Non-Current Assets · Current Assets · Equity · Reserves · Current & Non-Current Liabilities · Full Proforma | Cambridge A Level Accounting 9706
The overall structure — Assets = Equity + Liabilities — is the same for all businesses. However, a company SFP has several sections that do not exist in a sole trader's accounts.
| Section | Sole Trader SFP | Company SFP |
|---|---|---|
| Non-Current Assets | Single column showing NBV | Schedule showing Cost, Accumulated Depreciation and NBV — often as a note |
| Equity / Capital | Single capital account — Opening Capital + Profit − Drawings | Multiple components — Ordinary Shares, Preference Shares, Share Premium, Reserves, Retained Earnings |
| Reserves | None — sole trader has no reserves | Share Premium, General Reserve, Revaluation Reserve, Retained Earnings |
| Current Liabilities | Trade Payables, Accruals, Overdraft | Same plus: Corporation Tax Payable, Proposed Final Dividend Payable |
| Non-Current Liabilities | Long-term loan (simple) | Debentures (with interest rate and redemption date stated) |
Learn this proforma precisely. Every element has a fixed position. Cambridge mark schemes follow this exact structure.
In a company SFP, non-current assets are normally presented with three columns — Cost, Accumulated Depreciation and Net Book Value. When there are multiple asset categories, a Non-Current Assets Schedule (or note) is prepared.
Prepare the Non-Current Assets section for Punjab Mills Plc from the following information at 31 December 2026:
| Asset | Cost ($) | Acc. Dep b/f ($) | Dep. for year ($) |
|---|---|---|---|
| Land and Buildings | 400,000 | 60,000 | 8,000 |
| Plant and Machinery | 180,000 | 72,000 | 18,000 |
| Vehicles | 90,000 | 45,000 | 15,000 |
| Asset | Cost ($) | Acc. Dep ($) | NBV ($) |
|---|---|---|---|
| Land and Buildings | 400,000 | (68,000) | 332,000 |
| Plant and Machinery | 180,000 | (90,000) | 90,000 |
| Vehicles | 90,000 | (60,000) | 30,000 |
| Total Non-Current Assets | 670,000 | (218,000) | 452,000 |
Two current liabilities appear in a company SFP that never appear in a sole trader's accounts:
The corporation tax charged in the Income Statement creates a liability until it is paid to the tax authority. Shown as a current liability because it is normally due within one year.
DR Corporation Tax (I/S expense)
CR Corporation Tax Payable (CL)
The final dividend proposed at year end but not yet paid. Creates a liability — Dividends Payable — in current liabilities. Once paid: DR Dividends Payable | CR Bank.
DR Retained Earnings
CR Dividends Payable (CL)
Debentures are shown as a non-current liability with the interest rate and redemption date clearly stated. Debenture interest accrued but not yet paid at year end appears separately as a current liability (accrual).
Using the results from Lesson 4 Example 1 plus the following additional information at 31 December 2026:
| Item | $ |
|---|---|
| Land and Buildings — cost | 600,000 |
| Land and Buildings — accumulated depreciation | 120,000 |
| Equipment — cost | 250,000 |
| Equipment — accumulated depreciation | 95,000 |
| Inventories | 68,000 |
| Trade Receivables | 84,000 |
| Prepayments | 6,000 |
| Bank | 42,000 |
| Trade Payables | 57,000 |
| Accruals | 12,000 |
| Corporation Tax Payable | 52,000 |
| Final Dividend Payable (proposed) | 35,000 |
| 10% Debentures (repayable 2032) | 200,000 |
| Ordinary Share Capital (1,000,000 × $1) | 1,000,000 |
| 8% Preference Share Capital (500,000 × $1) | 500,000 |
| Share Premium | 150,000 |
| General Reserve (after transfer of $20,000) | 120,000 |
| Retained Earnings (from Lesson 4 Appropriation) | 86,000 |
Working Capital = Current Assets − Current Liabilities
In a company SFP, two additional current liabilities (corporation tax payable and final dividend payable) reduce the working capital figure compared to a sole trader. This is important when interpreting a company's liquidity position.
