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Cash Flow, Goodwill, Premium per Share, Debentures

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See the attached file.

1. A company bought new equiptment costing $200,000. It paid $150,000 in cash and received a part-exchanged allowance of $50,000 on some old equpitment, which had a book value of $40,000. Is also sold another item of equiptment, with a book value of $20,000, for $15,000. How should these transactions appear in a cash flow statement? {see attachment for multiple choice options}

2. The attached table details items that have been extracted from the Income and Expenditure Account of a club. What effect will the items have on the cash flow? {see attachment for multiple choice options}

3. Company X regularly pays a dividend. It has converted $50m 10% loan stock into ordinary shares. Which of the attached options describes the likely effect of the conversion on its financial statements?

4. A sole trader sold his business to a limited company on 31 March. The net assets of his business had a total book value of $160,000 and a total fair value of $200,000. The consideration for the sale was satisfied by the issue of 200,000 $1 ordinary shares (worth $1.25 each) and a cash payment of $20,000. What is the amount of goodwill arising on the transfer? {see attachment for multiple choice options}

5. The business of a sole trader is acquired by a limited company {see attachment for details}. What is the premium per share? {see attachment for multiple choice options}

6. X has made a loan of $20,000 to his partnership with interest at 8% per annum. The partnership business has been sold to a limited company. The company issued sufficient 10% debentures to X to ensure that he continued to receive the same amount of interest. What is the nominal amount of debentures that X received?

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Solution Summary

Answers multiple choice questions on cash flow, goodwill, premium per share, debentures with a brief explanation.

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Question 1
A Purchase of tangible assets Sale of tangible assets
$150,000 $15,000

Net purchase = $150,000
Sale= $15,000

Question 2
Answer: D $1285 inflow
Surplus of income over expenditure= 400
Add depreciation (non cash expense)= 1000
Cash flow from operations= 1400

Increase in current liabilities
Expenses accrued= 30
Subscriptions paid in advance= 25
Total increase in current liabilities= 55

Increase in current assets
Expenses paid in ...

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