[ezioaudi77]

(Original post by Akiraryuu)
Aww you're welcome

Okay, first off, redemption of shares is a capital transaction. In this case, companies would normally use their capital reserves (share premium, asset revaluation reserves, etc) before touching their retained profits if no new issue of shares has been made.

If there are new issue of shares be it ordinary or preference, and the revenue gained from the new issue are enough to cover the redemption cost of shares, then there is no need to touch any of the reserves or retained profits. If the revenue from the new issue of shares are not enough to cover the redemption cost then companies normally would pay the excess cost with their most inflexible reserves first. They would only touch their retained profits if they have no choice.

Think about it this way, paying off the redemption of shares is a liability to the company so it doesn't make sense if they use their profits to do so as the profits can be used for other capital activities instead.

So, in this case, the order to pay off redemption of shares would be to transfer the share premium, then other reserves and then only retained profits into the capital redemption reserve.

Hence, I made the conclusion that the order for the issue of shares are: retained profits -> other reserves -> share premium (unless they want to maintain the reserves in the most flexible form)

and the order for the redemption of shares are: share premium -> other reserves -> retained profits.

Phew, that was hard. I got a 220 UMS for unit 1. I screwed that paper up as I took 11 papers last January (oh god the stress was horrendous!). I retook it this May and I bet I screwed that up as well so for an A I'll need 260 which is definitely an A* if you look at the grade boundaries.

I would have to disagree on that order. I don't think you ever will use share premium to redeem shares. In the markschemes, is never used for crediting CRR, and as far as I can recall my teacher too said the order is General reserve, the Retained profits...

Wow, when I did unit 1, I concentrated on accounting more than others, and screwed some of the other papers as a result

Btw, you could still get an A* overall for the whole qualification even with 220 UMS.
A* requires:

a) 480/600 overall in AS+A2 and
b) 270/300 UMS in A2.

You had 220 UMS so if you get more than 270/300 in U2, the first condition will be more than satisfied (270 + 220) and the other will too.
So unless you wanted to show off your results, retaking U1 wan't really needed. So even if you do worse than last time, don't worry about it and by the looks of it, you will be getting more than 270 UMS

[Akiraryuu]

(Original post by ezioaudi77)
I would have to disagree on that order. I don't think you ever will use share premium to redeem shares. In the markschemes, is never used for crediting CRR, and as far as I can recall my teacher too said the order is General reserve, the Retained profits...

Wow, when I did unit 1, I concentrated on accounting more than others, and screwed some of the other papers as a result

Btw, you could still get an A* overall for the whole qualification even with 220 UMS.
A* requires:

a) 480/600 overall in AS+A2 and
b) 270/300 UMS in A2.

You had 220 UMS so if you get more than 270/300 in U2, the first condition will be more than satisfied (270 + 220) and the other will too.
So unless you wanted to show off your results, retaking U1 wan't really needed. So even if you do worse than last time, don't worry about it and by the looks of it, you will be getting more than 270 UMS

I've completely forgotten what my teacher said about the order actually. I just asked my dad about it Maybe it's different in theory and in the industry? Well if your teacher says general reserves then retained profits then most probably it is so

Hahaha, I was the other way round. I took accounts in my GCSEs equivalent in my country and I was overconfident with it tbh. I paid the price hahaha.

I know I can get an A* overall with just a 220 for unit 1. I wasn't aiming for an A* actually, I just want an A but if I want to have an A for my overall grade I would inadvertently be aiming for an A* already LOL Thanks, fingers crossed I get more than 270/300. I'm sure you'll be fine as well!

Oh and btw, can you explain about mergers for me? I completely zoned out during the time my teacher was teaching it so my mind is a complete blank. Not a good idea considering that exams is two days away

[Warfare]

So what does everyone think will come up this time? Im guessing -
Section A - Limited Company Final Account, Capital Structure and Share Issue and Cash Flow statements
Section B - Break Even Analysis, Cash Budget, Investment Appraisal and Variance.

I think if these are the choices, it should be a pretty easy - moderate paper.

[Akiraryuu]

(Original post by Warfare)
So what does everyone think will come up this time? Im guessing -
Section A - Limited Company Final Account, Capital Structure and Share Issue and Cash Flow statements
Section B - Break Even Analysis, Cash Budget, Investment Appraisal and Variance.

