REQUIRED Use the information provided below to prepare the Cash Flow Statement of Nascar Limited 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.
QUESTION 4 (20 MARKS)
REQUIRED
Use the information provided below to prepare the
ended 31 December 2021.
INFORMATION
The following Information was extracted from the records of Nascar Limited for the past two years:
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER:
2021 (R) 2020 (R)
Sales 18 560 000 12 000 000
Cost of sales (12 800 000) (7 500 000)
Gross profit 5 760 000 4 500 000
Operating expenses (2 912 000) (2 120 000)
Other operating expenses 2 612 000 1 860 000
Operating profit 2 848 000 2 380 000
Interest on mortgage loan (240 000) (720 000)
Profit before tax 2 608 000 1 660 000
Company tax (782 400) (498 000)
Profit after tax 1 825 600 1 162 000
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER:
2021 (R) 2020 (R)
ASSETS
Non-current assets 24 641 600 24 440 000
Fixed assets 24 641 600 24 440 000
Current assets 3 560 000 3 360 000
Inventories (all Trading inventory) 1 200 000 2 500 000
Cash & cash equivalents 1 960 000 220 000
28 201 600 27 800 000
EQUITY AND LIABILITIES
Equity 24 495 600 19 883 000
Ordinary share capital 21 800 000 17 600 000
Retained income 2 695 600 2 283 000
Non-current liabilities 2 000 000 6 000 000
Mortgage loan (12% p.a.) 2 000 000 6 000 000
Current liabilities 1 706 000 1 917 000
Accounts payable 850 000 1 290 000
SARS (Company tax) 96 000 67 000
Shareholders for dividends 760 000 560 000
28 201 600 27 800 000
Additional information
■ The issue price of all the shares is R10 each. New shares were issued on the first day of the financial
year.
■ Interim and final dividends for the year ended 31 December 2021 amounted to R1 413 000.
■ Fixed assets were sold at carrying (book) value during the year for R1 440 000. Fixed assets were also
purchased.
■ The shares in Nascar Limited are currently selling for R12 each.
■ All purchases and sales of inventories are on credit.
■ The following ratios have been calculated:
2021 2020
Profit margin (Net profit margin) 9.84% 9.68%
Acid test ratio 1.38:1 0.45:1
Return on equity 7.45% 5.84%
QUESTION 5 20 MARKS
REQUIRED
Use the information provided in Question 4 to answer the following questions:
5.1 Calculate the following ratios for 2021 only. Express the answers to two decimal places.
5.1.1 Inventory turnover (2 marks)
5.1.2 Creditor payment period (2 marks)
5.1.3 Return on assets (2 marks)
5.1.4 Debt to assets (2 marks)
5.1.5 Dividend per share (2 marks)
5.1.6
5.1.7 Earnings yield (2 marks)
5.2 Comment briefly but meaningfully on the following ratios which have been calculated:
5.2.1 Profit margin (Net profit margin) (2 marks)
5.2.2 Acid test ratio (2 marks)
5.2.3 Return on equity (2 marks
Step by step
Solved in 2 steps
