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Prepare the Ordinary Share Capital Note - NSC Accounting - Question 2 - 2023 - Paper 1
Question 2
Prepare the Ordinary Share Capital Note. 2.2 Complete the following sections of the Cash Flow Statement: - Cash flow of operating activities - Cash flow of financi... show full transcript
Worked Solution & Example Answer:Prepare the Ordinary Share Capital Note - NSC Accounting - Question 2 - 2023 - Paper 1
Step 1
Prepare the Ordinary Share Capital Note
Answer
To prepare the Ordinary Share Capital Note, we follow the structure of the equity section.
- Shares in issue on 1 March 2022: 1,200,000 shares valued at a nominal value.
- Shares issued on 30 June 2022: 300,000 shares, resulting in a total of 2,700,000 shares.
- Shares repurchased: 90,000 shares at an average repurchase price of $6.60. This deduction will adjust the total shares in issue.
- Shares in issue on 28 February 2023: Following the repurchase, we total to 1,410,000 shares.
The completed Ordinary Share Capital Note will appear as:
Ordinary Share Capital Note
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Shares in issue on 1 March 2022: 1,200,000
Shares issued on 30 June 2022: 300,000
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Total shares after issue: 2,700,000
Shares repurchased: (90,000)
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Shares in issue on 28 February 2023: 1,410,000
The total share capital will thus be recorded accordingly.
Step 2
Complete the following sections of the Cash Flow Statement: Cash flow of operating activities
Answer
To complete the Cash Flow of Operating Activities, we summarize cash generated from operations.
- Interest paid: $117,600
- Dividends paid: Total dividends paid are $738,000 from the previously calculated figures.
- Income tax paid: $267,200.
The formula used is:
Cash flow from operating activities = Cash generated from operations - Interest - Dividends paid - Income tax paid
Substituting in:
Cash flow from operating activities = (operations cash) - 117,600 - 738,000 - 267,200
This section is documented clearly in the cash flow statement, ensuring it aligns with the marking scheme.
Step 3
Complete the following sections of the Cash Flow Statement: Cash flow of financing activities
Answer
For Cash Flow of Financing Activities:
- Proceeds from shares issued: Amounting to 2,700,000.
- Funds used to repurchase shares: Totaling $666,000, as calculated from the average repurchase price.
- Changes in loan: Here, we account for the change in loans, taking care to include both the change and the prior balances.
The fundamental equation and its layout will appear similar to:
Cash flow from financing activities = Proceeds - Repurchased shares - Change in loans
Ensure that all entries are verified and aligned with financial reporting standards.
Step 4
Calculate the following financial indicators: Net asset value per share
Answer
To calculate the Net Asset Value Per Share:
- Total assets: $10,200,000
- Total shares in issue: 1,410,000
Using the formula:
ext{Net Asset Value per Share} = rac{ ext{Total Assets}}{ ext{Total Shares}} = rac{10,200,000}{1,410,000} ext{ (results in } 723.40 ext{ cents)}This calculation must be accurate to reflect true asset values.
Step 5
Calculate the following financial indicators: Dividend payout rate
Answer
For the Dividend Payout Rate:
- Dividends paid: $738,000
- Net Profit After Tax (NPAT): $1,500,000
Formula:
ext{Dividend Payout Rate} = rac{ ext{Dividends}}{ ext{NPAT}} imes 100 = rac{738,000}{1,500,000} imes 100 = 49.2 ext{ \\%}This rate reflects how much of the net profit is being distributed to shareholders.
Step 6
Calculate the following financial indicators: % return on average shareholders' equity
Answer
To determine the % Return on Average Shareholders' Equity:
- Net Income: This can be other derived figures from profit statements, assumed here at $1,500,000.
- Equity at opening and closing: For estimation, take final equity of $5,000,000.
The calculation is:
ext{% Return on Equity} = rac{ ext{Net Income}}{ ext{Average Equity}} imes 100 = rac{1,500,000}{5,000,000} imes 100 = 30 ext{ \\%}This figure represents the efficiency at which equity capital is employed.