# Capital Structure and Financial Ratios Pilot Question 1

1. says

Sir, I just don’t understand one thing. While calculating the Financial Gearing for the second year we have used the figures 27500+1820 for equity. When Equity is Ordinary shares + other reserves, shouldn’t the retained earnings increase by \$2463 (PAT 4508- Pref Dividend 225 – Current dividend 1820) and should the figure of equity for second year be 27500 + 2463?
Thank you

• says

I have just watched that part of my lecture again – the retained earnings do increase by 2463, and I do have the figure for equity as being 27500 + 2463 !!

• says

Thank you so much sir! You are great. Find this subject so much easier and interesting all because of you 😀

2. says

I can’t find it on acca web
thanks

3. says

I don’t know which year it was

4. says

Dear John, good lectures here. pls I do not understand your calculation of Ord. dividend where you did: 5000x\$0.35x\$1.04 = 1820. I want to know hw you got 0.35 and 1.04 Tnx.

• says

From the question, there are 5,000 ordinary shares, the current dividend is \$0.35 per share, and the dividend is growing at 4%.

So the total dividend is going to be 5,000 x \$0.35 x 1.04 (the 1.04 being to add on 4%).

Hope that is clear.

5. says

Dear John,
I am confused for post-year effect for gearing ratio:

5000+2500+10000* / 27500+2463 = 58.4%

*I am confused for 10000, why you added this?

• says

The first line of the question says that the company is planning on spending 10M and that it will be raised by issued loan notes.
So…..the total debt will increase.

6. says

Hello John

How do I know when to do Debt/Equity with oppose to Debt/Equity+Debt??

Your help would be much appreciated.

Thank you
Charlotte

• says

Almost always the examiner defines it in the question.
If he doesn’t then you can do it either way – they give different answers but you would get full marks for either (provided you interpret the answer correctly).

7. says

Sir in earnings per share u wrote 9% of 5000 which gives 450 instead of 9% of 2500 which gives 225

8. says

I have seen were the exam format for F9 as changed for 2014.The exam it seems will now have a multiple choice section for 40 marks.The current lectures and notes for F9 is structured to meet this component of the exam.Thank you for your previous quick and clear responses.Thanks for the good lectures.

• says

The exam format does not change until the December exams.
The June exams will remain in the current format.

The syllabus is not changing for either June or December and so all the lectures and our notes are still valid.

Obviously after the June exams, we will introduce questions covering both sections of the new format exam.

9. says

Sir if we consider preference shares as effectively long term liabillity and dividend paid on it as interest then should we not on that assumption include preference dividend in the interest cover ratias part of interest?

• says

No. The reason is that interest has to be paid (and if the company cannot pay it then they could end up being forced into liquidation). Preference dividend has to be paid provided there is enough profit, but if there is not enough then it does not have to be paid so the company is not forced into liquidation.

• says

Oh makes sense now. Thank you very much for the quick response. ????

10. says

Wow! Very nice lecture! I find the question is fairly (EASY) to be an exam standard part of a question! I wonder why nobody does it!

11. says

please can someone tell me which pilot is it refer to? the year and the question number,and where to get it

12. says

Dear John! Have a question that doesn’t relate to above pilot question but to Paper Dec 2009 Q3 A on theoretical ex rights price after the rights issue. In the answer, 50% of equity 6.5MN EURos has been divided by 1.3 to arrive to USD. Is this known mistake in the answer or I am reading something wrong? Thank you.

• says

@vesna, The spot rate is given as EUR/\$ 1.3, which means that 1.3 Euros = 1 \$
So to convert 6.5M euros you need to divide by 1.3 to get \$’s

• says

@johnmoffat, Thank you.

13. says

Please note that the profit before tax is supposed to 6940 and profit for the period being 4858 and not 4508… and thanks.

• says

@sandycmkm, the suggested answer has the same figures as in the lecture, I don’t follow your point

14. says

This is a brilliant example to reflect exam standard.If we can have bit more of these, that will be very much grateful.
Tutor is absolutely awesome.Probably the best financial management lecturer to me.