The following appeared in the ledger of PORTO Manufacturing Company Ltd after the preparation of the Income Statement. SH. Ordinary Share Capital 100,000 8% Preference Share Capital 40,000 Finished Goods Inventory 29,000 Fixed Assets at cost - 141,000 Provision for Depreciation - Fixed Assets 55,200 Reserve for increased replacement of Fixed Assets 15,000 Interim Ordinary Dividend paid 7,500 Receivables 59,200 Payables 40,400 Work-in-progress 36,000 Raw Material stock 26,000 Bank Overdraft 10,000 Profit & Loss Account balance 1st January 2019 4,000 Preference Dividend paid 30th June 2019 1,600 Net Profit for 2019 35,700 Additional information i) The Authorized Capital of the business is 300,000 Ordinary Shares of Sh.0.50 each and 75,000 8% preference shares of Sh. 1.00 each. ii) A final dividend of Sh.0.625 per ordinary share is proposed. iii) The Reserve for Increased Replacement costs of Fixed Assets is to be increased to Sh.20, 000. Required i) A profit and Loss Appropriation Account for the year to 31st December 2019 ii) Statement of Financial position as at the same date.
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.
The following appeared in the ledger of PORTO Manufacturing Company Ltd after the preparation of the Income Statement.
|
SH. |
Ordinary Share Capital |
100,000 |
8% |
40,000 |
Finished Goods Inventory |
29,000 |
Fixed Assets at cost - |
141,000 |
Provision for |
55,200 |
Reserve for increased replacement of Fixed Assets |
15,000 |
Interim Ordinary Dividend paid |
7,500 |
Receivables |
59,200 |
Payables |
40,400 |
Work-in-progress |
36,000 |
Raw Material stock |
26,000 |
Bank Overdraft |
10,000 |
Profit & Loss Account balance 1st January 2019 |
4,000 |
Preference Dividend paid 30th June 2019 |
1,600 |
Net Profit for 2019 |
35,700 |
Additional information
i) The Authorized Capital of the business is 300,000 Ordinary Shares of Sh.0.50 each and 75,000 8% preference shares of Sh. 1.00 each.
ii) A final dividend of Sh.0.625 per ordinary share is proposed.
iii) The Reserve for Increased Replacement costs of Fixed Assets is to be increased to Sh.20, 000.
Required
i) A
ii)
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