Balance Sheet taken from the books of Agency Limited as on 31st March, 2016 was as under: $ Equity and Liabilities (1) Shareholders' Funds (a) Share Capital 10,000 6% Preference Shares of $10 each 1,00,000 20,000 Equity Shares of $10 each 2,00,000 (b) Reserves and Surplus : Reserve 10,000 Surplus Account 20,000 (2) Non-current Liabilities 6% Debentures 1,20,000 (3) Current Liabilities Sundry Creditors 50,000 Total Equity and Liabilities 5,00,000 I. Assets (1) Non-current Assets Fixed Assets 3,00,000 Intangible Asset : Goodwill 35,000 Current Assets Stock 80,000 Debtors 70,000 Bank Balance 15,000 Total Assets 5,00,000 A new company, Principal Limited, was formed to acquire the business of Agency be wound up. Principal Limited acquired the assets of Agency Limited with the exception of book debts cash, but took over no liabilities except 6% Debentures, agreeing however, to collect the debts and pay creditors as an agent of Agency Limited. The purchase consideration was to be satisfied as follows: The Preference shareholders of Agency Limited were to be allotted 6 Preference shares of $10 each in Principal Limited for every five shares held, and the Equity shareholders of Agency Limited were to be allotted five equity shares of $10 each credited as $9 paid for every four shares held. The expenses of Liquidation were 5,000. of the debtors, $ 2,000 proved bad and a discount of 2 per cent had to be allowed on settlement. Creditors were paid off subject to a 4 per cent discount on $ 25,000. Show the Ledger Accounts necessary to close the books of Agency Limited.
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.
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