uestion 3 Here are the financial statements of Premier Suites Ltd on 31 December 2020 Premier Suites Ltd Abridged Statement of profit or loss& other Comprehensive Income for the year ended 31 December 2020 Revenue Cost of Sales Operating profit before taxation Income tax expense Profit for the Year Notes 2020 239 000 (194 000) 45 000 (9 500) 35 500 Premier Suites Ltd Statement of Financial position as at 31 December 2020 Notes 2020 2021 ASSETS Non-current assets 6 316 200 281 000 Current assets 93 000 34 000 Inventories 7 61 300 28 000 Account receivables 8 25 800 6 000 Cash and cash equivalents 5 900 TOTAL ASSETS 409 200 315 000 EQUITY AND LIABILITIES Capital and reserves 381 000 192 500 Ordinary share capital (400 000 ordinary shares) 2 214 000 105 000 Non-distributable reserve: Profit on sale of land 6 000 0 Distributable reserve: General reserve 50 000 30 000 Retained earnings 11 000 17 500 Preference share capital (100 000 6% convertible preference shares) 100 000 40 000 Non-current liabilities 0 100 000 8% mortgage debentures 3 0 100 000 Current liabilities 28 200 22 500 Accounts payable 24 200 17 400 Bank overdraft 0 2 100 Shareholders for dividends 4 000 3 000 TOTAL EQUITY AND LIABILITIES 409 200 315 000 Premier Suites Ltd Notes to the financial statements for the year ended 31 December 2020 6. Property, Plant and Equipment Cost Accumulated depreciation Carrying value 2020 2019 2020 2019 2020 2019 Land and buildings 268 100 242 100 0 0 268 100 242 100 Plant and machinery 58 700 34 000 21 600 11 600 37 100 22 400 Vehicles 18 000 18 000 9 000 4 500 9 000 13 500 Furniture and fittings 5 000 5 000 3 000 2 000 2 000 3 000 349 800 299 100 33 600 18 100 316 200 281 000 Premier Suites Ltd Statement of changes in equity for the year ended 31 December 2020 Ordinary Share capital Preferenc e share capital Profit on expropria tion of land General reserve Retained earnings Total Balance at 1 January 2020 105 000 40 000 30 000 17 500 192 500 Profit for the year 35 500 35 500 Dividends declared (16 000) (16 000) New shares issued 110 000 60 000 170 000 Profit on sale of land 6 000 (6 000) Share issue expenses (1 000) (1 000) Inter-reserve transfer 20 000 (20 000) Balance 31 December 2020 214 000 100 000 6 000 50 000 11 000 381 000 Additional information: Favorable market conditions enabled the company to place 200 000 ordinary shares privately with institutional investors at 55c per share and also to issue 60 000 6% preference shares to the public at N$1 per share. The issue of new shares was to redeem the mortgage debentures The company paid share issue expenses of N$1 000 and this amount was written off at 31 December 2020. The company had sold a small plot in December 2020. The cost of the land disposed of was N$4 000 (No other fixed assets were sold or scrapped during the year) Included in the profit before taxation is interest paid of N$5 400, and interest received of N$ 1 300. Dividends declared consists of: Ordinary dividends N$10 000 Preference dividends N$ 6 000 3.1 Prepare a statement of Cash Flow of Premier Suites Ltd for the year ended 31 December 2020 to comply with the requirements of IAS 7. Using the direct method. 3.2 Prepare the following notes to comply with the requirements of IAS 7 and Companies Act 24 of 2008: 3.2.1 Reconciliation of the profit before tax to cash generated from operating activities. 3.2.2 Accounting policy and notes for cash and cash equivalent
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.
