The Statement of Comprehensive Income for the year ended 31 December 2014 Sales Revenue Cost of Sales Gross Profit Expenses Dividend received from Subsid plc Profit before tax Income Tax expense Profit after tax Dividends paid Retained Earnings brought forward from previous years Parent plc Subsid ple £ £ 830,000 235,000 597.500 142.500 232,500 92,500 76,750 60,000 4,500 0 160,250 32.500 25.750 16.750 134,500 15.750 90.000 6.000 44,500 9,750 211.500 124.500 256.000 134.250 Parent plc acquired 75% of the shares in Subsid plc on 1 January 2010 when Subsid's retained earnings were £70,000. Non-controlling interests are measured using Method 1. During the year Parent plc sold Subsid plc goods for £30,000 which represented cost plus 25%. 30% of these goods were still in stock at the end of the year. During the year Parent plc and Subsid plc paid dividends of £90,000 and £6,000 respectively. The opening balances of retained earnings for the two companies were £211,500 and £124,500 respectively. Required: (a) Prepare a consolidated statement of income for the year ended 31 December 2014; (b) Prepare a consolidated statement of changes in equity for the year
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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