I think if these are the choices, it should be a pretty easy - moderate paper.

Fingers crossed! I am absolutely hopeless in most topics regarding limited companies except for the final accounts and cash flow

Not so sure about break even analysis though, it came out in June 2011 and Jan 2012 already.

[ezioaudi77]

(Original post by Akiraryuu)
I've completely forgotten what my teacher said about the order actually. I just asked my dad about it Maybe it's different in theory and in the industry? Well if your teacher says general reserves then retained profits then most probably it is so

Hahaha, I was the other way round. I took accounts in my GCSEs equivalent in my country and I was overconfident with it tbh. I paid the price hahaha.

I know I can get an A* overall with just a 220 for unit 1. I wasn't aiming for an A* actually, I just want an A but if I want to have an A for my overall grade I would inadvertently be aiming for an A* already LOL Thanks, fingers crossed I get more than 270/300. I'm sure you'll be fine as well!

Oh and btw, can you explain about mergers for me? I completely zoned out during the time my teacher was teaching it so my mind is a complete blank. Not a good idea considering that exams is two days away

Too much confidence...happens to me a lot believe me I actually thought this paper and some others (like Econ U3 and U4) were pretty much straightforward, and I put off answering pastpapers until a week before the exam or so, and now that I see the pastpapers...

Thanks

Sure, what do you want to know about mergers?

[Akiraryuu]

(Original post by ezioaudi77)
Too much confidence...happens to me a lot believe me I actually thought this paper and some others (like Econ U3 and U4) were pretty much straightforward, and I put off answering pastpapers until a week before the exam or so, and now that I see the pastpapers...

Thanks

Sure, what do you want to know about mergers?

*coughs* Like everything I should know? All I know is that the first step to do this is to transfer all the assets of the company being taken over to the realisation a/c. That's all. HAHAHA What happens to the shares of the company being taken over?

Also, urgh Econs killed me. The past papers (ones from 2006-2009-ish) was relatively straightforward. The recent years? Half the time I don't even know what it wants!

[ezioaudi77]

(Original post by Akiraryuu)
*coughs* Like everything I should know? All I know is that the first step to do this is to transfer all the assets of the company being taken over to the realisation a/c. That's all. HAHAHA What happens to the shares of the company being taken over?

Also, urgh Econs killed me. The past papers (ones from 2006-2009-ish) was relatively straightforward. The recent years? Half the time I don't even know what it wants!

OK then, basics.

Questions can be on mergers and acquisitions. Nothing to worry, they are basically the same in accounting.

• Acquisition is when one company(B) purchases another company(A) and pays for it.
• Merging is like the new merged company "AB" acquires A separately and B separately.

First the question will always ask you to calculate the "purchase price"/"purchase consideration" or "goodwill".

Purchase consideration = Value of assets acquired - value of liabilities acquired + goodwill

So if goodwill paid for is given, you can find purchase consideration (if goodwill paid for is 100,000 and the net value of assets less liabilities acquired is 200,000, Purchase consideration will be 300,000). If purchase consideration paid is given you can calculate the goodwill(PC - assets + liabilities).

Next, comes what you know.

1. You have to transfer the book of the assets and liabilities being taken over to the realisation a/c before any adjustments given are done. Therefore these accounts will be closed down.
2. Then, open an account in the name of the acquiring firm/merged firm. Debit that a/c with the purchase consideration and credit the realisation a/c with the purchase consideration.
3. Next, open an account for sundry shareholders, and transfer to the credit the share capital (of A), reserves and other assets and liabilities not acquired (by AB). This is because all these are owned by the sundry shareholders (of A), as the dissolving company is thieirs after all.
4. Then when purchase consideration is recieved, be it by share capital (of AB) or cash, debit the acqiring firm/merged firm's a/c. This will close that account. The credit entry is to the realisation a/c.
5. Now you have to balance the realisation a/c. If the credit side is higher, debit the realisation a/c with the difference and credit the sundry shareholders a/c. If debit side is higher, debit sundry shareholders and credit realisation. Either way, realisation a/c will close down.
6. What is left is the sundry shareholder's a/c. If everything thing was done perfectly, this will automatically be balanced.

