The following is an extract of records of the manufacturing concern ABC Ltd, who has approached you for assistance. Inventory on 1 January 2018: Finished product R12000 WIP R20000 Direct Materials R35000 Inventory on 31 December 2018: Finished product R12000 WIP R20000 Direct Materials R24250 Sales = R310’000 Direct Material purchases = R17’000 Freight on Direct Material = R1250 Direct labour for the year was R29’000 The following overheads were incurred for the period: Rent = R22000 Indirect Labour = R9500 Indirect Materials = R7500 Water and Lights = R8000 Telephone = R5000 A total of 50% of the overheads was used in the production facility. Required: Calculate Net Profit R200 000 R304 000 R204 000 R214 000 None of the above
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 is an extract of records of the manufacturing concern ABC Ltd, who has approached you for assistance.
Inventory on 1 January 2018:
|
Finished product |
R12000 |
|
WIP |
R20000 |
|
Direct Materials |
R35000 |
Inventory on 31 December 2018:
|
Finished product |
R12000 |
|
WIP |
R20000 |
|
Direct Materials |
R24250 |
Sales = R310’000
Direct Material purchases = R17’000
Freight on Direct Material = R1250
Direct labour for the year was R29’000
The following overheads were incurred for the period:
Rent = R22000
Indirect Labour = R9500
Indirect Materials = R7500
Water and Lights = R8000
Telephone = R5000
A total of 50% of the overheads was used in the production facility.
Required:
Calculate Net Profit
|
R200 000 |
||
|
R304 000 |
||
|
R204 000 |
||
|
R214 000 |
||
|
None of the above |
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