Economics, Accounting & Business: Post your doubts here!

[wajiman]

can someone please give me a summarised list of all the changes in the IAS standards that affect the syllabus, I studied from the HRandall book and its not up to date. Just found out about the changes in the cash flow statement format and the treatment for proposed dividends when solving 2011 papers. Please help. Doesn't need to be too detailed.

I have posted 2 images above, those 2 images are the most common IAS standard and PLEASE PLEASE DONT USE THE WAY MENTIONED IN THE H RANDALL BOOK FOR CREATING CAPITAL REDEMPTION RESERVE, ITS WRONG.

 

[WayneRooney10]

http://www.xtremepapers.com/papers/CIE/Cambridge%20International%20A%20and%20AS%20Level/Accounting%20(9706)/9706_w11_qp_23.pdf
Q2A. The provision for depreciation account. Why is the depreciation charged for the year 75530?
Help will be appreciated!

 

[Saad Ghori]

One more thing I think y'all should know. Redeemable preference shares are now treated as a long term liability. So their dividend is showed with interest on debentures in the Income Statement

 

[Echelon94]

One more thing I think y'all should know. Redeemable preference shares are now treated as a long term liability. So their dividend is showed with interest on debentures in the Income Statement

Detail: "If an entity issues preference shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a future date, the substance is that they are a contractual obligation to deliver cash and, therefore, should be recognised as a liability. [IAS 32.18(a)] In contrast, preference shares that do not have a fixed maturity, and where the issuer does not have a contractual obligation to make any payment are equity. In this example even though both instruments are legally termed preference shares they have different contractual terms and one is a financial liability while the other is equity."
(Source)
In our questions generally any fixed future date is not given, thats why we treat them as equity...

 

[wajiman]

what do you mean? see example 4 (page 184) for instance, is it done wrong or right? & one thing the question doesn't mention is that if the P. Shares were originally issued at Premium more than $0.20 or less than, so if they were originally issued at less than $0.20, then we couldn't charge anything to the Share Premium account right?

WaleedUQ

the share premium can only be debited with the amount lowest in this rule:

1) Share premium received on original issue ( the premium received on the shares that are being redeemed at the time of issuance )
2) Existing Share premium balance sheet value + share premium received on new issue
3) Total cash received on new issue

This is a RULE. now if any value is the lowest in the above 3 rules, that is the amount we can charge to the share premium but if any1 is 0, as 0 is the lowest value, which means we cannot charge anything to the share premium account and we will have to use Profit and loss account. coming to example 4 that is the problem, we are not told that if these shares or ordinary shares were issued on premium ( it is wrong also as Capital Redemption Reserve is to be created of $85,000 not $100,000 ), so we will consider the first rule "Share premium received on original issue" as it is 0, 0 being the lowest value, we cannot debit share premium account and will use Profit and Loss account. even-though, new shares are being issued, we can see the option 2 and 3 too, but there values are bigger than 0, so we will not consider them.

For people who dont know how to create Capital Redemption Reserve:

here, the treatment is quiet easy. if new share are being issued with premium then just subtract the nominal (par value) of shares being redeemed with the total cash received from issuance of new shares. the difference is the capital redemption reserve balance.

eg: preference shares of $200,000 are being redeemed, with a premium of $20,000 and new issuance is being made to finance the redemption of $100,000 with $25,000 premium. here the amount we will charge in the capital redemption reserve is :

Nominal value of preference shares being redeemed - total cash received on new issue = Capital Redemption Reserve
$200,0000 - ( $100,000 + $25,000 ) = $75,000 Capital Redemption Reserve will be created

if the new issuance of shares are not being made, we will create the Capital Redemption Reserve same as the Par value of Redeemed shares

eg. Consider the example above but now think that we are not issuing any shares just redeeming preference shares of $200,000 so the capital redemption reserve created will be $200,000

 

[wajiman]

One more thing I think y'all should know. Redeemable preference shares are now treated as a long term liability. So their dividend is showed with interest on debentures in the Income Statement

Detail: "If an entity issues preference shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a future date, the substance is that they are a contractual obligation to deliver cash and, therefore, should be recognised as a liability. [IAS 32.18(a)] In contrast, preference shares that do not have a fixed maturity, and where the issuer does not have a contractual obligation to make any payment are equity. In this example even though both instruments are legally termed preference shares they have different contractual terms and one is a financial liability while the other is equity."
(Source)
In our questions generally any fixed future date is not given, thats why we treat them as equity...

thanks for this info, i had no idea about this, mind if you could provide an example??

 

[Manesh]

can someone please give me a summarised list of all the changes in the IAS standards that affect the syllabus, I studied from the HRandall book and its not up to date. Just found out about the changes in the cash flow statement format and the treatment for proposed dividends when solving 2011 papers. Please help. Doesn't need to be too detailed.

just go through this, you will find it very helpful.

 

[Manesh]

thanks for this info, i had no idea about this, mind if you could provide an example??

Look as redeemable preference shares are long term liability so dividend paid to them will come under Finance cost
e.g: profit from operations xx
less finance cost:
debenture interest x
redeemable preference dividend paid x (xx)
profit before tax xx
if still any problem feel free to contact 03003272494

 

[wajiman]

Look as redeemable preference shares are long term liability so dividend paid to them will come under Finance cost
e.g: profit from operations xx
less finance cost:
debenture interest x
redeemable preference dividend paid x (xx)
profit before tax xx
if still any problem feel free to contact 03003272494

thanks alot mate, then wont we have to subtract this amount from statement of changes in equity dividend paid area as we have already charged it in the P & L??

