Prepare an income statement for Moore Ltd for the year ended 31 December 2018, a statement of financial position at 31 December 2018 and statement of changes in equity for the year ended 31 December 2018 in a form suitable for presentation to the directors.
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.
Prepare an income statement for Moore Ltd for the year ended 31 December 2018, a
Attached is the trial balance.
The following additional information is available:
i. On 1 June 2018, the company paid building insurance on one of its warehouses
of £6,000 for the twelve months ended 31 May 2019.
ii. Provision for any unpaid interest is to be made. An electricity invoice of £9,000
for the three months ended 31 January 2019 was received by the company on 6
February 2019. The directors propose to pay a dividend of £12,000 on 31 March
2019.
iii. In December 2018, the company sold a delivery van for £20,000. This sum was
received in cash and was not banked until 5 January 2019. The van which was
sold had been purchased in 2017 for £40,000. Neither the sale, nor the proceeds
of sale, have been accounted for in the accounting records of the company.
iv.
Land nil
Equipment 20% per year on a straight line basis
Delivery vans 40% per year on a reducing balance basis
A full year’s depreciation is provided in the year of acquisition and no
depreciation is provided in the year of disposal.
v. The inventory was counted on 31 December 2018 and valued at its selling price
of £196,000. Goods are marked-up by 40%.
vi. Corporation tax for the year ended 31 December 2018 is estimated to be
£19,000 and is to be paid on 1 October 2019.
vii. The company’s bookkeeper is new to the job and is not sure how to deal with
the following items:
(i) The sum of £14,000 was received as a direct payment into the company’s
bank account in December 2018 from a customer but it was unclear to her
which customer had sent this money.
(ii) The company’s corporation tax liability for the year ended 31 December 2017
had been estimated to be £60,000. However, the UK tax authority (known
as HMRC) had advised the company that, in fact, £69,000 was to be paid.
She has therefore credited the £14,000 and debited the remaining balance on
the
viii. A customer owing £9,000 has recently been declared bankrupt. The company
does not expect to recover any of this. A provision for
remaining trade receivables is to be provided.
Required:
(a) Prepare an income statement for Moore Ltd for the year ended 31 December 2018, a statement of financial position at 31 December 2018 and statement of changes in equity for the year ended 31 December 2018 in a form suitable for presentation to the directors.
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