NOTE: SHOW A DETAILED SOLUTION. The summarised financial statements of LL Limited are as follows:” Profit & Loss Account/Income Statement for the year ended 31 December 2020 £000 Operating profit 80 Investment income 5 Interest payable (7) Profit before taxation 78 Taxation (14) Profit after taxation 64 Dividends payable (20) Retained profit 44 Balance Sheets 2020 2020 2019 2019 £000 £000 £000 £000 Fixed/Non-current assets Cost 370 290 Depreciation (70) (50) 300 240 Current assets Stock/inventory 95 70 Trade debtors/receivables 75 56 Short-term deposits 35 26 Bank 44 249 152 Current liabilities Trade creditors/payables 40 45 Interest payable 18 23 Taxation payable 10 12 Dividends payable 15 22 Bank 13 (83) (115) Non-current liabilities Loans (150) (60) NET ASSETS 316 217 Shareholders’ Funds Share capital 180 135 Share premium account 60 50 Retained profits 76 32 316 217 “Additional information A fixed/non-current asset which originally cost £20,000 and had accumulated depreciation as at the date of sale of £15,000 was sold for a profit of £1,000.” “Required” “Prepare LL’s cash flow statement using the indirect method for the year ending 31st December 2020, showing clearly how cash and cash equivalents changed during the year.”
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.
NOTE: SHOW A DETAILED SOLUTION.
The summarised financial statements of LL Limited are as follows:”
|
Profit & Loss Account/Income Statement for the year ended 31 December 2020 |
£000 |
|
Operating profit |
80 |
|
Investment income |
5 |
|
Interest payable |
(7) |
|
Profit before |
78 |
|
Taxation |
(14) |
|
Profit after taxation |
64 |
|
Dividends payable |
(20) |
|
Retained profit |
44 |
|
|
2020 |
2020 |
2019 |
2019 |
|
|
£000 |
£000 |
£000 |
£000 |
|
Fixed/Non-current assets |
||||
|
Cost |
370 |
290 |
||
|
|
(70) |
(50) |
||
|
|
300 |
240 |
||
|
Current assets |
||||
|
Stock/inventory |
95 |
70 |
||
|
Trade debtors/receivables |
75 |
56 |
||
|
Short-term deposits |
35 |
26 |
||
|
Bank |
44 |
|||
|
|
249 |
152 |
||
|
Current liabilities |
||||
|
Trade creditors/payables |
40 |
45 |
||
|
Interest payable |
18 |
23 |
||
|
Taxation payable |
10 |
12 |
||
|
Dividends payable |
15 |
22 |
||
|
Bank |
13 |
|||
|
|
(83) |
(115) |
||
|
Non-current liabilities |
||||
|
Loans |
(150) |
(60) |
||
|
NET ASSETS |
316 |
217 |
||
|
Shareholders’ Funds |
||||
|
Share capital |
180 |
135 |
||
|
Share premium account |
60 |
50 |
||
|
Retained profits |
76 |
32 |
||
|
|
316 |
217 |
“Additional information
A fixed/non-current asset which originally cost £20,000 and had
“Required”
“Prepare LL’s
‘Describe the concept of “over-trading” using numeric example if appropriate.’
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