Flufftort Balance sheet

Hi John,

I’ve been coping quite well with the majority of P4 questions but I can’t understand the answers to Flufftort in the ACCA answers part 1; the balance sheet position after re-purchasing and cancelling 10mn equity shares:

https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p4/exampapers/P4_2015_dec-a.pdf

This questions seems to test more P2 knowledge to me than P4 which was one of my weaker subjects unfortunately!

In Part A I understand that the 10mn equity repayment would be financed by the 7.6mn cash which I took off current assets in my answer as ACCA have done on theirs.

I also, obviously, cancelled £10mn of equity shares as per the question leaving a balancing figure of 2.4mn on the bottom half of the balance sheet required.

On my answer I stuck this in to the Current Liabilities as I assumed they would use the available bank overdraft to fund the balance of the share repurchase.

On ACCA answer however I see they have just popped in the retained earnings into the equity part of the balance sheet from the P&L- I understand this is where retained earnings go from the P&L but I don’t understand where the other 2.4mn cash to pay for the shares has gone..

Please could you clarify? Any help would be greatly appreciated as ever.

Many thanks 🙂