HOTEL MANAGEMENT ACCOUNTING

AN INTRODUCTION TO THE FINANACIAL STATEMENT OF LIMITED LIABILITIES

COMPANY

• Limited liabilities companies, more commonly referred to as limited companies, comes

into existence originally because of the growth in the size of businesses, and the needs to
have a lot of people investing in a business who would not be able to take part in its
management.

Limited liability

• Capital of a limited company is divided into share.

• To become a member of a limited company or shareholder, a person must buy one or
more of the share.
• If shareholder who have paid in full for their share, their liability is limited to what they
have already paid for those shares.
• If company loses all its assets, all those shareholders can lose is their share.
• They cannot be forced to pay anything more in respect of the company’s losses.
• By addressing the need for investors to have limited risk of financial loss, the existence of
limited liability encourage individual to invest in these companies and make it possible to
have both a large number of owners and a large amount of capital invest in the company.

Public and private company

• Public company is defined as one which fulfill the following conditions:

1. Its memorandum (a document that’s describe the company) states hat it is a public
company, and that it has registered as such.
2. It has an authorized share capital of at least RM50, 000.
3. Minimum memberships are two. There is no maximum.
4. Its name must end with the word “public limited company” or the abbreviation
“PLC”.

• A private company is usually, a smaller business, and may be formed by one or more
persons.
• Private company can have an authorized capital of less than RM50, 000.
• Private company also cannot offer its shares for subscription o the public at large.

Directors of the company

• The day to day business of company is not carried out by the shareholder. The possession
of shares normally confers voting right on the holder, who is then able to attend general
meetings of the company.
• At one of these general meeting, normally the annual general meeting or AGM, the
shareholder vote for the director, these being the people who will be entrusted with the
running of the business.

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• At each of the AGM, the director report, on their ownership, and this report, is
accompanied by a set of financial statement for the year called annual report.

Shares capital

• Shareholders of a limited company obtain their reward in the form of a share of the profit,
known as a dividend.
• The directors consider the amount of profit and decided on the amount of the profit which
is place to reserves.
• Out of the profit remaining the directors then proposed the payment of a certain amount
of dividend.
• Shareholder cannot propose higher dividend for himself other then dividend already
proposed by the director.
• If the director proposed that no dividend to be paid for then the shareholder powerless to
alter the decision.
• The dividend usually expressed as a percentage. There are two main type of share;

1. Preference shares. Holder of these share get an agreed percentage rate of

dividend before the ordinary shareholders receive anything.
2. Ordinary shares. Holder of these share receive the remainder of the total profit
available for dividend. His is no upper limit to the amounts of dividend they can
receive.

• The two main types of preference share are:

1. Non – cumulative preference shares. These can received dividend up to an
agreed percentage each year. If the amount paid is less than the maximum agreed
amount, the shortfall is lost by the shareholder. The shortfall cannot be carried
forward and paid in the future year.
2. Cumulative preference share. These also have the maximum percentage
dividend. However, any shortfall of dividend paid in a year can be carried
forward. These arrears of preference dividends will have to be paid before the
ordinary shareholder receive anything.

• The term share capital can have any of the following meanings:

1. Authorized share capital: sometimes known as registered capital or nominal

capital. This is the total of the share capital which the company is allowed to issue
to shareholders.
2. Issued share capital: this is the total of the shares capital actually issued to
shareholders.
3. Called up capital: where only part of the amount payable on each issued share
has been asked for, the total amount asked for an all the issued shares is known as
the called up capital.
4. Uncalled capital: this is the total amount which is to be received in future
relating to issued share capital, but which has not yet been asked for.

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5. Calls in arrears: the total amount for which payment has been asked for but has
not yet been paid by shareholder.
6. Paid up capital: this is the total for the amount of share capital which has been
paid for by shareholder.

Debentures

• The term debenture is used when a limited company receives money on loan, and
certificates called debentures certificates are issued to the lender.
• Interest will be paid to the holder, the rate of interest being shown on the certificates.
They are often called as loan stock or loan capital.
• Debentures interests have to be paid whether profit re to be made or not.
• People lending money to companies in the form of debentures will be interested in how
safe their investment will be.

Trading and profit and lost account of companies

• The trading account of limited company is no different from that of a sole trader or a
partnership. However the different may be found in the profit and loss account.
• The two main expenses that would be found only on the company account are directors’
remuneration and debentures interest.

a. Directors’ remuneration.

• As director exist only in company this types of expenses is found only in

companies account.
• Directors are legally employees of the company, appointed by the shareholder.
Their remuneration is charge to the profit and loss account.

b. Debenture interest.

• The interest payable for the use of the money is an expense of the company,
and is payable whether profits are made or not.
• Debenture interest is charged as an expense in the profit and loss account.

The appropriation account

• Show how the net profit are to be appropriated, i.e. how the profit to be used.
• We may find any of the following in the appropriate account:

a. Credit side
i. Net profit for the year.
• This is the net profit brought down from the main profit and loss account.

ii. Balance brought forward from last year.

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• Profit that may not appropriated during a period and brought forward. (Often
called retained earnings).

b. Debit side
i. Transfer to reserves
• The director may decide that some of the profit should not be included in the
calculation of how much should be paid out of dividend.
• These profits are transferred to reserved account.

ii. Amount written off as a goodwill

• Goodwill that to be written off should be shown in the appropriation account
and not in the profit and loss account.

iii. Preliminary expenses

• When company is formed, there are many kind of expenses concerned with it
formation, include legal expenses.
• All these cannot be shown as an asset in the balance sheets and can be charged
to the appropriation account.

iv. Taxation payable on profit

• In the case of companies, the taxation levied upon them is called corporation tax.
Corporate tax is based on the company profit.
• Corporate tax is not an expense; it is an appropriation of profits.

v. Dividend.
• Out of the remainder of the profits, the directors proposed what dividends
should be paid to the shareholder.

vi. Balance carried forward to the next year.

• After the dividend has been proposed, there will probably be some profits
that have not been appropriated. These retained profits will be carried forward to
the following year.

The balance sheet

• Balance sheet need to be disclosed the necessary information.

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