income tax.

Required: Prepare Statement of comprehensive income and Statement of financial

position
.

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