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Sir in this question, we needed to Book vale of equity in order to calculate D/E ratio. Now, the method that they use to find opening Equity is straightforward, but omsehow will didn’t strike me as a primary method. What I tried doing was basically Equity= Assets less liabilities. So assets as we know would be recorded at 30%, which is 53040 then add current assets book or MV, both are equal, which is 12,300 less liabilities at =23342(30m+2.4m-9.057)+20000+7900(current liabilities). And the equity value i get is 14.098m.
which is not $10m. And this is making me go nuts!! Why are the answers not matching whether we remake the SFP or directly use $10m.
I don’t know what you mean by primary method.
By definition equity is share capital plus reserves.
The share capital after the MBO is 10,000. The retained earnings in the first year are 5,965. Therefore the equity is 15,965.
To arrive at it any other way is time-wasting, and is not possible anyway because you do not know what will happen to the cash balance (which will effectively be the missing figure).
I don’t know what you mean by primary method.
By definition equity is share capital plus reserves.
The share capital after the MBO is 10,000. The retained earnings in the first year are 5,965. Therefore the equity is 15,965.
To arrive at it any other way is time-wasting, and is not possible anyway because you do not know what will happen to the cash balance (which will effectively be the missing figure).
sir cash will always be the balancing figure in capital reconstruction questions?
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