Mada za sehemu hiiPrepare and maintain accounting recordsMada 2
- Prepare and maintain accounting records and financial statements relating to dissolution and amalgamation of partnerships (accounts and statements before and after dissolution and amalgamation)
- Prepare and maintain accounting records and financial statements relating to limited companies (ledger accounts for issue of shares, statements of profit/loss and other comprehensive income, financial position, cash flows and changes in equity excluding debentures, forfeiture and reissue of shares and redemption of preference shares)
Company Accounting Records and Financial Statements
A company is a business organisation formed by law with a separate legal identity from its owners. Unlike sole proprietorships, a company can raise capital by issuing shares to the public. This study note explains how to record the issue of shares in ledger accounts and how to prepare the main financial statements of a company.
Equity Shares (Ordinary Shares)
Equity shares represent ownership in a company. They give shareholders:
- Voting rights in company decisions
- Right to receive dividends (when declared)
- Claim on assets upon winding up
Equity share capital cannot be redeemed during the company's lifetime.
Preference Shares
Preference shareholders receive:
- Fixed dividend (paid before equity shareholders)
- Priority in repayment of capital upon winding up
- No voting rights (usually)
Types include cumulative, non-cumulative, redeemable, and irredeemable preference shares.
Shares can be issued at:
- Par (Face Value): Issue price equals nominal value
- Premium: Issue price above nominal value (the excess is share premium)
- Discount: Issue price below nominal value (subject to court approval)
Example: Shares Issued at Par (Full Payment at Application)
BINAMU Plc issued 1,000,000 shares at TZS 1,000 each (at par), fully paid on application.
| Journal Entries | ||
|---|---|---|
| Bank A/c | Dr. TZS 1,000,000,000 | |
| To Equity Share Capital A/c | 1,000,000,000 | |
| (Application money received) |
Ledger Accounts:
| Dr. | Bank Account | Cr. |
|---|---|---|
| 15 Jan 2024 - Equity Share Capital | 1,000,000,000 | 31 Dec 2024 - Balance c/d |
| 1 Jan 2025 - Balance b/d | 1,000,000,000 |
| Dr. | Equity Share Capital Account | Cr. |
|---|---|---|
| 31 Dec 2024 - Balance c/d | 1,000,000,000 | 15 Jan 2024 - Bank |
| 1 Jan 2025 - Balance b/d |
Example: Shares Issued at Par (Payment by Instalments)
BINAMU Plc issued 1,000,000 shares at TZS 1,000 each, payable:
- TZS 500 on application (15 Jan 2024)
- TZS 300 on allotment (15 Feb 2024)
- TZS 200 on first call (15 Mar 2024)
Journal Entries:
| 1. Application money received | ||
|---|---|---|
| Bank A/c | Dr. 500,000,000 | |
| To Application A/c | 500,000,000 |
| 2. Allotment of shares | ||
|---|---|---|
| Application A/c | Dr. 500,000,000 | |
| To Equity Share Capital A/c | 500,000,000 |
| 3. Allotment money received | ||
|---|---|---|
| Bank A/c | Dr. 300,000,000 | |
| To Allotment A/c | 300,000,000 |
| 4. Allotment transferred to capital | ||
|---|---|---|
| Allotment A/c | Dr. 300,000,000 | |
| To Equity Share Capital A/c | 300,000,000 |
| 5. First call money received | ||
|---|---|---|
| Bank A/c | Dr. 200,000,000 | |
| To First Call A/c | 200,000,000 |
| 6. First call transferred to capital | ||
|---|---|---|
| First Call A/c | Dr. 200,000,000 | |
| To Equity Share Capital A/c | 200,000,000 |
Example: Shares Issued at Premium
BINAMU Plc issued 1,000,000 shares at TZS 1,100 per share (TZS 1,000 par + TZS 100 premium). Payment: TZS 500 application, TZS 400 allotment (including premium), TZS 200 first call.
Key Journal Entries for Premium:
| When premium is recognised at allotment: | ||
|---|---|---|
| Allotment A/c | Dr. 100,000,000 | |
| To Share Premium A/c | 100,000,000 |
Share Premium Account:
| Dr. | Share Premium Account | Cr. |
|---|---|---|
| 31 Dec 2024 - Balance c/d | 100,000,000 | 15 Feb 2024 - Allotment |
| 1 Jan 2025 - Balance b/d |
A company must prepare four main financial statements:
- Statement of Profit or Loss and Other Comprehensive Income
- Statement of Financial Position (Balance Sheet)
- Statement of Changes in Equity
- Statement of Cash Flows
4.1 Income Statement (Statement of Profit or Loss)
Shows revenue, expenses, and net profit for a period.
Format:
| MBL Company Ltd. | ||
|---|---|---|
| Income Statement for year ended 31 Dec 2023 | ||
| TZS | TZS | |
| Sales | 585,000,000 | |
| Less: Cost of Goods Sold | ||
| Opening inventory | 20,000,000 | |
| Add: Purchases | 200,000,000 | |
| Goods available | 220,000,000 | |
| Less: Closing inventory | 33,000,000 | (187,000,000) |
| Gross Profit | 398,000,000 | |
| Less: Operating Expenses | ||
| Depreciation | 62,500,000 | |
| Repairs | 22,000,000 | |
| Wages and salaries | 121,000,000 | |
| Other expenses | 103,150,000 | (313,650,000) |
| Profit Before Tax | 84,350,000 | |
| Income Tax | (22,400,000) | |
| Profit After Tax | 61,950,000 | |
| Less: Dividends | (30,000,000) | |
| Retained Profit | 31,950,000 |
4.2 Statement of Financial Position
Shows assets, liabilities, and equity at a specific date.
