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1.wondering why par value of shares of Flufftort to be bought back is $10m but only cash of $7.6m was charged against it in part a(i).
2. in part a(ii),Retained Earnings went to $5m and i wonder why. Is part a(i) connected to part a(ii) so that the retained earnings in par a(i) is repeated in part a(ii)?
3. what informs which item in the financial statement is to be the balancing figure in situations such as the Flufftort case?
1. The question says that the figure for retained earnings in the forecast can be assumed to be the net increase in cash for 2016. Therefore the cash is 7.7 + 2.4 = 10, which is used to buy back the shares.
2. The retained earnings at 2015 were 2.6. The amount retained for 2016 is 2.4. Therefore the retained earnings at 2016 because 2.6 + 2.4 = 5.0
3. I assume that you are referring to the cash balance in a(ii). Nothing informs you as to which is the balancing figure, but SOFP’s obviously must balance. All of the other figures are easy to arrive at and so given there are only 4 marks for this, the examiner has made cash the balancing figure. (It can be checked but that takes more time).
(Appreciate that part a of this question is more of a basic financial accounts question rather than a financial management question 🙂 )
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