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Hello Sir,
1)In FA practise test under education hub, in the 31st question,
To calculate Acid test ratio,they included bank overdraft under current liabilities. But we shouldn’t as its quick ratio.
2) In the same practise test under true or false type of question
My answer Their answer
Statement 1:Rights issue raises cash for the company True False Statement 2: Rights issue results in capitalisation of reserves False True
Reasons for their answer is :
Statement 1:Rights issue results in capitalisation of reserves
Statement 2: Rights issue raises cash for the companyIts confusing sir. What do they mean
1. The bank overdraft should be included in liabilities. The only difference between the acid-test ratio and the current ratio is that the acid-test ratio excludes inventory.
2. A rights issue of shares always raises cash for the company because the shares are issued for cash. Given that they will be issued for a price greater than the nominal value the issue will increase the share premium account (which is a capital reserve).
I assume you have watched my free lectures on both of these issues? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
2)Yes sir i understood but my question wasn’t aligned properly. My doubt exactly was,
Their question is to state whether the statements are true or not
My answer was
Statement 1:Rights issue raises cash for the company True
Statement 2: Rights issue results in capitalisation of reserves True
Their answer
Statement 1:Rights issue raises cash for the company False
Statement 2: Rights issue results in capitalisation of reserves True
Their reason for their answer
Statement 1:Rights issue results in capitalisation of reserves
Statement 2: Rights issue raises cash for the companyTheir answer and the reason that they have given is confusing.
I am just asking if their answer for Statement 1 was wrong or notAnd i have understood all explanations that you have given for the rest of the questions
Thank You sir
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