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FLUFFTORT CO (SEP/DEC 15)
1. In part (a) (i), in the last sentence of (a) (i), ‘ cancell’ed by Flufftort co’ . What this actually means ? does it mean that share repurchases are cancelled ?
2. Also in part (a) (i), does it mean that every time when there are share purcahses, cash will always be decreased ? but however in this case, why retained earning went up by 2.4m ?
3. In (a) (ii),why all those previous amounts of non current asset 69m, current assets excluding cash 18m, current liabilities 7m are not taken into consideration ?
4. In (a) (ii), I’m not sure how the answer sheet managed to get 5m….. as I was not able to figure out this number 5m in the retained earnings.
1. It means that they pay the holders for the shares, and then cancel the shares.
2. Cash and retained earnings are not the same thing. Cash falls and share capital falls. The retained earnings increase by the 2016 forecast retained profit which is given in the question as 2.4.
3. They are taken into account. Note 5 of the question says that they will increase to the amounts in the answer (not that they will increase by those amounts).
4. Retained earnings in the 2015 SOPL are 2.6M. The forecast amount retained in 2016 is 2.4M, so total retained earnings will increase to 2.6 + 2.4 = 5M.
Could you help me please with the $5 m. retained earnings in a) ii). According to proposed financing the bank loan $65m and finance costs 10% per annum. In the 2016 P&L forecast finance cost 3m. It is 8,5%*30$m + 9%*$5m=$3m. Why do we not recalculate the retained earnings $2,4m according to new finance costs?
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