The financial statements of Company Permanent and its subsidiary Company Senior are shown below. Statement of Financial Position As at 31 December 2020 Permanent Senior Investment in Senior Other net assets 759,000 4,354,400 1,000,000 5,113,400 1,000,000 Share capital Retained earnings Liability 2,305,000 2,082,000 310,000 540,055 726,400 149,945 5,113,400 1,000,000 Income Statement and Partial Statement of Changes in Equity For the Year Ended 31 December 2020 Permanent Senior 2$ 1,000,000 (900,000) 240,000 340,000 (202,000) 138,000 2,050,000 (106,000) Sales Cost of sales Dividend income from Senior 647,000 (313,945) Profit before tax Тах 333,055 (3,000) 330,055 510,000 (300,000) Profit after tax Retained eanings, 1 January 2020 Dividends declared Retained earnings, 31 December 2020 2,082,000 540,055 (A) Permanent acquired 80% of interest in Senior on 1 January 2018 when the shareholders' equity of Senior was as follows: Share capital Retained earnings $310,000 $140,000 Fair value of identifiable net assets of Senior was close to the book value. (B) Non-controlling interost is calculated on a fair value basis, and it was $121,000 on 1 January 2018. (C) Goodwill impairment was $70,000 in 2018 and $60,000 in 2020. (D) Intercompany sales from Senior to Permanent during 2020 was $100,000. Cost to Senior was $90,000. All the purchase was still kept by Permanent as at 31 December 2020.
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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Prepare the Consolidated Statement of Financial Position as at 31 December 2020 and the Income Statement and Partial Statement of Changes in Equity for the year ended 31 December 2020. Worksheets are required.
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