Top half (Assets − Liabilities = Net Assets):
Non-Current Assets → Current Assets → Current Liabilities →
Net Current Assets → Non-Current Liabilities → Net Assets
Bottom half (Equity = Net Assets):
Share Capital → Reserves → Total Equity
Always: Net Assets (top) = Total Equity (bottom) ✓
Standard items: Trade Payables · Accruals · Bank Overdraft
Company-specific: Corporation Tax Payable ·
Final Dividend Payable (proposed, not yet paid)
NOT in current liabilities: Interim dividend (already paid) ·
Debentures (non-current) · Share capital (equity)
Question 1 Knowledge — 2 marks Paper 1
State two current liabilities that appear in a company's SFP but would not appear in a sole trader's SFP, and explain why each arises.
Corporation Tax Payable — companies pay corporation tax on their profits. This is charged in the Income Statement and creates a current liability until paid to the tax authorities. Sole traders pay income tax personally — it does not appear in business accounts. (1 mark)
Proposed Final Dividend Payable — when directors propose a final dividend at year end that has not yet been paid, it creates a current liability (Dividends Payable). Sole traders take drawings — there are no dividends and therefore no dividend liability. (1 mark)
Question 2 Application — 10 marks Paper 3
Prepare the Statement of Financial Position for Sindh Chemical Plc from the following information at 30 June 2026:
| Item | $ |
|---|---|
| Land and Buildings — cost | 500,000 |
| Land and Buildings — accumulated depreciation | 80,000 |
| Machinery — cost | 200,000 |
| Machinery — accumulated depreciation | 75,000 |
| Inventories | 52,000 |
| Trade Receivables | 48,000 |
| Bank | 28,000 |
| Trade Payables | 36,000 |
| Accruals | 8,000 |
| Corporation Tax Payable | 45,000 |
| Final Dividend Payable | 20,000 |
| 8% Debentures (repayable 2030) | 150,000 |
| Ordinary share capital (600,000 × $0.50) | 300,000 |
| Share premium | 80,000 |
| General reserve | 60,000 |
| Retained earnings | 74,000 |
Question 3 Analysis — 3 marks Paper 1
A company has total equity of $800,000 and 8% Debentures of $600,000. Calculate the gearing ratio and comment on whether the company is highly geared.
Gearing ratio:
= Non-Current Liabilities ÷ (Equity + Non-Current Liabilities) × 100
= 600,000 ÷ (800,000 + 600,000) × 100
= 600,000 ÷ 1,400,000 × 100
= 42.9% (1 mark)
A gearing ratio of 42.9% is approaching but below 50%, which is generally considered the threshold for high gearing. The company is moderately geared. (1 mark)
This means the company must pay 8% interest on $600,000 = $48,000 per year regardless of profit levels. If profits fall, this fixed commitment could create financial pressure. Lenders may be cautious about advancing further credit at this level of gearing. (1 mark)
Question 4 Knowledge — 2 marks Paper 1
Explain why debenture interest accrued but unpaid at the year end appears in two different places in the financial statements.
Accrued debenture interest appears in the Income Statement as a finance cost (expense), reducing profit before tax. This is because the interest has been incurred during the year even though it has not been paid — the accruals concept requires it to be recognised in the period it relates to. (1 mark)
It also appears in the Statement of Financial Position as a current liability (Accrued Debenture Interest) — because the company owes this amount to debenture holders but has not yet paid it. The double entry is: DR Debenture Interest (I/S expense) | CR Accrued Interest (current liability). (1 mark)
Question 5 Analysis — 3 marks Paper 3
A company's current ratio has fallen from 2.1:1 to 1.3:1 between 2025 and 2026. Suggest three possible reasons for this deterioration, using your knowledge of what appears in current assets and current liabilities of a company SFP.
Any three of the following (1 mark each):