Prepare the extracts of the financial statements for the year ended 31 March 2015.
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.
Magna is a company that carries out many different activities. It is proud of its reputation as a “caring” organization and has adopted various ethical policies towards its employees and the wider community in which it operates.
As part of its annual financial statements, the company publishes details of its environmental policies, which include setting performance targets for activities such as recycling, controlling emissions of noxious substances and limiting use of non-renewable resources.
The company has an overseas operation that is involved in mining precious metals. These activities cause significant damage to the environment, including deforestation.
On April 1, 2014, the company incurred capital cost of $100 million in respect of the mine and it is expected that the mine will be abandoned in eight years’ time.
The mine is situated in a country where there is no environmental legislation obliging companies to rectify environmental damage and is it very unlikely that any such legislation will be enacted within eight years.
It has been estimated that the cost of the cleaning the site and re-planting the trees will be $25 million if the replanting were successful at the first attempt, but it will probably be necessary to make a further attempt, which will increase the cost by a further $5 million. The company’s cost of capital is 10%.
Prepare the extracts of the financial statements for the year ended 31 March 2015.
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