wardah how many papers u are attempting this time

from where u belong 

 

I'm a miss for what it matters, but I'll try to help if I can.

As long as you realise that I'm studying F1 and E1 too, so unfortunately my answers aren't perfect.

As for your shares: 

1) Right issue of shares

It is an issue to current shareholders only, they will need to pay for these, but this doesn't have to be at market value, but will usually be above the nominal value. 

To account for them in the books:

D Cash/ bank/ where you receive the money

C Share capital (Nominal value)

C Share premium (rest of the value) 

2} Bonus issue of shares

Is an issue of shares to existing share holders for free. This is to give them back some of the return on the investment, but without giving them any direct cash.

To account for them in the books:

D Share premium 

C Share capital 

If there is not enough money left in the share premium account, it will be debited from the other reserves.

The reason it gets deducted from the share premium account is that there is no actual money changing hands between the shareholders and the company. 

The reason for a company to give a bonus issue is, as mentioned above,  to give them something back for their investment in the company. The shareholders invest money in the company and while the company get's worth more, often this is just in the books in the reserves and not directly in the cash available to pay the shareholders. 

Share premium is not money that can be given to the shareholders or written off to another reserve in any way, which is why it gets deducted from there first. 

Issueing the bonus shares to the shareholders does increase their value in the company (the value of the bonus shares if they would sell their shares at some point) and if the company would issue more normal shares afterwards the current shareholders hold a bigger part in the amount of shares than the new shareholders.

Does this help at all? 

On 1)

The share capital gets the nominal value of the shares only. So if you sell shares with a nominal value of 1.00 and you sell  them for 1.50 each, 1.00 goes to the share capital and 0.50 goes to the share premium account.

It's a capital account, so it will go to the credit side.

(Capital and Liabilities are the credit side, while assets are the debit side, if that is confusing think about who owns it. An asset is owned by the company, while capital is an investment in the company, for which a return is given)

On 2 

Basically share premium is used for the extra value of the shares sold, compared to the nominal value.

If the nominal value of a share is 1.00 and the shares would be sold for 1.50, the extra money received goes to the share premium account (credited) 0.50.

If the nominal value of a share is 1.00 and the shares would be sold for 0.50, the difference would be paid (debited) from the share premium account.

If a bonus issue is raised and the value of the shares is 1.00, the shareholders won't have to pay for the issue, but the shares are issued. If the nominal value of a share is 1.00, the total value would be paid from the share premium account. 

As far as I can remember the share premium account is used for these kind of issues and the cost of share issues get deducted as well.

Does that help? 

I would use the abbreviations in my workings, but for the financial statements, I think you do need to write them out. However I'm not sure about that.

 it is not a rule that u r not allowed but when there is phrase that ur answer must be clear so it should be in every sense

 

Hi Gaad,

Have a look at the total layout for the cash flows from operating activities. 

Cash flows from operating activities

Net profit before tax

Adjustments for:

Depreciation

Provision increases/ decreases

profit/ loss on disposal

Interest receivable / investment income

Finance costs

Operating profit before working capital changes

change in inventories

change in trade receivables

change in trade payables

Cash generated from operations

Interest paid 

Tax paid

Net cash from operating activities

 

As you already specify the interest paid in the lowest bit, I would just add the 100 at the operating profit and not bother with specifying it even further, so answer b if you ask me.

However that is just my opinion and I'd be interesting to hear what other students think of this as well, whether both may be acceptable or either one of them is considered wrong. 

Hi Rinsky

Could you explain

Provision increases/ decreases

and

Interest receivable / investment income

with example?

Then

"Operating profit before working capital changes"

Can this be omitted?

What study material are you using?

 

Thanks

Your explanation is short and simple better than most of the books. when I ask simple questions is it ok with you or is it distrubing you studies?

 

p

Receivable days = (receivable X 365)/sales

Receivable = (recevable days x sales)/365

receiveable= (52 x 876000)/365

                =124800 ( current asset)

 

payable days = (payable x 365)/purchases

payable   = (payable days x purchases)/365

               = (38 x 416100)/365

                = 43320 ( current liability)

but we have bank over draft 7000

so total current liabilities = 43320 + 7000

                                     = 50320

 

Quick ratio = current asset ( with out inventories)/ current liabilities

                 = 124800/50320

                  = 2.48

 

May be you can try the following question

An entitie's current ratio is 2:1 usually they pay their account payable in 50 days since they have surplus funds they decided to pay in 30 days.

when they pay in 30 days what will happen to

1) current ratio ( increase or decrease)

2) working capital cycle ( increase or decrease)

Hi Gaad

We have an 'Ask a Tutor' event coming up soon, you may be better off asking your questions there so Rinske can get on with her studying!

Best wishes

Rebecca
CIMAsphere moderator

Hi thanks for the help!

The second question;

 

a) the current Ration - would this decrease as they have less liabilties outstanding?

b) the working capital cycle would also reduce?

Production overhead cost budget

Machinery costs  285 000

Set up costs       235 000

Purchasin costs   300000

Total prod o/hs    820000

Total budgeted activities

Data                           Total                 product s              product Q

Mac h hours             95000             2hr per unit               1hr per unit

No of produc runs      235                   20                              5

Purchase orders       5000                    100                          100

Production quantities S &T                5000 units               20000 units

 

Calculate PRODUCTION OVERHEAD COSTS for one unit of product S and Q             

o

hello,

       I am shan. i am doing E1,P1,F1 in may next month, i have good command on P1 and F1 but very bad in E1 because i hate theory. i live in UK but belongs to Pakistan. any tricks for E1?