Question

ACC201: Financial Accounting

The following comparative statements of financial position are for Kings Pte Ltd as at 31 December 20X1 and 20X2. Also provided is the extract from the income statement for the year ended 31 December 20X2.

20X1 $ Comparative Statements of Financial Position As at 31 December 20X2 $ Assets Current assets Cash 48,000 Accounts receivable, net 448,000 Merchandise inventory 280,000 Prepaid rent 56,000 Total current assets 868,000 224,000 280,000 196,000 28,000 728,000 Non-current assets Equipment Accumulated depreciation - equipment Total property, plant, and equipment Total assets 1,120,000 (168,000) 952,000 560,000 (140,000) 420,000 Total assets 1,820,000 1,148,000 140,000 Liabilities and Shareholders' Equity Current liabilities Accounts payable Notes payable – bank Salaries payable Income taxes payable Total current liabilities 22,400 89,600 252,000 112,000 168,000 28,000 56,000 364,000 Shareholders' equity Share capital Retained earnings Total shareholders' equity 980,000 588,000 1,586,000 280,000 504,000 784,000 Total liabilities and shareholders' equity 1,820,000 1,148,000

Additional information:

1. 1. The equipment which was sold for cash was originally bought at a cost of $56,000. When sold, the accumulated depreciation of the equipment was $28,000
2. 2. During the year, the company bought another piece of equipment paying the full amount in cash.

Required:

Prepare a statement of cash flows for Kings Pte Ltd for the end ended 31 December 20X2 using the indirect method. (25 marks)

Answer 1

A Cash flow statement provides the following information:

1) Information about company's cash receipt and cash payment during an accounting period.

2) Information about company's operating, investing and financing activities.

3) Information access the company's liquidity, solvency and financing flexibility.

Cash flow from operating activities (CFO), consists of the inflows and outflows of cash resulting from transactions that affect a firm's net income.

Cash flow from investing activities (CFI) consists of the inflow and outflows of cash resulting from the acquisition of long term assets and investment.

Cash Flow from financing activities (CFF) consists of the inflow and outflows of cash resulting from transactions affecting a firm's capital structure.

Amount $196,000 Kings PTE Limited Statement of Cash Flows For year ended December 31, 20X2 Particulars Amount Cash Flow from Operating Activity Net Income Adjustment reconcile net income net cash flow from operating activities Add: Depreciation Expense $56,000 Add: Loss on sale of asset $19,600 Increase in Accounts Receivable 1$ 168,000) Increase in inventory (584,000) Increase in Prepiad Expense ($28,000) Increase in accounts payable $28,000 Increase in Income tax payable $33,600 Decrease in Salaries payable 155,600) Changes in Working Capital Net Cash Flow from Operating Activity Cash Flow from (used for) Investing Activity Purchase of Equipment (S616,000) Sale of equipment $8,400 Net Cash Flow used in Investing Activity Cash Flow from (used for) Financing Activity Repayment of Note payable ($168,000 Proceeds from issue of shares $700,000 Dividend paid $112,000) Net Cash Flow from Financing Activity Net Decrease in Cash and Cash Equivalents Add: Opening Cash Closing Cash (5148,400) $47,600 ($607,600) $420,000 IS140,000) $224,000 $84,000

Working Particulars Closing Balance Opening Balance Assets (A) (B) Accounts Receivable $448,000 $280,000 inventory $280,000 $196,000 Prepaid Rent $56,000 $28,000 Accounts Payable $140,000 $112,000 Income Tax Paybale $89,600 $56,000 Salaries payable $22,400 $28,000 Increase in Current Assets is Cash Outflow and Decrease in Current Assets in Cash Inflow Increase in Current Liability is Cash Inflow and Decrease in Current Liability in Cash Outflow Increase /(Decrease) (A)-(B) $168,000 $84,000 $28,000 $28,000 $33,600 $5,600) 2 Cost of Equipment Sold Less: Accumulated Depreciation Carrying Value of Equipment Less: loss on sale of egipment Cash received from sale of equipment $56,000 ($28,000) $28,000 ($19,600) $8,400 3 Beginning Gross Equipment Less: Equipment Sold Less: Ending Gross Equipment Purchase of equipment $560,000 ($56,000) $1,120,000) (5616,000) 4 Beginning Retained Earnings Add: Net Income for the year Less: Ending Retained Earnings Dividend paid $504,000 $196,000 15588,000) $112,000

Cash balance as on Dec 20X2 is $84000 and not $48000. The total current asset will be $868000 only when we take the cash balance as 84000 and not $48000