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    • Profile photo of John Moffat says

      I am not sure what you are wanting! 23 words about what?

      The retained earnings increase each year because of the profits that have not been paid out as dividends.

      So the increase in the retained earnings will be the profit for the year less whatever dividend has been paid.

      • Profile photo of Rustam says

        So any decreases in profit lead to decreases in REtained earnings and vice versa, right?
        E.g 1)depreciation policy changed from 10 % to 20 %.
        What’s the effect? Retained earning should decrease ain’t it?
        And 2) do losses in inventory have any effect on sales? Because I have read that ” no ” and didn’t understand why:) thank you.

      • Profile photo of John Moffat says

        Any profit increases retained earnings!
        But if we reduce the profit then we reduce the retained earnings.

        Why should losing inventory affect how much you sell? What you sell depends on what people want to buy!

  1. Profile photo of Kayman says

    I have a few questions:

    1) What if there is a decrease in share capital & share premium? How do you treat this?
    2) Say Yr1 there was no Loan but Yr2 there is loan of say 100,000. If you calculate loan repaid then its will be (0-100 = -100) Is this shown as a cash inflow or simply its left out?

    Thanks in advance looking forward for a response as soon as possible.
    Video helps a lot *thumps up*

    • Profile photo of John Moffat says

      In future, please ask this sort of question in the Ask the Tutor Forum rather than as a comment on a lecture.

      1. Share premium can only decrease if there has been a bonus issue of shares. In that case there is no cash flow (share premium down, share capital up).
      Share capital will not decrease – not in Paper F3.

      2. In this case it means they have taken a loan (borrowed money) and therefore there is a cash receipt which will appear under the heading of financing activities.

    • Profile photo of John Moffat says

      Assuming you are taking the computer based exam, it will be fill in the blanks.

      However you need to know the layout because you can be asked in the multiple choice section which heading certain items appear under.

  2. Profile photo of John Moffat says

    Yes – the cash balance also includes short-term investments.

    Proceeds of sale of non-current assets is shown under ‘cash flows from investing activities’.

    (Have you watched the lecture, because all these questions are actually answered in the lecture :-) )

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