Prepare limited-company financial statements
Present a company profit result, statement of changes in equity and statement of financial position using the stated capital structure.
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Where is interest on a company debenture normally recorded?
What you will learn
- Prepare a limited-company statement of profit or loss
- Reconcile equity movements in a statement of changes in equity
- Prepare a limited-company statement of financial position
Prepare performance and equity movements
The statement of profit or loss reports the company's period income and expenses. Interest on loan capital is an expense; dividends are distributions to shareholders, not business expenses.
A statement of changes in equity reconciles opening share capital and reserves to closing balances. Show new share issues, profit, transfers to reserves and dividends in the relevant columns. A transfer between reserves changes their composition, not total equity.
Present the position at the reporting date
The statement of financial position includes issued share capital, general reserve and retained earnings as equity; assets and liabilities are classified by their nature and due date. Loan capital appears as a liability.
Use the exact opening balances and movements supplied. Check total assets equal total liabilities plus equity after all adjustments.
Pause and explain
Opening retained earnings are $9,000, profit is $4,500, dividends are $1,200 and $800 is transferred to general reserve. Find closing retained earnings.
Worked example
Opening ordinary share capital is $50,000, general reserve $4,000 and retained earnings $10,000. During the year the company issues shares $10,000, earns profit $8,000, transfers $2,000 to general reserve and pays dividends $3,000. Find closing balances and total equity.
Show the worked solution
- Closing share capital = 50,000 + 10,000 = $60,000.
- Closing general reserve = 4,000 + 2,000 = $6,000; retained earnings = 10,000 + 8,000 − 2,000 − 3,000 = $13,000.
- Closing total equity = 60,000 + 6,000 + 13,000 = $79,000; the reserve transfer does not change total equity.
Answer Closing share capital $60,000; general reserve $6,000; retained earnings $13,000; total equity $79,000.
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Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A company has opening share capital $70,000, reserves $12,000 and retained earnings $18,000. It issues shares $8,000, earns profit $10,000, transfers $3,000 to reserve and pays dividends $2,500. Find each closing equity component and total equity.
Give me a hint
Post each movement to the correct component; check that the internal transfer cancels in total equity.
Compare my reasoning
- Share capital = 70,000 + 8,000 = $78,000.
- Reserves = 12,000 + 3,000 = $15,000; retained earnings = 18,000 + 10,000 − 3,000 − 2,500 = $22,500.
- Total equity = 78,000 + 15,000 + 22,500 = $115,500.
Closing share capital $78,000; reserves $15,000; retained earnings $22,500; total equity $115,500.
Look for these in your work
- Share issue posted
- Reserve transfer balanced
- Total equity correct
A company earns profit $16,000, pays debenture interest $1,400 and declares dividends $3,000. Explain which amount is an expense and which is an equity distribution.
Give me a hint
Identify whether the payment is the cost of borrowing or a return to owners.
Compare my reasoning
- Debenture interest $1,400 is a finance expense in profit or loss.
- Dividends $3,000 are distributions to shareholders, not operating expenses.
- Profit is determined after the interest expense; dividends then reduce retained earnings/equity.
Debenture interest is the $1,400 finance expense; dividends are a $3,000 distribution that reduces retained earnings, not profit as an expense.
Look for these in your work
- Interest classified
- Dividend classified
- Statement effect distinguished
A company reports current assets $34,000, non-current assets $91,000, current liabilities $22,000, debentures due in five years $40,000 and share capital and reserves $63,000. Check whether the statement of financial position balances.
Give me a hint
Compare total assets with total liabilities plus equity, using the due date to classify the debenture.
Compare my reasoning
- Total assets = 34,000 + 91,000 = $125,000.
- Total liabilities = 22,000 + 40,000 = $62,000; liabilities plus equity = 62,000 + 63,000 = $125,000.
- The statement balances. The five-year debenture is a non-current liability.
Assets $125,000 equal liabilities $62,000 plus equity $63,000. The debenture is non-current because it is due in five years.
Look for these in your work
- Assets total correct
- Claims total correct
- Balance and classification correct
Common mistakes
- Charging dividends as an operating expense
- Counting a reserve transfer as new total equity
- Including loan capital in shareholders' equity
- Failing to reconcile the opening and closing balances
What can you explain now?
Does a transfer from retained earnings to general reserve increase total equity?
Compare with the explanation
No; it changes the composition only
A reserve transfer moves an amount within equity rather than adding new resources.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
What does a statement of changes in equity explain that closing equity alone does not?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.