The comparative statements of financial position for Victory Limited ("Victory") include the following information: 2022 2021 Land (Note 1) Equipment (Note 2) Accumulated depreciation - Equipment Investment in CK Holdings (Note 3) Prepaid expenses Inventory Accounts receivable (net) Cash 20,000 75,000 60,000 90,000 (18,000) 20,000 15,000 65,000 55,000 14.500 301.500 (8,000) 25,000 45,000 45,000 35.000 237.000 Share capital - ordinary Retained carnings Accumulated Unrealized holding gain / loss (Note 3) Loan from bank Bonds payable Accrued expenses Accounts payable 179,000 7,500 5,000 139,000 5,000 23,000 30,000 15,000 65.000 301.500 18,000 52.000 237.000 Note: (1) Land was acquired for $40,000 in exchange for ordinary shares, par $40,000, during the year. (2) All equipment purchased was for cash. Equipment costing $10,000 (with book value of $6,000) was sold for $2,000. (3) On 1 March 2022, Victory purchased 5,000 ordinary shares from CK Holdings for $15,000. Victory classified the investment as non-trading securities. At the financial year-end, the fair value of the shares was $20,000 and CK Holdings declared and paid S0.0S cash dividends per share. (4) Net income for the year was $12,500 and cash dividends of $10,000 were declared and paid during the year. (5) The company classified interest and dividends paid as financing activities and interest and dividends received as investing activities. Required: (a) Prepare a statement of cash flows using INDIRECT METHOD for Victory Limited for the year ended 31 December 2022 (with supplementary note of non-cash investing and financing activities, if any). (b) Suppose Victory Limited classified the investment in CK Holdings as trading securities (instead of non-trading), how would it affect the statement of cash flows?
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.
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