Sir in this question I do not understand that how they have calculated fig of 280 (share capital) and 459.56 (reserves) in proposal 1 and fig of 1817.96 (reserves) in proposal 2
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D17 Q1
4y ago#1For proposal 1, they are using $1,320 to buy back shares (and cancel them) at the market value of $11. So they will buy back 1,320/11 = 120 shares,
As per financial accounting rules, the share capital reduces by the nominal value of the shares cancelled (120 x $1) so is 400 - 120 = 280, and the reserves are reduced by the extra of the cash paid which is 1,320 - 120 = $1,200. In addition the forecast profit changes from 350 to 309.56 and therefore the new figure for reserves is 1,700 - 1,200 - 350 + 309.56 = 459.56
For proposal 2, the share capital is not affected and the only change to reserves is that the forecast profit changes from 350 to 467.96, so the new figure for reserves is 1,700 - 350 + 467.96 = 1,817.96.
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