Set out below are the financial statements of Emma, a limited liability company. You have been asked to prepare the company's statement of cash flows, implementing IAS 7 Statement of cash flows. EMMA STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2 $＇000 Sales revenue 2,553 Cost of sales 1,814 Gross profit 739 Distribution costs 125 Administrative expenses 264 Operating profit 350 Interest received 25 Interest paid 75 Profit before tax 300 Income tax expense 240 Profit for the year 60 EMMA STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X2 20X1 $'000 $'000 Non-current assets Tangible assets 380 305 Intangible assets 250 200 Investments -- 25 630 530 Current assets Inventories 150 102 Receivables 390 315 Short-term investments 50 -- Cash in hand 2 1 592 418 1,222 948 Equity and liabilities Share capital ($1 ordinary shares) 200 150 Share premium account 160 150 Revaluation surplus 100 91 Retained earnings 160 100 620 491 Non-current liabilities Long-term loan 100 -- Current liabilities Trade payables 127 119 Bank overdraft 85 98 Taxation 290 240 502 457 1,222 948 The following information is available. (a) The proceeds of the sale of non-current asset investments amounted to $30,000. (b) Fixtures and fittings, with an original cost of $85,000 and a carrying amount of $45,00 ,were sold for $32,000 during the year. (c) The current asset investments fall within the definition of cash equivalents under IAS 7. (d) The following information relates to property, plant and equipment. 31.12.20X2 31.12.20X1 $'000 $'000 Cost 720 595 Accumulated depreciation 340 290 Carrying amount 380 305 (e) 50,000 $1 ordinary shares were issued during the year at a premium of 20c per share. 64 Prepare a statement of cash flows for the year to 31 December 20X2 using the format laid out in IAS 7,together with the relevant notes to the statement.
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.
Set out below are the financial statements of Emma, a limited liability company. You have been asked to prepare the company's statement of
EMMA
STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X2
$＇000
Sales revenue 2,553
Cost of sales 1,814
Gross profit 739
Distribution costs 125
Administrative expenses 264
Operating profit 350
Interest received 25
Interest paid 75
Profit before tax 300
Income tax expense 240
Profit for the year 60
EMMA
20X2 20X1
$'000 $'000
Non-current assets
Tangible assets 380 305
Intangible assets 250 200
Investments -- 25
630 530
Current assets
Inventories 150 102
Receivables 390 315
Short-term investments 50 --
Cash in hand 2 1
592 418
1,222 948
Equity and liabilities
Share capital ($1 ordinary shares) 200 150
Share premium account 160 150
Revaluation surplus 100 91
620 491
Non-current liabilities
Long-term loan 100 --
Current liabilities
Trade payables 127 119
Bank overdraft 85 98
502 457
1,222 948
The following information is available.
(a) The proceeds of the sale of non-current asset investments amounted to $30,000.
(b) Fixtures and fittings, with an original cost of $85,000 and a carrying amount of $45,00 ,were sold for $32,000 during the year.
(c) The current asset investments fall within the definition of cash equivalents under IAS 7.
(d) The following information relates to property, plant and equipment.
31.12.20X2 31.12.20X1
$'000 $'000
Cost 720 595
Carrying amount 380 305
(e) 50,000 $1 ordinary shares were issued during the year at a premium of 20c per share.
64
Prepare a statement of cash flows for the year to 31 December 20X2 using the format laid out in IAS 7,together with the relevant notes to the statement.
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