That is the simplest form I can put it in, so hope that made sense. Oh, and in pastpapers, only specific a/cs will be asked to be shown. Go through some pastpapers and understand the "flow", this question is pretty easy once you do some.

Yeah, econ was much easier in early years, it was basically just blurting out theory. But that was made up by a much tighter time constraint (80 marks in 1hr and 15 mins)

[ezioaudi77]

(Original post by Akiraryuu)
What happens to the shares of the company being taken over?

The merged company or acquiring company will issue shares of its own or even provide cash according to the purchase consideration.

One thing I forgot to mention was that the number of shares issued by the purchaser company can be found by (Purchase consideration paid)/(value of a share it will be issued at).

So if purchase price was $500,000 and if the acquiring company will pay this by issuing ord. shares at $1.25, the number of shares issued will be 400,000 ordinary shares.

Hey, small question, how do you prepare the budgeted profit and loss a/c and balance sheet? Do you have a format?

[Akiraryuu]

(Original post by ezioaudi77)
x

OHMAIGAWD. You're a life saver! Now I got to do a few past year questions to get the hang of this, though hopefully it won't come out since there's a merger question in Jan 2012. One can only hope

Hey, small question, how do you prepare the budgeted profit and loss a/c and balance sheet? Do you have a format?

By budgeted profit and loss a/c questions you mean those costing questions that asks you to calculate the closing stock based on either absorption or marginal costing? Usually the profit and loss a/c would have the format of:

Sales (units x selling price)
(less) Fixed cost
(less) Variable cost
(less) Closing stock (using marginal or absorption costing will give two different closing stock figure)
Cost of goods sold
Profit/(Loss)

You can calculate the closing stock using the formula:

This will give you the total value of the closing stock.

Alternatively, you can use this formula to give you the value of closing stock for one unit:

If the question asks for valuation by absorption costing:
Total cost = Fixed cost + variable cost

If the question asks for valuation by marginal costing:
Total cost = Variable cost only

I've never seen a question that asks for a budgeted balance sheet though...

[Warfare]

(Original post by Akiraryuu)
Fingers crossed! I am absolutely hopeless in most topics regarding limited companies except for the final accounts and cash flow

Not so sure about break even analysis though, it came out in June 2011 and Jan 2012 already.

Yeah, but it comes nearly every year and im just hoping it comes again this year. Its pretty easy, so I hope I can just get some easy marks....

[ezioaudi77]

(Original post by Akiraryuu)
OHMAIGAWD. You're a life saver! Now I got to do a few past year questions to get the hang of this, though hopefully it won't come out since there's a merger question in Jan 2012. One can only hope

No problem It is always good to know all sections thoroughly.
Even though one came in January, you can't be sure that one can't come this time. I have a feeling this time sections other than the preparation of company a/cs and cash flow statements are going to be tougher, as this is the first time since the syllabus changed.

(Original post by Akiraryuu)
By budgeted profit and loss a/c questions you mean those costing questions that asks you to calculate the closing stock based on either absorption or marginal costing?

Thanks for the explanation I want to know whether the budgeted profit and loss should be done in the IAS format. And what else do you think may change because of IAS?

[Akiraryuu]

(Original post by Warfare)
Yeah, but it comes nearly every year and im just hoping it comes again this year. Its pretty easy, so I hope I can just get some easy marks....

Yeah, I love break-even analysis especially if it involves drawing graphs! 14 marks just like that!

(Original post by ezioaudi77)
Thanks for the explanation I want to know whether the budgeted profit and loss should be done in the IAS format. And what else do you think may change because of IAS?

Nope, don't think there's any format changes for that judging by the mark schemes of June 2011 though the term "budgeted profit and loss a/c" has been changed to "budgeted income statement". As far as I know IAS only affects profit and loss a/c, balance sheet and cash flow.

And OMG, I like doing cash flow, but I always mess up the dividends! I can get the total dividends paid fine but when it comes to categorizing them into Final, Interim and Preference killed me.

Also, in Jan 2012 question 3(c) how do you calculate the profit on realisation on the sundry shareholders a/c? I opened a realisation a/c and I can't get the same value as the answer scheme

[Janna273]

Anybody knows the main areas of theory we should study..??

