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Prepare And Review Cash Flow, Income And Balance Sheet Statements

Question

For this question, you are provided with basic financial information about a fictional company and are asked to prepare three financial statements for the company. You are then required to discuss the financial health and position of the organization.

Below, you will find two important documents: the opening statement of financial position and a provisional trial balance for the fictional company.

Remember that the trial balance has been prepared at the end of the year, but note that the retained earnings and inventories balances included are still those figures relating to the start of that year.

Additional information:

An inventory count established that the value of closing inventories on 31 December 2009 was £6,000.

All of the dividends declared during 2009 (and charged as an expense) were paid in that same year, as was the interest expensed for 2009.
                

Statement of financial position as at 31 December 2008

 

 

 

 

 

 

£

£

Non-current assets

 

 

Land

 

10,000

Buildings

15,000

 

Less: Accumulated depreciation

(8,000)

 

 

 

7,000

Investments

 

12,000

 

 

29,000

Current assets

 

 

Inventories

4,000

 

Accounts receivables

5,000

 

Cash and cash equivalents

68,000

 

 

77,000

 

 

 

 

Current liabilities

 

 

Accounts payable

25,000

 

Tax payable

5,000

 

 

30,000

 

Net current assets

 

47,000

 

 

 

Total assets less current liabilities

 

76,000

 

 

 

Equity

 

 

Common stock

 

50,000

Retained earnings

 

26,000

 

 

76,000

 

Trial Balance: 31 December 2009

£

£

Accounts

Debit

Credit

Cash and cash equivalents

57,000

 

Sales revenues

 

95,000

Purchases

22,000

 

Long-term investment

15,000

 

Accounts payable

 

19,000

Opening inventory (01.01.09)

4,000

 

Land

10,000

 

Buildings

18,000

 

Accumulated depreciation

 

9,000

Accounts receivable

10,000

 

Depreciation expense

1,000

 

Utilities expense

20,000

 

Tax expense

3,000

 

Interest expense

1,000

 

Tax payable

 

2,000

Wages expense

40,000

 

Common stock

 

50,000

Retained earnings at start of year (01.01.09)

 

26,000

Totals

201,000

201,000


Required:

1.    Using the above information, prepare an income statement for the company for the year to 31 December 2009.
2.    Prepare a statement of financial position for the company as at 31 December 2009.
3.    Prepare a cash flow statement for the company for the year to 31 December 2009, using the indirect method and in accordance with IAS 7.
4.    Discuss what inferences can be drawn from the above three statements in relation to the company’s financial position.

Summary

The question belongs to Finance and it discusses about the preparation of required financial statements such as income statement, balance sheet and cash flow statement and the inferences that can be drawn from the statements.

Total Word Count 286

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Comments

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