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a company has the following extract from a SOFP:
2007 —- 2006
share capital. $2000–$1000
share premium. $500 — –
loan stock. $750 –$1000
if there had been a bonus issue of 50000 shares of $1 each during the year,what is the cash flow from financing activities for the year?
a.$1250 inflow
b.$750 inflow
c.$750 outflow
d.$1250 outflow
answer:b)$750 inflowmy calculation was:
proceeds of Shares(2000-1000+500)=$1500 inflow
loan stock(750-1000)=$250 outflow
the bonus issue will not feature the statement of cash flow.
so, cash flow $1250 inflow.
am I correct sir?please explainI don’t know where you found this question (I will be grateful if you could let me know on here which book it was in).
However, assuming that you have copied it correctly it is very bad.
The reason is because of the bonus issue. Although it is not a cash flow, it is part of the reason for the share capital increasing.
There is obviously also a new issue of shares during the year. If the bonus issue was made after the new issue, then share capital increases and share premium reduces, but the end result is that you answer of 1,250 would be correct.If the bonus issue was before the new issue, then share capital increases and retained earning reduce (because there was no share premium account at the start of the year). In this case the cash flow would be $1200 (assuming the figures are all in thousands).
Again, if you have typed it all correctly, then it is a very poor question and the printed answer is wrong.
If you tell me where you found it then I will see if I can see the original question and then I can answer for certain 🙂
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