Prepare Cashflow Statement for the year ended 31 December 2020 using the direct method. The following is an extract from the financial statements of Thandeka (Pty) Ltd for the year ended 31 December 2021. Turnover (Sales) 702000 Cost of sales 390000 Gross profit 312000 Other income 2250 Operating expenses 164250 Operating profit 150000 Dividends received 18750 Profit before taxation 168750 Taxation 52500 Dividends 30000 Retained income for the year 86250 Retained income at the beginning of the year 48150 Retained income at the end of the year 134400 Thandeka (Pty) Ltd Statement of Financial Position as at 31 December 2021. ASSETS 2021 2020 Non-current assets 340 500 228 000 Land and buildings 178 500 127 500 Plant and equipment at carrying value 76 500 19 500 Listed investment 85 500 81 000 340 500 228 000 Current assets 181 650 129 750 Inventories 66 150 41 250 Trade debtors 110 250 78 750 Cash and cash equivalents 5 250 9 750 Total assets 522 150 357 750 EQUITY AND LIABILITIES Capital and reserves 318900 187650 Ordinary shares of R1 each 135000 97500 Share premium 18750 11250 Replacement reserve 30750 30750 Retained income 134400 48150 Non-current liabilities Long-term loan 157500 137850 Current liabilities 45750 32250 Trade creditors 37500 21000 SA Revenue Service (Income Tax) 4500 3750 Shareholders for dividends 3750 7500 Total equity and liabilities 522150 357750 Additional Information: Operating profit was arrived at after allowing for the following: Profit on disposal of equipment 2250 Interest expense 12750 Depreciation 16500 During the year, equipment with a carrying value of R42 750 (Cost, R48 750) was sold for R45 000, and replaced at a cost of R41 250. All other assets (Land and buildings, R51 000, Plant and equipment, R150 000) were acquired for expansion purposes. Cash and cash equivalents on 31 December 2021 comprised cash in the bank of R3 000, cash float of R900 and petty cash of R1 350. Cash and cash equivalents on 31 December 2020 comprised cash in the bank of R7 800 and petty cash of R1950.
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.
Required:
Prepare Cashflow Statement for the year ended 31 December 2020 using the direct method.
The following is an extract from the financial statements of Thandeka (Pty) Ltd for the year ended 31
December 2021.
| Turnover (Sales) | 702000 |
| Cost of sales | 390000 |
| Gross profit | 312000 |
| Other income | 2250 |
| Operating expenses | 164250 |
| Operating profit | 150000 |
| Dividends received | 18750 |
| Profit before |
168750 |
| Taxation | 52500 |
| Dividends | 30000 |
| Retained income for the year | 86250 |
| Retained income at the beginning of the year | 48150 |
| Retained income at the end of the year | 134400 |
Thandeka (Pty) Ltd
| ASSETS | 2021 | 2020 |
| Non-current assets | 340 500 | 228 000 |
| Land and buildings | 178 500 | 127 500 |
| Plant and equipment at carrying value | 76 500 | 19 500 |
| Listed investment | 85 500 | 81 000 |
| 340 500 | 228 000 | |
| Current assets | 181 650 | 129 750 |
| Inventories | 66 150 | 41 250 |
| Trade debtors | 110 250 | 78 750 |
| Cash and cash equivalents | 5 250 | 9 750 |
| Total assets | 522 150 | 357 750 |
| EQUITY AND LIABILITIES | ||
| Capital and reserves | 318900 | 187650 |
| Ordinary shares of R1 each | 135000 | 97500 |
| Share premium | 18750 | 11250 |
| Replacement reserve | 30750 | 30750 |
| Retained income | 134400 | 48150 |
| Non-current liabilities | ||
| Long-term loan | 157500 | 137850 |
| Current liabilities | 45750 | 32250 |
| Trade creditors | 37500 | 21000 |
| SA Revenue Service (Income Tax) | 4500 | 3750 |
| Shareholders for dividends | 3750 | 7500 |
| Total equity and liabilities | 522150 | 357750 |
Additional Information:
Operating profit was arrived at after allowing for the following:
| Profit on disposal of equipment | 2250 |
| Interest expense | 12750 |
| 16500 |
During the year, equipment with a carrying value of R42 750
(Cost, R48 750) was sold for R45 000, and replaced at a cost of R41 250. All other assets (Land and
buildings, R51 000, Plant and equipment, R150 000) were acquired for expansion purposes.
Cash and cash equivalents on 31 December 2021 comprised cash in the bank of R3 000, cash float of
R900 and petty cash of R1 350. Cash and cash equivalents on 31 December 2020 comprised cash
in the bank of R7 800 and petty cash of R1950.
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