Question 3
Here are the financial statements of Premier Suites Ltd on 31 December 2020
Premier Suites Ltd Abridged Statement of profit or loss& other Comprehensive Income for the year ended 31 December 2020
|
Revenue Cost of Sales Operating profit before Income tax expense Profit for the Year |
Notes |
2020 |
|
|
239 000 (194 000) 45 000 (9 500) 35 500 |
Premier Suites Ltd Statement of Financial position as at 31 December 2020
|
|
Notes |
2020 |
|
2021 |
|
|
ASSETS |
|
|
|
|
|
|
Non-current assets |
6 |
|
316 200 |
|
281 000 |
|
Current assets |
|
|
93 000 |
|
34 000 |
|
Inventories |
7 |
|
61 300 |
|
28 000 |
|
Account receivables |
8 |
|
25 800 |
|
6 000 |
|
Cash and cash equivalents |
|
|
5 900 |
|
|
|
TOTAL ASSETS |
|
|
409 200 |
|
315 000 |
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
Capital and reserves |
|
|
381 000 |
|
192 500 |
|
Ordinary share capital (400 000 ordinary shares) |
2 |
|
214 000 |
|
105 000 |
|
Non-distributable reserve: Profit on sale of land |
|
|
6 000 |
|
0 |
|
Distributable reserve: |
|
|
|
|
|
|
General reserve |
|
|
50 000 |
|
30 000 |
|
|
|
|
11 000 |
|
17 500 |
|
|
|
|
100 000 |
|
40 000 |
|
Non-current liabilities |
|
|
0 |
|
100 000 |
|
8% mortgage debentures |
3 |
|
0 |
|
100 000 |
|
Current liabilities |
|
|
28 200 |
|
22 500 |
|
Accounts payable |
|
|
24 200 |
|
17 400 |
|
Bank overdraft |
|
|
0 |
|
2 100 |
|
Shareholders for dividends |
|
|
4 000 |
|
3 000 |
|
TOTAL EQUITY AND LIABILITIES |
|
|
409 200 |
|
315 000 |
Premier Suites Ltd Notes to the financial statements for the year ended 31 December 2020
|
6. Property, Plant and Equipment
|
Cost |
Accumulated |
Carrying value |
|||
|
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|
|
Land and buildings |
268 100 |
242 100 |
0 |
0 |
268 100 |
242 100 |
|
Plant and machinery |
58 700 |
34 000 |
21 600 |
11 600 |
37 100 |
22 400 |
|
Vehicles |
18 000 |
18 000 |
9 000 |
4 500 |
9 000 |
13 500 |
|
Furniture and fittings |
5 000 |
5 000 |
3 000 |
2 000 |
2 000 |
3 000 |
|
|
349 800 |
299 100 |
33 600 |
18 100 |
316 200 |
281 000 |
Premier Suites Ltd Statement of changes in equity for the year ended 31 December 2020
|
|
Ordinary Share capital |
Preferenc e share capital |
Profit on expropria tion of land |
General reserve |
Retained earnings |
Total |
|
Balance at 1 January 2020 |
105 000 |
40 000 |
|
30 000 |
17 500 |
192 500 |
|
Profit for the year |
|
|
|
|
35 500 |
35 500 |
|
Dividends declared |
|
|
|
|
(16 000) |
(16 000) |
|
New shares issued |
110 000 |
60 000 |
|
|
|
170 000 |
|
Profit on sale of land |
|
|
6 000 |
|
(6 000) |
|
|
Share issue expenses |
(1 000) |
|
|
|
|
(1 000) |
|
Inter-reserve transfer |
|
|
|
20 000 |
(20 000) |
|
|
Balance 31 December 2020 |
214 000 |
100 000 |
6 000 |
50 000 |
11 000 |
381 000 |
Additional information:
- Favorable market conditions enabled the company to place 200 000 ordinary shares privately with institutional investors at 55c per share and also to issue 60 000 6% preference shares to the public at N$1 per share.
- The issue of new shares was to redeem the mortgage debentures
- The company paid share issue expenses of N$1 000 and this amount was written off at 31 December 2020.
- The company had sold a small plot in December 2020. The cost of the land disposed of was N$4 000 (No other fixed assets were sold or scrapped during the year)
- Included in the profit before taxation is interest paid of N$5 400, and interest received of N$ 1 300.
- Dividends declared consists of:
- Ordinary dividends N$10 000
- Preference dividends N$ 6 000
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3.1 |
Prepare a statement of Using the direct method. |
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3.2 |
Prepare the following notes to comply with the requirements of IAS 7 and Companies Act 24 of 2008: 3.2.1 Reconciliation of the profit before tax to cash generated from operating activities. 3.2.2 Accounting policy and notes for cash and cash equivalent
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