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- This topic has 2 replies, 2 voices, and was last updated 2 weeks ago by MrPersonable.
- March 1, 2023 at 4:53 am #679836MrPersonableParticipant
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Statements of financial position as at 30 September:
Equity $m $m
Ordinary shares of $0.50 each: 750, 500
Share premium: 350, 100
Retained earnings 1,980, 1,740
On 1 October 20X1, a bonus issue of one new share for every ten held was made, financed
from share premium. This was followed by a further issue for cash.
The statement of profit or loss of Nedburg Co shows a profit for the year of $480,000.
Using the pull-down list available, what amount will appear under ‘cash flows from financing activities’ in the statement of cash flows of Nedburg Co for the year ended
30 September 20X2 in respect of share issues?
(Sorry for the bad formatting)
The correct answer is: $160 million
Issue of shares $m
Share capital and premium b/f (500 + 100): 600
Bonus issue (500/0.50 x 1/10): 100
Cash received (B): 400
Share capital and premium c/f (750 + 350): 1,100
Retained earnings b/f 1,740
Profit for the year 480
Dividend paid (B) (240)
Retained earnings c/f 1,980
Cash inflow from financing activities (400 – 240) 160
Why have they not reduced the balance of share premium by 100? if feel the balance of share premium should be reduced by 100 because the bonus issue was financed through share premium
further more it can be completely ignored in this question because bonus share don’t effect cash flow
I am convinced this is a miss print, just wanted to be 100% sure
(the question is from BPP revision kit)March 2, 2023 at 9:36 pm #679990P2-D2Keymaster
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When we have a bonus issue of shares then I’d use separate share capital and share premium accounts to work out the required figures, i.e. cash inflows from issue of shares.
With the bonus issue the share capital will increase by 50,000 (100,000 shares issued at par of $0.50) and the share premium reduce by the same amount.
The balancing figures from each of the share capital and share premium can then be added together to find the total cash received from issuing the shares.
See how you get on.
ThanksMarch 3, 2023 at 1:42 am #679999MrPersonableParticipant
- Topics: 6
- Replies: 7
Thanks a lot
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