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hi sir ,
A company has the following extract from a statement of financial position.
20X7 20X6
$’000 ‘000
Share capital 2,000 1,000
Share premium 500 –
Loan stock 750 1,000
If there had been a bonus issue of 500,000 shares of $1 each during the year, what is the cash flow
from financing activities for the year?
A $1,250 inflow
B $750 inflow
C $750 outflow
D $1,250 outflowans is B . i dun understand y ? my understand is 1000 + 500 – 250
thank you sir .If you have typed the question correctly, then the answer is A.
I think that either you have mistyped or there is a typing error in your book.
Are you sure that the share premium account was 500 this year (and not last year)?
It would be very odd to have a bonus issue this year if there was no share premium account.The correct answer show the method is 1000+500-500(bonus issue )-250 . The share premium is for this year n not last year…. so I am confusing .
Sir bonus issue cannot be add in capital account n share premium cannot be minus because not a cash item so need to add back?? Am I rite?
Unless the question gave the dates of the share issues, then this is a very poor question (I don’t know where you found it).
There has obviously been an issue of shares for cash during the year (as well as a bonus issue) because share capital went up by 1,000 and the bonus issue was only 500 of it.
So the nominal value of the shares issued for cash must have been the other 500.
If the shares for cash were issued before the bonus issue, then they must have resulted in a share premium of 1,000 (which would then reduce by the bonus issue by 500 so as to be left with 500.
This would mean that the cash received would have been 500 + 1,000 = 1,500. (Leaving net cash receipt of 1250 after repaying the loan stock).
If, on the other hand, the bonus issue was made first, then since there was no share premium at the start of the year, the 500 would have been taken from retained earnings.
This would then mean that the cash received from the new issue would have been the 500 nominal value plus the premium of 500, so 1,000. (leaving a net cash receipt of 750 after repaying the loan stock).Again, if you typed here everything that was given in the question then it is a very bad question indeed.
If, on the other hand there was extra information about when the share issues were made (or about changes in the retained earnings) then it could be that their answer is correct.
If the question was either a past exam question or is in the current edition of the BPP revision kit, then let me know and I will check the exact wording of the question.
thx sir . this question is under a BPP study text for cash flow and question quick quiz . no 6
I am sorry, but I do not have the BPP Study Text – only the Revision Kit.
(If you are watching my free lectures then you do not need the Study Text so much. It is more important that you practice questions from the Revision Kit because they are all exam-standard (and there are lots and lots of them 🙂 )
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