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Cash Flows

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cash Flows

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • April 17, 2024 at 11:11 am #704216
    EdwardG
    Participant
    • Topics: 3
    • Replies: 0
    • ☆

    293 Extracts from the statements of financial position of Nedburg Co are as follows.
    Statements of financial position as at 30 September
    20X2 20X1
    $m $m
    Equity
    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.

    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?

    I didnt quite understand the solution to this question, particularly on the issue for cash after the bonus issue, in the suggested solution they are saying the issue for cash is $400m but i am finding $500, in the solution they are accounting for bonus issue as 100, could you assist please?

    Solution (the dividend part i understand, but how they are solution says the cash issue is $400m, i dont get it)

    $m
    Issue of shares
    Share capital and premium b/f (500 + 100) 600
    Bonus issue (500/0.50 × 1/10) 100
    Cash received (?) 400
    Share capital and premium c/f (750 + 350) 1,100

    Dividends paid
    Retained earnings b/f 1,740
    Profit for the year 480
    Dividend paid (?) (240)
    Retained earnings c/f 1,980

    Cash inflow from financing activities (400-240) 160

    April 20, 2024 at 6:42 am #704313
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    I think that your answer of 500 is correct. In the answer given they have not taken account of the fact that the shares have a nominal value of 0.50 when issued. They have correctly worked out that there are 1,000 shares in issue (500/0.5) and then looked at their being 100 shares issued (1,000/10) but then they are issued at par, so it would be 50 (100 x 0.5).

    I’d also not use a combined T-account for the issue of shares where a bonus issue has taken place. It needs to be split out between share capital and share premium.

    Share capital:

    b/f 500
    Bonus 50
    Cash 200
    c/f 750

    Share premium:

    b/f 100
    Bonus (50)
    Cash 300
    c/f 350

    The total cash received then being 500 (200 + 300)

    Thanks

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