Question

QUESTION FIVE [25] The following information was obtained from the accounting records of First Ltd: Summarised financial position for year ended 31 December 2018 2019 R R 95 470 104 865 Nil 1 100 1 600 ASSETS Land and buildings Investments Machinery at carrying amount Cost Accumulated depreciation Inventories Trade debtors Cash at bank 6 500 8 700 (2 200) 12 000 5 400 (3 800) 9 000 10 205 30 700 13 500 Nil TOTAL ASSETS 147 070 137 870 EQUITY & LIABILITIES 100 070 78 470 Equity Ordinary share capital Retained earnings 85 000 68 000 15 070 10 470 47 000 59 400 20 000 30 000 Nil 700 Liabilities Long term loan Bank overdraft Trade creditors Income tax payable Dividends payable 6 600 2 000 9 200 4 100 15 400 18 400 TOTAL EQUITY AND LIABILITIES 147 070 137 870

Answer 1

1. Cash Flow Statement -

First Ltd Statement of Cash Flows (Indirect Method) For the year ended December 31, 2018 Cash flow from operating activities Profit for the year $ 23,000 Adjustments for non cash items Depreciation Expenses $ 1,000 Profit on sale of Land and Building $ (7,000) Profit on sale of Machinery $ (300) Loss on Sale of investments $ 500 $ (5,800) Change in working capital Decrease in Trade Debtors Increase in Inventory Decrease in Trade Creditors Decrease in income tax payable $ 20,495 $ (3,000) $ (2,600) $ (2,100) $ 12,795 Net Cash flow from operating activities $ 29,995 Cash flow from Investing activities Purchase of land and Buidling Sale of Land and Building Sale of Investment Sale of Machinery Purchase of Machinery $(20,395) $ 18,000 $ 600 $ 800 $ (6,400) Net Cash flow from Investing activities $ (7,395) Cash flow from Financing activities Payment of Dividends Payment of long term loan Issuance of Common Stock $(15,400) $(10,000) $ 17,000 Net Cash flow from Financing activities $ (8,400) Change in cash $ 14,200 Cash at the beginning Cash at the End $ (700) $ 13,500

Explanation -

1. Non Cash Items are those items which are included in the net income but are not in cash, those will be depreciation and gain or loss on sale of assets.

Those gains needs to be removed and loss should be added in the cash flow statement.

2. In the investing activities all those assets which are sold or purchased in the financial year needs to be accounted. If casn received should be shown as positive figure and if purchased then should be shown as negative figure.

3. In the financing activities dividend which is paid in cash should be accounted, loans if paid or issued should be shown and common stock if issued or purchased need to be shown.