(Original post by A.A.T.)
Purchase of computers (120 000 – 20 000) 100 000
Wages (84 860 – 8 400) 76 460
Training costs 6 840
Insurance 400 as 2400-2000
Total being 183 700
Capital introduced 21 000
Add profit for the year 19 262
Less drawings (22 560)
Less goods for own use (3 895) (this could be added to drawings above)
Capital at 30 September 2011 13 807
Ensure correct layout used.
3b) Depending on method answer ranges from 57% to 133% if you use equity on the bottonm
However in this question given that it was NOT clear in the question if the profit for the year was included in the capital balance you could also work it out my adding the 2million to the denominator again to each formulae giving gearing of 54% and 117%.
Was your answer of 53% just a rounding error?
3c) I have been meaning to do another podcast on issue of shares. So far there is a basic one on Youtube. See if it is useful.
For this question you need to work out how capital changes (increaes) from the issue of ordinary shares. The fact shares are sold at a premium means you must "apportion" the premium of the sale and show this. The ordinary share amount only increases by the cost (i.e. face, nominal or par) of the share. All premium is seperate.
Ordinary shares: 40m x 20p = 8m + 10m
Share premium: 40m x 30 = 12m + 2.5m = 14.5m
Ordinary shares 18 000 000
Share premium 14 500 000
Revaluation reserve 585 000
Retained earnings 2 002 595
Total capital being 35 087 595
3e) Essentially yes but you must be focused on the "impact on liquidity" and then "impact on profitability".
e.g. for Debentures:
Impact on liquidity: in the short run there will be an initial improvement as the debentures will raise £20m – assuming they are fully subscribed.
impact on profitability:
funds generated from a debenture issue do not affect profit.
Impact on liquidity
improve liquidity in the short run as the share issue will raise £20m if fully subscribed
Impact on profitability
the issue of shares does not affect profit
Were the rest of the questions ok?