Format:
| MBL Company Ltd. | |||
|---|---|---|---|
| Statement of Financial Position as at 31 Dec 2023 | |||
| TZS | TZS | TZS | |
| Non-Current Assets | |||
| Freehold property | 165,000,000 | ||
| Motor lorries (cost) | 360,000,000 | ||
| Less: Accumulated depreciation | (172,500,000) | 187,500,000 | 352,500,000 |
| Current Assets | |||
| Bank and cash | 20,000,000 | ||
| Closing inventory | 33,000,000 | ||
| Prepayments | 4,000,000 | 57,000,000 | |
| Total Assets | 409,500,000 | ||
| Equity and Liabilities | |||
| Equity | |||
| Equity share capital | 100,000,000 | ||
| Preference share capital | 100,000,000 | ||
| General reserve | 2,000,000 | ||
| Retained earnings (70M + 31.95M) | 101,950,000 | 303,950,000 | |
| Non-Current Liabilities | |||
| 10% Debentures | 50,000,000 | 50,000,000 | |
| Current Liabilities | |||
| Unpaid claims | 150,000 | ||
| Unpaid interest | 5,000,000 | ||
| Proposed dividends | 20,000,000 | ||
| Tax payable | 8,000,000 | 33,150,000 | |
| Total Equity and Liabilities | 409,500,000 |
4.3 Statement of Changes in Equity
Shows changes in share capital, reserves, and retained earnings during a period.
Format:
| Mjerumani Limited | ||||
|---|---|---|---|---|
| Statement of Changes in Equity for year ended 31 Mar 2024 | ||||
| Ordinary Share Capital TZS | General Reserve TZS | Retained Earnings TZS | Total TZS | |
| Balance 1 Apr 2023 | 600,000 | 62,000 | 55,000 | 717,000 |
| Profit for the year | 70,000 | 70,000 | ||
| Dividend paid | (32,000) | (32,000) | ||
| Transfer to general reserve | 12,000 | (12,000) | ||
| Balance 31 Mar 2024 | 600,000 | 74,000 | 81,000 | 755,000 |
4.4 Statement of Cash Flows
Shows cash receipts and payments classified by activity: operating, investing, and financing.
Methods:
- Direct Method: Shows major cash receipts and payments
- Indirect Method: Starts with net profit and adjusts for non-cash items and working capital changes
Using Indirect Method (Five Steps):
- Start with profit before tax
- Add back non-cash expenses (depreciation)
- Adjust for changes in current assets and liabilities
- Account for investing activities (purchase/sale of long-term assets)
- Account for financing activities (share issues, loans, dividends)
Example: Bembo Co. Ltd. (2023)
| Cash Flow from Operating Activities | TZS '000 | TZS '000 |
|---|---|---|
| Net profit | 82,000 | |
| Add: Decrease in debtors | 6,000 | |
| Add: Increase in creditors | 7,500 | |
| Add: Depreciation | 10,000 | |
| 23,500 | ||
| Less: Increase in stock | (15,000) | 8,500 |
| Cash generated from operations | 90,500 | |
| Less: Tax paid | (19,500) | |
| Net Cash from Operating Activities | 71,000 | |
| Cash Flow from Investing Activities | ||
| Purchase of fixed assets | (15,000) | |
| Net Cash from Investing Activities | (15,000) | |
| Cash Flow from Financing Activities | ||
| Issue of shares | 1,000 | |
| Redemption of debentures | (20,000) | |
| Dividend paid | (35,000) | |
| Net Cash from Financing Activities | (54,000) | |
| Net Increase in Cash | 2,000 | |
| Add: Opening cash balance | 15,000 | |
| Closing Cash Balance | 17,000 |
- Share premium must be maintained separately from share capital
- Dividends are appropriations of profit, not expenses
- Financial statements must be prepared annually
- Current assets/liabilities are those expected within one year
- Non-current assets are long-term (land, buildings, equipment)
- Cash flows are classified into operating, investing, and financing activities
In Tanzania, when a company like MADINA Bottlers Plc or TANESCO issues shares to raise capital for expansion, accountants must record every payment (application, allotment, calls) in the proper ledger accounts. The financial statements produced help shareholders and investors decide whether to buy or sell shares on the Dar es Salaam Stock Exchange (DSE), enabling companies to attract funding for growth and development projects across Tanzania.
Swali
According to the Companies Act 2002 and the textbook, which of the following is NOT a component of the financial statements of a company?
Ingia ili kuwasilisha jibu lako na lihesabiwe katika umahiri wako.
Ingia ili kufanya mazoeziMwalimu
Umekwama? Niulize chochote kuhusu mada hii.
Ingia ili kumuuliza Mwalimu wa AI wa Sonza kuhusu swali hili.
Ingia ili kuulizaMajadiliano
Hakuna maswali bado