Comments

  1. avatar says

    @johnmoffat – Hi John, excellent lecture as always. Thank you

    Can you clarify point 3? I thought dividends were an appropriation of profit, and as such the retained earnings belonged to the shareholder whether it got paid out as dividend or not.

    So, by paining lower divvies, the retained earnings would just grow and grow as a credit on the balance sheet (sorry SoFP), and in order for the company to get its mitts on the retained earnings they would need to issue bonus shares to the shareholders in return. Is that right, or should I put F7 behind me while doing F9?
    Thank you

    • Profile photo of John Moffat says

      It is true that the retained earnings (and therefore the total long-term capital) would grow and grow.
      But think how the Statement of financial position balances – more long term capital means more net assets!

      Of think of it this way – if a company pays out all its earning as dividends then they have no cash left to invest. If they restrict the dividend they have cash left over which can be used to invest in expanding the company.

      (Issuing bonus shares makes no difference – they would get no extra cash, and the total capital would remain unchanged as well (more share capital but less retained earnings).)

      I think you have probably got it by now, but in case not:

      Suppose a company is entirely cash based (for ease), and has cash of 100,000 and share capital of 100,000.
      They make a profit of 10,000.
      So…..cash is 110,000; sh cap + ret earnings 110,000
      If they pay a dividend of 10,000, then back to cash of 100,000 and sh cap of 100,000

      If on the other hand they only pay dividend of 2,000 (and retain 8,000), then cash is 108,000 and sh cap + reserves are 108,000.

      The more of shareholders money that they retain, the more cash they have available to invest.

      • avatar says

        Hi John,
        Thank you for the answer.
        so, just to clarify,
        In the above example where they paid 2,000 they’d have 108,000 to invest
        Retained earnings will still be 8,000 even if they used the cash to invest.

        So, assuming they made 12,000 profit the following year retained earnings would be 20,000. Using the cash doesn’t actually reduce the equity in the business does it?

        Thank you

    • Profile photo of John Moffat says

      The examiner did word it very badly. If the project were to be all equity financed (which is how his wording could be interpreted) then you would not need to rehear the beta.
      However, he has assumed that the current gearing will be maintained, and so the equity beta needs to be regeared.

      (If you want me to answer a question, then please ask in the Ask the ACCA Tutor forum for F9 – I cannot always manage to read all the comments beneath the lectures.)

  2. avatar says

    I cant thank you enough for these lectures…. I am really struggling with these exams, I work 7-5pm, I have a house to run etc, and finding time to study is dead difficult. I have been looking for an institution which offers night classes, here in South Africa but non-existant… So thank you, appreciate it completely!!

    Chantel

  3. avatar says

    Dear Mr. John,

    First of all I would like to have the opportunity to admire your way of teaching, it really is pretty impressive given the difficulty faced by most of the students while studying for any ACCA paper.. the other thing is that I would like to ask you if your lecture and course notes are enough to get a passing rate in the exams… not only for F9 but for F5 as well …

    I would really appreciate a reply from your side…. thanks and regards :)

    • Profile photo of John Moffat says

      Thanks you for your comments :-)

      The lectures and course notes certainly contain enough information to pass F5 and F9 well (provided of course that you do really understand them). I would be lying if I said that they contain every single point that could be asked (that is why they are not so big as the Study Texts) but they do cover at least 90% of what is needed, and usually 100%.

      However, the one extra thing that is essential is to practice as many questions as possible. As a minimum you must practice all the past questions on the ACCA website, but preferably you should get hold of a Revision/Exam kit from one of the approved publishers because they contain many more questions.

      Obviously you must understand all the topics, and that is what the lectures are for, but it is so important to get used to the styles of the exam questions and the sort of answers that are required.

Leave a Reply