1. The following is the income statement of Al Kawther Trading LLC for the year end 2019. Income Statement RO Sales 124670 Less: Cost of Goods Sold Opening inventory 13455 Add: Purchases 71320 Less: Closing inventory -9875 (74900) Gross Profit 49770 Other Income : Dividend received from shares and bonds 6,000 Total Income 55770 Less: Operating Expenses Cost of Computers 2500 Salary & Wages 12400 Customs duty 450 Reserve for Bad debts 1200 Motor expenses 7500 Fire Insurance (for goods) 800 Donation 2000 Municipality taxes 2300 (29150) Net Profit 26620 Additional Information: a) Bad debts of 2018 of RO500 recovered in this year. Such bad debts were deductible expenses in the concerned year and not included in current year profit. b) The accountant overvalued opening inventories by RO245 and undervalued closing inventories by RO160. c) The company owned motor vehicle cost RO15000. In the law the depreciation rate attracted @ 33.33%. In the current year company also paid for repair expenses of RO230 for the same vehicle. Accountant omitted to record the depreciation and repairs. d) Computers will be considered as office equipment and tools. e) Donation made to approved charitable project and charged from the gross profit. f) Motor expenses comprise the following: a) Running costs (including Petrol) RO 6,000 Parking fines RO 1500 Requirement: Calculate the taxable income and tax liability for Al Kawther Trading Company for the year 2019
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
1. The following is the income statement of Al Kawther Trading LLC for the year end 2019.
Income Statement
RO
Sales 124670
Less: Cost of Goods Sold
Opening inventory 13455
Add: Purchases 71320
Less: Closing inventory -9875 (74900)
Gross Profit 49770
Other Income : Dividend received from shares and bonds 6,000
Total Income 55770
Less: Operating Expenses
Cost of Computers 2500
Salary & Wages 12400
Customs duty 450
Reserve for
Motor expenses 7500
Fire Insurance (for goods) 800
Donation 2000
Municipality taxes 2300 (29150)
Net Profit 26620
Additional Information:
a) Bad debts of 2018 of RO500 recovered in this year. Such bad debts were deductible expenses in
the concerned year and not included in current year profit.
b) The accountant overvalued opening inventories by RO245 and undervalued closing inventories by
RO160.
c) The company owned motor vehicle cost RO15000. In the law the
33.33%. In the current year company also paid for repair expenses of RO230 for the same vehicle.
Accountant omitted to record the depreciation and repairs.
d) Computers will be considered as office equipment and tools.
e) Donation made to approved charitable project and charged from the gross profit.
f) Motor expenses comprise the following:
a) Running costs (including Petrol) RO 6,000 Parking fines RO 1500
Requirement: Calculate the taxable income and tax liability for Al Kawther Trading Company for the year
2019
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