The statement of Profit and Loss and other Comprehensive Income and the Statement of Financial Position as at 28 February 2021 for Sefika Ltd is presented below: Sefika Ltd Statement of Profit and Loss and other Comprehensive income for the year ended 28 February 2021 N$ Revenue from Sales 2 081 800 Cost of Sales (1 312 600) Gross Profit 769 200 Operating expenses: (386 400) Loss on disposal of plant and equipment (8 000) Other operating expenses (378 400) Finance cost: Interest expense (75 200) Profit before tax 307 600 Income tax expense (68 400) Profit for the year 239 200 Sefika Ltd Statement of Financial position as at 28 February 2021 N$ 2021 N$ 2020 ASSETS Non-Current Assets: 890 000 824 000 Land and building at cost 725 000 600 000 Plant and equipment at cost 531 000 504 000 Accumulated depreciation- plant and equipment (366 000) (280 000) Current Assets: 895 200 722 000 Inventory 360 000 440 000 Account receivables 200 000 240 000 Prepaid expense 1 200 2 000 Cash and cash equivalent 334 000 40 000 1 785 200 1 546 000 EQUITY AND LIABILITY Capital and Reserve: 900 200 706 000 Share capital 475 000 400 000 Retained earnings 425 200 306 000 Non-Current liability: Mortgage loan 645 000 560 000 Current liability: 240 000 280 000 Account payables 128 000 194 000 Tax liability 52 000 36 000 Shareholders for dividend 60 000 50 000 1 785 200 1 546 000 Additional information: Plant and equipment which cost N$48 000 were sold and accumulated depreciation to the date of sale amounted to N$34 000. Included in other operating expenses is a depreciation expense of N$120 000. YOU ARE REQUIRED TO: Prepare a statement of Cash Flows for Sefika Ltd for the year ended 28 February 32021, using the direct method. Prepare the note to reconcile the cash generated from operations to profit before tax. Use the financial information presented in the statement of profit or loss and other comprehensive income and the statement of financial position for Sefika Ltd above, and calculate the following unknown ratios: 2021 2020 3.1 Gross margin % ? 25% 3.2 Net margin % ? 15% 3.3 Debt ratio % ? ? 3.4 Debt to Equity ? ? 3.5 ROE % ? 11% 3.6 ROCE % ? 8% Comment briefly on the gearing and profitability position of Sefika Ltd.
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.
Question 2
The statement of
Sefika Ltd Statement of Profit and Loss and other Comprehensive income for the year ended 28 February 2021
|
|
N$ |
|
Revenue from Sales |
2 081 800 |
|
Cost of Sales |
(1 312 600) |
|
Gross Profit |
769 200 |
|
Operating expenses: |
(386 400) |
|
Loss on disposal of plant and equipment |
(8 000) |
|
Other operating expenses |
(378 400) |
|
Finance cost: |
|
|
Interest expense |
(75 200) |
|
Profit before tax |
307 600 |
|
Income tax expense |
(68 400) |
|
Profit for the year |
239 200 |
Sefika Ltd Statement of Financial position as at 28 February 2021
|
|
N$ 2021 |
N$ 2020 |
|
ASSETS |
|
|
|
Non-Current Assets: |
890 000 |
824 000 |
|
Land and building at cost |
725 000 |
600 000 |
|
Plant and equipment at cost |
531 000 |
504 000 |
|
|
(366 000) |
(280 000) |
|
|
|
|
|
Current Assets: |
895 200 |
722 000 |
|
Inventory |
360 000 |
440 000 |
|
|
200 000 |
240 000 |
|
Prepaid expense |
1 200 |
2 000 |
|
Cash and cash equivalent |
334 000 |
40 000 |
|
|
1 785 200 |
1 546 000 |
|
EQUITY AND LIABILITY |
|
|
|
Capital and Reserve: |
900 200 |
706 000 |
|
Share capital |
475 000 |
400 000 |
|
|
425 200 |
306 000 |
|
|
|
|
|
Non-Current liability: |
|
|
|
Mortgage loan |
645 000 |
560 000 |
|
Current liability: |
240 000 |
280 000 |
|
Account payables |
128 000 |
194 000 |
|
Tax liability |
52 000 |
36 000 |
|
Shareholders for dividend |
60 000 |
50 000 |
|
|
1 785 200 |
1 546 000 |
Additional information:
- Plant and equipment which cost N$48 000 were sold and accumulated depreciation to the date of sale amounted to N$34 000.
- Included in other operating expenses is a depreciation expense of N$120 000.
YOU ARE REQUIRED TO:
- Prepare a statement of
Cash Flows for Sefika Ltd for the year ended 28 February 32021, using the direct method. - Prepare the note to reconcile the cash generated from operations to profit before tax.
- Use the financial information presented in the statement of profit or loss and other comprehensive income and the statement of financial position for Sefika Ltd above, and calculate the following unknown ratios:
|
|
|
2021 |
2020 |
|
3.1 |
Gross margin % |
? |
25% |
|
3.2 |
Net margin % |
? |
15% |
|
3.3 |
Debt ratio % |
? |
? |
|
3.4 |
Debt to Equity |
? |
? |
|
3.5 |
ROE % |
? |
11% |
|
3.6 |
ROCE % |
? |
8% |
- Comment briefly on the gearing and profitability position of Sefika Ltd.
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