 

[Manesh]

http://www.xtremepapers.com/papers/...AS Level/Accounting (9706)/9706_w11_qp_23.pdf
Q2A. The provision for depreciation account. Why is the depreciation charged for the year 75530?
Help will be appreciated!

depreciation on closing balance is (376800*0.20) 75360
so the depreciation for the year will be (75360+920-750) 75530
*920 is the depreciation of six months for asset which was sold, it was sold on 30 june 2010 so half year depreciation will be considered (9200*0.20* 6/12)
*the new asset was purchased on 1 april 2010 so depriciation will be charged for only nine months. so that's why we deducted three months depreciation (15000*0.20* 3/12)

if still there is any problem feel free to contact 0300-3272494

 

[Manesh]

thanks alot mate, then wont we have to subtract this amount from statement of changes in equity dividend paid area as we have already charged it in the P & L??

in statement of changes in equity the dividend will be that of ordinary shares and non-redeemable preference shares.

 

[wajiman]

errr...sorry man still a bit confused...
Is this what you meant, "Premium on new issue of shares can only be charged to Share Premium a/c when both, they were originally issued at a premium higher than the premium at redemption & the redemption is being financed fully/partially by issue of new shares at premium." right?

& regarding example 4, the treatment you wrote will be if we assume that shares were originally issued at less than $0.20. What if the question does not mention the originally issued premium (it has happened in pastpapers), are we to assume they were originally issued at higher premium or lower? & another thing you didnt answer, suppose they were originally issued at a premium of $0.40, then the treatment in the book is totally correct right?
Thanks

no thats not what i meant. mate just forget whats in the book, just use the rules i mentioned

rule 1) was the premium received on the issuance 0f those shares which are being redeemed now.

and regarding example 4, we are not told that were these shares issued at a premium so there is no way that we can charge its premium to the share premium account. here we are to assume that no premium was received. and if they were issued at a premium of $0.40, according to the above mentioned rules:

rule 1) share premium received on original issue= $80,000
rule 2) existing share premium + share premium on new issue= $80,000 + $50,000 = $130,000
rule 3) total cash received on new issue = $150,000

according to this, the maximum amount we can charge to share premium is $80,000 so as we are redeeming shares of $0.2 premium, we are redeem total share premium of $40,000. as we can charge maximum amount of $80,000, we will charge $40,000 to it, again the treatment in book is wrong

 

[Qamar Baloch]

A is int a normative statement because you can prove it... you can prove that money is the least liquid form of wealth, so therefore it is a positive statement..

Discouragement cannot be calculated in facts and figure. Its value judgment.So, its the right answer.

 

[Anusuya]

http://www.xtremepapers.com/papers/... AS Level/Accounting (9706)/9706_s06_qp_4.pdf
Ques. 2 how is the revaluation of premises done in the balance sheet???

 

[Saad Ghori]

http://www.xtremepapers.com/papers/CIE/Cambridge International A and AS Level/Accounting (9706)/9706_s06_qp_4.pdf
Ques. 2 how is the revaluation of premises done in the balance sheet???

Question seems weird but its quite simple actually Look it said that premises are to be revalued by the amount that will not create a revaluation reserve. The company is making a bonus issue of 2 ordinary for every 3 held. So the amount of the bonus issue is 100000. Revaluation reserve can be used for the bonus issue. And so the maximum amount by which the premises can be revalued without creating a revaluation reserve is 100000. The amount of premises would be 120000+30000+100000=250000.

 

[2pac]

Guys ECO DOUBT-
can someone please explain the reason behind the correct of the following mcq question?Can't seem to figure out the answer or maybe my fundamentals aren't clear.
q21 of october 2004
http://www.xtremepapers.com/papers/...d AS Level/Economics (9708)/9708_w04_qp_3.pdf
q19 and q22 of may 05-No link available sorry.
q16 of oct 2005-again no link.
Please let me know asap.
thanks

 

[Manesh]

Guys ECO DOUBT-
can someone please explain the reason behind the correct of the following mcq question?Can't seem to figure out the answer or maybe my fundamentals aren't clear.
q21 of october 2004
http://www.xtremepapers.com/papers/CIE/Cambridge International A and AS Level/Economics (9708)/9708_w04_qp_3.pdf
q19 and q22 of may 05-No link available sorry.
q16 of oct 2005-again no link.
Please let me know asap.
thanks

multiplier= 1 / 1-mpc(1-t)
= 1/ 1-(5/6 * 0.6)
=2
so A is the correct answer

 

[salmankhan00]

do ny1 ov u have any guess paper of eco, a/cs or business studies or any imp topics especially for a/cs

 

[salmankhan00]

multiplier= 1 / 1-mpc(1-t)
= 1/ 1-(5/6 * 0.6)
=2
so A is the correct answer

do ny1 ov u have any guess paper of eco, a/cs or business studies or any imp topics especially for a/cs

 

[wajiman]

View attachment 11833
P.S.: where did you learn this rule man, I had never heard of it until now. Mentioned in any book, internet, notes etc.?
& furthermore, sometimes the question says that 'the company wants to keep its reserves in the most flexible form', so according to you what are we supposed to do in that case(suppose it was mentioned in the question above)?
Thanks

yes mate and this is the method used in 2002 oct/nov p4 paper as i have the markscheme of that paper.

rules:

1) $80,000
2) $80,000 + $69,000
3) $69000

and if it says reserves in the flexible form, this method already considers this point as it tells us how much premium we can charge so that the reserves remain the most flexible form