The trial balance of Alfa shows the following balances at 31 December 2021: Dr Cr $000 $000 Issued share capital (500,000 shares) 500 Share premium 20 Finance costs 70 Retained earnings 1 January 2019 104 Inventory (raw materials) at 1 January 2019 60 Revenue 1092 Purchases 590 Purchases returns 26 Sales returns 28 Carriage outwards 28 Work-in-progress at 1 January 2021 80 Intangible assets 170 Administrative wages 30 Warehouse plant and equipment – cost 92 Accumulated depreciation – 1 January 2021 50 Delivery vehicle hire 20 Distribution expenses 30 Administrative expenses 10 Directors’ salaries 30 Sales allowances 6 Investment income 30 Bank overdraft 50 Trade receivables 410 Cash at bank 110 Land 120 1878 1878 Additional information: Inventories at 31 December 2021 were valued at $10,000. Work-in-progress at 31 December 2021 was valued at $20,000 Depreciation charges (plant and equipment) for the year amounting to $27,000 and $5,000 should be included in distribution costs and administrative expenses, respectively. The income tax rate is 20%. A final dividend of $0.50 per share was declared on 31 March 2022. There were no disposals of any non-current assets during the year. Land was revalued at 31 December 2021 to $100,000. No entries have yet been made to record this. Insurance for delivery vehicles is to be accrued $1,000. Receivables totalling $30,000 are to be written off General reserve is to be created at $1,800 Allowance for receivables should be created as 2% of net receivables Required: Prepare a) a statement of profit or loss and other comprehensive income for the year ended 31 December 2021
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.
The
|
|
Dr |
Cr |
|
|
$000 |
$000 |
|
Issued share capital (500,000 shares) |
|
500 |
|
Share premium |
|
20 |
|
Finance costs |
70 |
|
|
|
|
104 |
|
Inventory (raw materials) at 1 January 2019 |
60 |
|
|
Revenue |
|
1092 |
|
Purchases |
590 |
|
|
Purchases returns |
|
26 |
|
Sales returns |
28 |
|
|
Carriage outwards |
28 |
|
|
Work-in-progress at 1 January 2021 |
80 |
|
|
Intangible assets |
170 |
|
|
Administrative wages |
30 |
|
|
Warehouse plant and equipment – cost |
92 |
|
|
|
|
50 |
|
Delivery vehicle hire |
20 |
|
|
Distribution expenses |
30 |
|
|
Administrative expenses |
10 |
|
|
Directors’ salaries |
30 |
|
|
Sales allowances |
|
6 |
|
Investment income |
|
30 |
|
Bank overdraft |
|
50 |
|
Trade receivables |
410 |
|
|
Cash at bank |
110 |
|
|
Land |
120 |
|
|
|
1878 |
1878 |
Additional information:
- Inventories at 31 December 2021 were valued at $10,000.
- Work-in-progress at 31 December 2021 was valued at $20,000
- Depreciation charges (plant and equipment) for the year amounting to $27,000 and $5,000 should be included in distribution costs and administrative expenses, respectively.
- The income tax rate is 20%.
- A final dividend of $0.50 per share was declared on 31 March 2022.
- There were no disposals of any non-current assets during the year. Land was revalued at 31 December 2021 to $100,000. No entries have yet been made to record this.
- Insurance for delivery vehicles is to be accrued $1,000.
- Receivables totalling $30,000 are to be written off
- General reserve is to be created at $1,800
- Allowance for receivables should be created as 2% of net receivables
Required:
Prepare
- a) a statement of profit or loss and other comprehensive income for the year ended 31 December 2021
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