[ezioaudi77]

(Original post by Akiraryuu)
And OMG, I like doing cash flow, but I always mess up the dividends! I can get the total dividends paid fine but when it comes to categorizing them into Final, Interim and Preference killed me.

lol, me too That is the only thing I mess up in cash flow statements (most of the time )

(Original post by Akiraryuu)
Also, in Jan 2012 question 3(c) how do you calculate the profit on realisation on the sundry shareholders a/c? I opened a realisation a/c and I can't get the same value as the answer scheme

That question is the hardest merger question that has come up. Probably one of the reasons why the grade boundaries came down to 135/200 for A* in Jan from 160/200 in last June.

You have to transfer all the book values before adjustments to the realisation a/c. Then, at some point it will be credited with the purchase consideration from the purchaser(Atlantic Foods).



My mistake, I didn't say that all assets that were not sold to anyone else will be transferred to the realisation profit as well, sorry

[ezioaudi77]

(Original post by Janna273)
Anybody knows the main areas of theory we should study..??

If you mean the main topic areas, there is no such pattern, that I know of anyway. So, study all areas.
If by theory you mean the evaluative questions, go through the markschemes, and some questions tend to repeat themselves.

[Akiraryuu]

(Original post by ezioaudi77)
lol, me too That is the only thing I mess up in cash flow statements (most of the time )
That question is the hardest merger question that has come up. Probably one of the reasons why the grade boundaries came down to 135/200 for A* in Jan from 160/200 in last June.

You have to transfer all the book values before adjustments to the realisation a/c. Then, at some point it will be credited with the purchase consideration from the purchaser(Atlantic Foods).



My mistake, I didn't say that all assets that were not sold to anyone else will be transferred to the realisation profit as well, sorry

Oh! Oh! I get it now! I was literally scratching my head while doing that. I kept transferring building, bank, creditors etc into the realisation a/c and still couldn't get the answer. Didn't realize I was supposed to transfer the net amount given top LOL. Hahaha, yeah A* boundary for this paper was seriously low compared to other subjects like maths. 70/75 for an A* is just too hard to achieve!

(Original post by Janna273)
Anybody knows the main areas of theory we should study..??

(Original post by ezioaudi77)
If you mean the main topic areas, there is no such pattern, that I know of anyway. So, study all areas.
If by theory you mean the evaluative questions, go through the markschemes, and some questions tend to repeat themselves.

I generally waffle through theory questions. Judging by the mark schemes, it is very easy to get marks in evaluation questions (well you have to make sense that is )

[jhonwds]

I have a question. In January 2008 Question 3 (http://www.xtremepapers.com/papers/E...%20Booklet.pdf)

At part b when we have to prepare the Capital Redemption Reserve, why is the P&L entry 65000? What makes sense is that the total redemptions are 125000

Can anyone help me out?

[ezioaudi77]

(Original post by jhonwds)
I have a question. In January 2008 Question 3 (http://www.xtremepapers.com/papers/E...%20Booklet.pdf)

At part b when we have to prepare the Capital Redemption Reserve, why is the P&L entry 65000? What makes sense is that the total redemptions are 125000

Can anyone help me out?

You can issue share capital as well in order adjust the "Shareholder buffer". But this has to be done on the exact day of the redemption of the other shares, or it must be mentioned that the new issue has been made in order to finance the redemption.

In this case, shares are issued on the same day worth £60000, so this reduces the amount to be credited to the CRR, so only 65000 needs to be transferred(£125000-£60000).

[ezioaudi77]

Got to go do some serious last minute revision. Hope to see you all 24 hours after the day of the exam

[Akiraryuu]

(Original post by ezioaudi77)
You can issue share capital as well in order adjust the "Shareholder buffer". But this has to be done on the exact day of the redemption of the other shares, or it must be mentioned that the new issue has been made in order to finance the redemption.

In this case, shares are issued on the same day worth £60000, so this reduces the amount to be credited to the CRR, so only 65000 needs to be transferred(£125000-£60000).

It's odd that the mark scheme used the Profit and Loss a/c to transfer to the CRR. Shouldn't the remaining amount after the issue of new shares be transferred from the other reserves like the general reserve first?


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