The following information was taken from the books of Newcastle Enterprises. Balances in the general ledger of Newcastle Enterprises for the financial year ended 29 February 2020. Account Fol. Debit(R) Credit(R) Capital: M. Manchester(1 March 2019) 50 000 Capital: L. Liverpool (1 March 2019) 70 000 Current: M. Manchester (1 March 2019) 18 000 Current: L. Liverpool (1 March 2019) 8 000 Drawings: M. Manchester 5 000 Drawings: L. Liverpool 4 000 Replacement Reserve 65 000 Profit and Loss 420 000 Property, plant and equipment 670 000 Appropriations according to the partnership agreement for the financial year ended 29 February 2020: 1. Interest on capital must be appropriated at 5% per annum. Capital account balances remain constant. 2. Interest on drawings must be appropriated at 12% per annum. Assume drawings were made 3 months prior to the end of the financial year. 3. Interest on current accounts must be appropriated at 7% per annum (on opening balances). 20 2020 © The Independent Institute of Education (Pty) Ltd 2020 Page 12 of 14 4. Both partners must receive an annual salary at the end of the financial year as follows: - M. Manchester – R65 000 - L. Liverpool – R45 000 5. L. Liverpool must receive an annual bonus of R10 000 at the end of the financial year. 6. R35 000 must be transferred to the replacement reserve at the end of the financial year. 7. The remaining profit must be split between the partners in the following ratio: M. Manchester: 5 L. Liverpool: 3 Required: Open, post to and balance the appropriation account in the general ledger of Newcastle Enterprises for the year ended 29 February 2020. (Round to 2 decimal places
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 information was taken from the books of Newcastle Enterprises.
Balances in the general ledger of Newcastle Enterprises for the financial year ended
29 February 2020.
Account Fol. Debit(R) Credit(R)
Capital: M. Manchester(1 March
2019)
50 000
Capital: L. Liverpool (1 March
2019)
70 000
Current: M. Manchester (1 March
2019)
18 000
Current: L. Liverpool (1 March
2019)
8 000
Drawings: M. Manchester 5 000
Drawings: L. Liverpool 4 000
Replacement Reserve 65 000
Property, plant and equipment 670 000
Appropriations according to the partnership agreement for the financial year ended
29 February 2020:
1. Interest on capital must be appropriated at 5% per annum. Capital account
balances remain constant.
2. Interest on drawings must be appropriated at 12% per annum. Assume
drawings were made 3 months prior to the end of the financial year.
3. Interest on current accounts must be appropriated at 7% per annum (on
opening balances).
20 2020
© The Independent Institute of Education (Pty) Ltd 2020
Page 12 of 14
4. Both partners must receive an annual salary at the end of the financial year
as follows:
- M. Manchester – R65 000
- L. Liverpool – R45 000
5. L. Liverpool must receive an annual bonus of R10 000 at the end of the
financial year.
6. R35 000 must be transferred to the replacement reserve at the end of the
financial year.
7. The remaining profit must be split between the partners in the following
ratio:
M. Manchester: 5
L. Liverpool: 3
Required:
Open, post to and balance the appropriation account in the general ledger of
Newcastle Enterprises for the year ended 29 February 2020.
(Round to 2 decimal places)
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